Department of Health and Human Services Formally Recommends Cannabis As Schedule III Drug

On August 30, an official at the United States Department of Health and Human Services (HHS) released one of the most significant announcements made at the federal level concerning marijuana reclassification. In a letter dated August 29, 2023, Rachel Levine (HHS Assistant Secretary for Health), provided a formal recommendation to Anne Milgrim (Agency Administrator) at the United States Drug Enforcement Agency (DEA) to reclassify cannabis from a Schedule I drug to a Schedule III drug under the Federal Controlled Substances Act (CSA).

A DEA spokesperson confirmed the department had received the letter with HHS’s recommendation.  The DEA has the final authority to reschedule a drug and will now initiate its own review of marijuana, a process that does not have any definitive timeline but could be moved along if determined to be an agency priority.  Marijuana is currently listed as a Schedule I controlled substance under the CSA.  A Schedule I classification is reserved for substances with no accepted medical use and a high potential for abuse while a Schedule III classification is reserved for substances having a legitimate medical use and “a moderate to low potential for physical and psychological dependence.”  Despite this difference, the manufacture, sale, distribution, or dispensing of a Schedule I or Schedule III controlled substance is illegal on a federal level without a federal DEA registration as is possession without a valid prescription.  Therefore, the re-classification of marijuana in Schedule III would not make marijuana legal for every use at the federal or state level.

The HHS recommendation is predicated, via the FDA, on a scientific and medical evaluation of marijuana, using a statutorily required eight-factor analysis.  The eight-factor analysis includes: 1) marijuana’s actual or relative potential for abuse; (2) scientific evidence of its pharmacological effect, if known; (3) the state of current scientific knowledge regarding the drug or other substance; (4) its history and current pattern of abuse; (5) the scope, duration, and significance of abuse; (6) what, if any, risk there is to the public health; (7) its psychic or physiological dependence liability; (8) whether the substance is an immediate precursor of a substance already controlled under the Controlled Substances Act.  The DEA’s own independent review of marijuana will include this eight-factor analysis, but it may also consider “all other relevant data” – permitting the DEA to look outside the statutory limits placed on the FDA’s review.  In addition, only certain components of FDA’s eight-factor analysis bind the DEA.  This effectively allows the DEA to adopt a different outcome than the FDA. 

However, HHS’ recommendation for a lower classification of marijuana is a bellwether for the eventual re-classification of the drug in Schedule III.  The agencies rarely disagree on final scheduling placement. In 2008, however, the agencies disagreed about the transfer of hydrocodone combination products from Schedule III to Schedule II.  Nevertheless, HHS eventually changed its recommendation that those products remain in Schedule III, and the agencies moved forward with DEA’s desired re-classification.

 Reclassification would mark a critical shift in thinking and regulation of marijuana and other Schedule I substances, which include drugs with a high risk of abuse (i.e., heroin, LSD, and ecstasy).  Historically, both HHS and DEA have concluded that a drug must be approved by FDA to be deemed to have an accepted medical use.  Therefore, FDA had previously concluded that marijuana as a substance could not be transferred from Schedule I, and only an FDA-approved drug product that includes components of marijuana (i.e., Marinol, Syndros, Cesamet) could be transferred into a lower schedule.  This resulted in the split-scheduling paradigm for marijuana that exists today.  Therefore, HHS’ recommendation must be predicated on the notion that DEA may transfer a substance out of Schedule I even if it is not an FDA-approved drug.  This matters not only for the potential re-scheduling of marijuana, but also other Schedule I substances that are currently under development as medical therapies in the U.S. 

Re-scheduling marijuana would also be broadly impactful to the regulation of the cannabis industry as a whole as it can potentially open more avenues for research, potentially allow cannabis businesses to bank more freely, and would eliminate the draconian impact Section 280E of the Internal Revenue Code has had on cannabis companies.  Section 280E disallows any “deduction or credit . . . for any amount paid or incurred . . . in carrying on any trade or business if such trade or business  . . . consists of trafficking in” a Schedule I or II controlled substance which is prohibited by Federal or applicable state law.  If marijuana is reclassified as a Schedule III controlled substance, marijuana business would be able to deduct typical business expenses like any other business. A schedule III reclassification could also alter the landscape of marijuana regulation in the U.S. by potentially leading to insurance coverage and reimbursement for the drug as a covered benefit, dispensing of marijuana through a state-licensed pharmacy, loosening the restrictions on interstate shipment of the drug, and the facilitation of more research into the drug’s effects and safe use.