Cannabis rescheduling faces uphill battle, but DEA decision expected soon

The U.S. Department of Health and Human Services’ proposal to reclassify cannabis from a Schedule I to a Schedule III substance under the Controlled Substances Act faces an uncertain effective date due and potential legal battles.

The recommendation, if approved by the Drug Enforcement Administration, would shift cannabis into a category that recognizes its medical benefits and lower potential for abuse versus schedule I substances. The reclassification could impact several legal and economic aspects of the industry in major ways, but it likely faces delay from opposition and court proceedings.

“I think that the whole industry thinks that ‘Oh, HHS has given its recommendation and now the DEA is going to approve it, they’ll issue a rule and we’ll all be good,’” said Sally Peebles, lead southern counsel for Vicente. “And that’s just not the case.”

The timeline for the proposed change remains unclear. According to the process, once the DEA reviews and endorses the HHS recommendation, a proposed ruling will be filed in the Federal Register, which is expected to initiate a 60-day public comment period.

Peebles noted that during the comment period, opposition groups may request a hearing before an administrative law judge. The DEA would then need to issue its final ruling, with the reclassification effective 30 days later.

However, if the decision is appealed, the timeline could be extended for further judicial review.

In the best-case scenario, the effective date could be as early as 90 days after the DEA’s initial ruling. But, according to a memo by consulting firm GreenWave Advisors, that too is subject to change.

“Unless the industry mobilizes and funds attorneys and policy advisors to get this done, then this isn’t going to get done,” Peebles added. “Because the opposition to marijuana being rescheduled is huge, and they are well financed.”

The HHS recommendation went a long way toward reevaluating cannabis policy in the U.S. following President Joe Biden’s 2022 directive to review the drug’s federal classification.

With a majority of states having legalized medical marijuana and a growing number permitting recreational use, the reclassification is seen as a step towards aligning federal policy with state laws and public opinion.

Still, the legwork behind trading legal barbs with those who oppose the industry can cost lots of money.

The potential reclassification is expected to have significant financial implications for the cannabis industry, particularly by removing the 280E tax burden, which would improve cash flows and attract more investors.

The sweeping effect on entire company valuations could be swift, too. Full federal legalization, which would address issues like interstate commerce, remains a separate and more complex issue.

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