This report from MJBiz Daily, published on 16 May 2024.

In the latest major step toward the biggest shift in federal marijuana policy in more than 50 years, Attorney General Merrick Garland formally proposed moving marijuana to Schedule 3 of the Controlled Substances Act on Thursday, 16 May 2024.

After weighing an August analysis of scientific and medical data from the Department of Health and Human Services (HHS), “the Attorney General concludes that there is, at present, substantial evidence that marijuana does not warrant control under schedule I of the CSA,” Garland wrote in a 16 May 2024 memorandum.

“Accordingly, the Attorney General is issuing this notice of proposed rulemaking to initiate rulemaking proceedings to reschedule marijuana.”

Garland’s notice means a few more steps remain before marijuana is officially removed from Schedule 1, the federal government’s list of the most dangerous drugs.

It also means significant and concrete progress toward dismantling federal marijuana prohibition and legal changes that would directly benefit the $36 billion U.S. legal marijuana industry.

However, synthetic cannabinoids will remain classified under Schedule 1 of the CSA, and the protections do not apply to cannabinoids derived from hemp.

Starting a new clock

Thursday’s announcement, eagerly anticipated for months and hinted at since the April 30 revelation that the Drug Enforcement Administration (DEA) would sign off on HHS’s earlier recommendation, starts the clock on a 60-day public comment period.

The Department of Justice (DOJ) then will analyze those public comments before issuing a final rule that could differ from last Thursday’s proposal to move marijuana to Schedule 3.

For example, “DOJ is specifically soliciting comments on the economic impact of this proposed rule,” Garland’s memo said.

“DOJ will revise this section at the final rule stage if warranted after consideration of any comments received.”

A final, revised rule could be issued as soon as early as September or October, observers told MJBizDaily.

In theory, that’s when Schedule 3 would become law.

Rescheduling in the fall would put the most significant federal marijuana reform smack in the middle of peak presidential election season.

‘This is monumental’

President Joe Biden launched the current rescheduling process in October 2022, when an executive order directed Cabinet-level agencies to “expeditiously review” marijuana’s classification under federal law.

On Thursday, Biden tipped off the world to the proposed rule with a brief video posted to social media.

“This is monumental,” he said in a video posted to X, formerly known as Twitter, shortly after 1 p.m. ET.

“Today my administration took a major step to reclassify marijuana from a Schedule 1 drug to a Schedule 3 drug.”

Legal marijuana companies – including representatives of major marijuana multistate operators desperate for relief from punitive Internal Revenue Service Code 280E – welcomed the news.

“Reclassifying cannabis is an important and pragmatic step on the path to full legalization,” said Adam Goers, a senior vice president at The Cannabist Co., formerly Columbia Care.

“This move will not only eliminate the draconian taxation of cannabis businesses under 280E, but it will open research opportunities, protect public health and safety and further signal that cannabis is being normalized under federal law.”

What DOJ found

Biden’s announcement signaled the release of a 92-page memo signed by Garland as well as an earlier, 36-page legal opinion from an attorney at the DOJ’s Office of Legal Counsel (OLC).

In that analysis, dated April 11, Assistant Attorney General Christopher Fonzone of the OLC found that DEA’s prior criteria for determining a drug’s medical value was “impermissibly narrow,” and that a new, two-part test crafted by HHS could be applied.

That two-part test asked whether licensed health care providers had “widespread current experience with medical use” of cannabis and whether there is “some credible scientific support for at least one of the medical uses.”

As MJBizDaily first reported last summer, HHS analyzed data submitted to the federal government by states with legal cannabis programs, including what ailments medical cannabis patients sought to relieve with marijuana as well as outcomes.

Fonzone also found that DEA is bound to “accord HHS’s scientific and medical determinations significant deference,” and that the agency could not launch its own, fresh review of health regulators’ findings.

OLC also brushed off earlier concerns that the United States’ obligations under international treaties might preclude a change in law.

“As a result, DEA may satisfy the United States’ Single Convention obligations by placing marijuana in Schedule III while imposing additional restrictions pursuant to the CSA’s regulatory authorities,” Fonzone wrote.

What’s not covered

Notably, Garland’s proposed change in federal law applies only to marijuana and “Naturally Derived Delta-9-Tetrahydrocannabinols” (sic).

“This proposal would not apply to synthetically derived THC, which is outside the CSA’s definition of marijuana,” Garland’s memo reads.

“Those tetrahydrocannabinols that can be derived only through a process of artificial synthesis (e.g., delta-10-tetrahydrocannabinol) are excluded.”

The proposed changes also do not apply to hemp, which is defined separately under federal law as cannabis with 0.3% THC or less, and it does not apply to synthetically derived cannabinoids.

What’s next?

Cannabis tax reform could collectively save cannabis operators billions of dollars.

But cannabis companies’ tax obligations will remain unchanged during the public comment period, the DOJ emphasized.

“During that process, and until a final rule is published, marijuana remains a schedule I controlled substance,” the agency said.

Other major steps forward, such as federal banking protections, the allowance for cannabis companies to uplist on major U.S.-based stock exchanges and a legal interstate commerce system will require Congressional intervention.

And there is a real risk that this progress could be undone should Biden be unseated in the November election by former President Donald Trump, his presumptive challenger.

Nevertheless, marijuana advocates praised Thursday’s news as yet another major milestone.

“This is a huge victory for everyone who has worked to normalize federal cannabis policy and begins the process of federal support for state cannabis markets,” said Bryan Barash, a vice president at cannabis point-of-sale software provider Dutchie.

“Most importantly, for the first time the federal government recognizes the overwhelming evidence of the clear medical benefits of cannabis,” added Barash, also a co-chair for the Coalition for Cannabis Scheduling Reform, a group of cannabis companies focused on policy advocacy in Washington, D.C.

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