Marijuana: Schedule I to III?

There is a great buzz in the cannabis industry after the Department of Health and Human Services (“HSS”) recently recommended to the Drug Enforcement Administration (“DEA”) that marijuana should be moved from Schedule I of the Controlled Substances Act to Schedule III. Schedule III substances are believed to have less potential for abuse than Schedule I or II substances. Examples of Schedule III drugs include Tylenol with Codeine, Ketamine and Anabolic steroid drugs. The HHS’s recommendation may be binding with respect to its findings on the science behind marijuana’s potential benefits and risks, but the DEA would have the final say.

The rescheduling would mean that Section 280E of the Internal Revenue Code would no longer apply to the cannabis businesses, which Section prohibits the businesses trafficking Schedule I or II substances from taking tax credits or deductions other than those for costs of goods sold. The experts agree that the banking issue in the industry would remain unclear, nonetheless.

The rescheduling does not mean that cannabis will be federally legalized. The Congressional Research Service (“CRS”) published a report on September 13, 2023, which report indicated that moving cannabis to Schedule III would likely affect state-legal medical programs, but adult use will not change much. The CRS report also indicated that the Food and Drug Administration (“FDA”) may “need to consider long-term resource allocation to ensure that marijuana products consistently meet applicable regulatory standards.” As of now, it is unclear how much the FDA would be involved should marijuana be rescheduled.