Cannabis & Schedule III - Next Steps for the DEA
Rescheduling of Cannabis from Schedule I to Schedule III has significant implications for operators due to the tax savings as a result of the elimination of IRC Section 280E. In this post, we will explore the rulemaking process that drives the rescheduling effort and try to predict when the next shoe will drop.
Prediction
Cannabis is a winning political issue with voters. It is my view that the timing of the rescheduling process will be driven by election strategy. With primaries in February, debates in September, and election day on November 5th the optimal window for the DEA to announce a “decision” would be between February and April 2024 (in the form of a Proposed Rule) followed by a Final Rule announced in late October 2024.
If we were to look at where the DEA is in the Rulemaking Process (Table 1) and historical timelines from Past Examples (Table 2), rescheduling could occur as early as May 2024.
However, issuing a Final Rule in early May would invite congressional, judicial, and legal challenges. With the administration pursuing rescheduling through the Executive Branch rather than the Legislative Brach, the actions point to the President wanting to control the timeline. With the Attorney General of the DEA being a cabinet level position appointed by President Biden, the ball is fully in the President’s court.
For those interested in exploring the rulemaking process further, a deep dive is below.
Rulemaking Process - Deep Dive
1. Petition Initiation
Agency: DEA
Public Knowledge: Sometimes, Public Petitions are posted to Federal Register.
Summary: Anyone can Petition the DEA to reschedule or deschedule a drug.
The Attorney General can initiate a review “on his own motion”.
The Secretary of the HHS can request the initiation of a review.
Key Consideration(s):
A) The DEA is acting in response to President Biden’s statement in October of 2022 “I am asking the Secretary of Health and Human Services and the Attorney General to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law”.
C) These agencies are acting at the direction of President Biden. This is the strongest action the President can perform unilaterally short of putting pen to paper via an Executive Order.
2. Acceptance or Denial of Petition (If from the Public)
Agency: DEA
Public Knowledge: Yes, Denied Petitions are posted to Federal Register.
Summary: The DEA reviews the petition and either accepts or denies it. If denied, the process stops here.
Key Consideration(s):
A) The DEA has denied Petitions in 2001, 2011, and 2016.
3. Request for Scientific Evaluation
Agency: DEA to HHS/FDA
Public Knowledge: No, when the request is made is not announced to the public.
Summary: The DEA requests a scientific & medical evaluation from the HHS. This is conducted by the FDA.
4. Scientific Evaluation
Agency: FDA
Public Knowledge: Not at time of completion, results are included in the rulemaking process later.
Summary: The FDA evaluates the drug’s chemistry, pharmacology, medical usage, abuse potential, etc. FDA conducts an Eight Factor Analyses to establish the basis for its recommendation.
5. Recommendation
Agency: HHS/FDA
Public Knowledge: Not at time of recommendation, included in the rulemaking process later.
Summary: The HHS formulates a Scheduling Recommendation based on the FDA's findings. This recommendation is then forwarded to the DEA.
Key Consideration(s):
A) HHS spokesperson “HHS has expeditiously responded to President Biden’s directive to HHS Secretary and provided its scheduling recommendation for marijuana to the DEA on August 29, 2023”.
B) DEA spokesperson “We can confirm DEA received a letter from the Department of Health and Human Services… pursuant to President Biden’s request for a review”.
C) According to an HHS letter obtained by Bloomberg, the HHS recommended reclassifying marijuana as a Schedule III drug.
D) Pursuant to 21 USC 811 - Authority and criteria for classification of substances “The recommendations of the Secretary to the Attorney General shall be binding on the Attorney General as to such scientific and medical matters.
6. Review & Analyses
Agency: DEA
Public Knowledge: Not at time of completion, results are included in the rulemaking process later.
Summary: The DEA reviews the scientific and medical evaluation and scheduling recommendation provided by the HHS, and all other relevant data.
Key Consideration(s):
A) The historical amount of time the DEA takes during this step widely varies, there is no minimum or maximum time (which has resulted in lawsuits in the past being filed to expedite reviews).
7. Proposed Rule
Agency: DEA
Public Knowledge: Yes, DEA must publish a Notice of Proposed Rulemaking to the Federal Register.
Summary: Based on HHS's recommendation, DEA decides on a proposed action (either to reschedule, deschedule, or leave as is) and publishes a Notice of Proposed Rulemaking to the Federal Register to notify the public and give the public an opportunity to submit comments.
Key Consideration(s):
A) The DEA may also issue an Interim Final Rule, this requires the DEA to find “good cause” to issue a final rule without first publishing a proposed rule. This type of rule would be effective immediately upon publication. If pressure around timelines mount, the DEA may be willing to take the risk of issuing an Interim Final Rule even if the “good cause” identified is shaky.
B) The DEA may also issue a Direct Final Rule. This is extremely unlikely given the conditions to issue this type of rule and the potential for the rule to be withdrawn if opposed.
8. Public Comment Period
Agency: DEA
Public Knowledge: Yes, when opening and closing the comment period.
Summary: The public can comment on the proposed rule.
Key Consideration(s):
A) Public Comment Period introduces variable timing, 30 - 60 days (can be longer).
9. DEA Final Rule
Agency: DEA
Public Knowledge: Yes, the Final Rule is published in the Federal Register with an effective date.
Summary: Considering HHS's recommendation and public comments, DEA makes a Final Rule.
Key Consideration(s):
A) If a proposed rule garners a large number of comments, the DEA must review and consider each one, which can be time-consuming.
B) Legal and Policy Implications: If there are potential legal challenges or significant policy shifts anticipated, the DEA might take additional time to ensure that their final rule is legally robust.
C) A legal framework similar to the Epidiolex Final order published 9/28/2018 will likely need to be part of the final rule to ensure compliance with international treaties.
10. Congressional Review
Summary: The Congressional Review Act requires agencies to submit Final Rules (Major Rules, Non-Major Rules and Interim Final Rules) to Congress and the Government Accountability Office before the rule can take effect. In rare cases, the House and the Senate may pass a resolution of disapproval with the President’s signature (or if both houses have the votes to override a veto).
Key Consideration(s):
A) “Major Rules” must be made effective at least 60 days from the date of publication in the Federal Register to allow time for Congressional review.
B) The CRA defines Major Rule as any rule that the OIRA of the OMB finds has resulted in or is likely to result in: (A) an annual effect on the economy of $100,000,000 or more… Rules can meet the economic threshold for classification as a major rule ($100 million effect on the economy) for a variety of reasons, including because they involve compliance costs, result in transfers of funds, prompt consumer spending, establish user fees, or result in cost savings for consumers and taxpayers.
11. Legal Challenges / Judicial Review
Summary: Even after a Final Rule is published and goes into effect, legal challenges can be brought on a host of issues including statutory authority, inadequate notice, inadequate good cause, failure to consider public comments, etc.
Key Consideration(s):
A) The threat of legal challenges and judicial review will be a significant factor for the DEA to consider when issuing the Final Rule.
Will the DEA’s Final Rule be constructed to survive the upcoming challenges or constructed in a manner that simply seeks to maximize a short term political win? Only time will tell.
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1) https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title21-section811&num=0&edition=prelim
6) https://www.federalregister.gov/uploads/2011/01/the_rulemaking_process.pdf
