Possible easing of marijuana restrictions could have major implications

If a recommendation by the nation’s top health agency to reclassify marijuana is adopted, the drug could gain wider acceptance as a medical treatment, pot businesses could see their bottom line boosted and a path toward national legalization could be charted, experts said Thursday.

The Department of Health and Human Services this week recommended that marijuana be removed from the category reserved for the riskiest drugs, such as heroin and LSD, and moved to one for certain prescription drugs. The decision to reclassify marijuana ultimately resides with the Drug Enforcement Administration, which could take months to complete its evaluation.

The not-for-profit Veterans Cannabis Project has long pushed for veterans to get broader access to marijuana to treat post-traumatic stress disorder, depression and chronic pain. Its founder said the HHS recommendation to loosen restrictions offers hope that the federal government will signal that marijuana has medical value.

“This is huge,” Nick Etten, founder of the veterans’ group, said. “This is what we have been working toward for years.”

While the measure would stop short of full national legalization as many had hoped, it has the potential to help struggling cannabis companies in states where marijuana is legal and could remove barriers to scientific research into the health benefits of the drug, experts say.

Multiple requests to reschedule marijuana in the past have failed. Most recently, in 2016, the Obama administration’s DEA denied a request from two Democratic governors to change the classification. At the time, the DEA cited concerns that cannabis had a high potential for abuse, no accepted medical use in the United States and lacked an acceptable level of safety for use even under medical supervision.

Experts predict this time will be different.

The week’s HHS recommendation became public nearly a year after President Biden, in a presidential first, asked the health agency to evaluate whether marijuana should be reclassified. If the DEA follows the health agency’s recommendation, marijuana would be placed in the same category as anabolic steroids, ketamine and testosterone—which can be obtained with a prescription.

With an increasing roster of states legalizing marijuana, experts said political momentum is growing in favor of a change in the federal government’s treatment of marijuana.

Shane Pennington, a Washington, D.C., attorney who specializes in cannabis law, predicts HHS’s recommendation will carry considerable weight with the DEA, which has acknowledged receiving the recommendation but declined to elaborate.

“Historically, the DEA has never overridden a HHS recommendation,” Pennington said.

Not everyone is convinced. Paul Armentano, deputy director of the pro-legalization organization NORML, pointed out that the DEA could try to keep marijuana in its current category, Schedule I, as it did in 2016, by pointing to obligations under international drug treaties.

“It will be very interesting to see how DEA responds to this recommendation, given the agency’s historic opposition to any potential change in cannabis’ categorization under federal law,” Armentano said in a statement Wednesday.

Under the Controlled Substances Act, the Schedule I category is reserved for drugs having a high potential for abuse, with little or no accepted medical use. HHS is recommending marijuana be moved to Schedule III, a designation applied to drugs with moderate to low potential for physical and psychological dependence, and some medical value.

“It’s a big deal,” Robert Mikos, a Vanderbilt Law School professor who specializes in drug policy, said. “That would be the first time the federal government has concluded that.”

Reclassifying a drug is a complicated administrative process.

Before HHS recommends reclassifying a drug, the Food and Drug Administration conducts a medical and scientific review using what is called an “eight factor analysis.” It considers the potential for abuse of the drug, its history of abuse and the scientific evidence of its pharmacological effect. The FDA sends the review to HHS, which uses it as the basis of its recommendation to the DEA. That agency then conducts its own analysis, which involves issues beyond the scope of the health agencies.

HHS this week sent a letter to the DEA with its recommendation. The letter has not been made public, but the recommendation was confirmed by a person familiar with it, who spoke on the condition of anonymity because they were not authorized to speak on the issue.

If cannabis is reclassified, legal experts said they believe the FDA would continue to take a hands-off approach to state-regulated marijuana markets. In states with medical marijuana programs, doctors offer “recommendations,” not prescriptions. Prescriptions can be written only by doctors for FDA-approved drugs.

“The FDA has a lot on its plate. They don’t have the resources to add more,” said John Hudak, director of the Maine Office of Cannabis Policy. “I am not concerned, as chief cannabis regulator, that the FDA is going to turn my regulatory program, or markets in my state, upside down.”

Howard Sklamberg, a former FDA official who was involved in cannabis policy and is now an attorney with the Arnold & Porter law firm, agreed that the FDA is unlikely to attempt to conduct enforcement of cannabis businesses if marijuana is rescheduled.

“The FDA has chosen, under three different administrations—Obama, Trump and Biden—to not take enforcement action,” he said. And now, he said, the agency apparently “is saying there is less of a health risk than they thought before.”

Twenty-three states and D.C. have legalized recreational marijuana, and medicinal use is lawful in 38 states.

“There is some legitimacy being brought to our industry and, frankly, for the millions of people who use cannabis as part of the their personal health journey,” said Kim Rivers, chief executive and co-founder of Trulieve, one of the nation’s largest cannabis retailers with 186 dispensaries in 10 states.

For companies that grow and sell cannabis, the reclassification would have significant tax implications. Under IRS code 280E, businesses that sell marijuana are taxed on gross income and are not allowed to deduct business expenses.

That tax code results in a substantially higher tax rate for cannabis companies, which often have razor-thin profit margins—if they have any profit at all.

“It’s been debilitating for the industry, having that amount of tax go to the government,” said Matt Darin, chief executive of Curaleaf, which operates dispensaries in 19 states.

“I think it is going to have a phenomenal impact on the industry to be able to take all of those funds and be able to reinvest them into more jobs, more construction projects, more research and product development,” Darin said.

The expected economic advantage of making cannabis a Schedule III drug appeared to resonate with investors Thursday, as five major cannabis companies that trade on the Canadian stock market saw share prices rise 3 to 11 percent.

Jason Blanchette, president of the Virginia Cannabis Association, a trade group representing marijuana growers and dispensaries in the state, said the financial impact of reclassifying the drug, especially for small businesses, will be profound.

“It almost immediately overnight turns good operators into profitable businesses,” Blanchette said, “whereas before they were fighting and scratching for every bit of revenue they could get.”