Biden makes rescheduling official

Plus, the Office of Legal Counsel drops its report

Friday, May 17, 2024

Good morning.

Yet another huge news day in the cannabis world. Phew. We’re talking about rescheduling, of course, and Biden giving it the official stamp of approval in a video

It’s been interesting to see the Biden Administration’s full court press (we’ve been watching way too much playoff basketball these past few weeks) on cannabis reform. It’s going to be a big subplot in November’s election, especially as it pertains to bringing out the youth vote in light of Biden’s challenges there.

Let’s get to it. 

-JB & JR

This newsletter is 1357 words or about a 7-minute read. 

💡What’s the big deal?

Biden makes it official — but there’s still a long way to go

What happened: The Justice Department on Thursday posted a notice of proposed rulemaking that makes the long push to federally reclassify cannabis as a less dangerous drug official. 

And President Joe Biden made it super-official in a video announcement

The rule would move cannabis from the most restrictive Schedule I of the Controlled Substances Act to the far less restrictive Schedule III, which has massive ramifications for cannabis businesses, consumers, researchers, and policymakers alike. 

But while moving cannabis to Schedule III is perhaps the biggest shift in federal drug policy in over five decades, it stops well short of federal legalization or even decriminalization.

There are still a lot of unknowns about how state-legal cannabis businesses would be regulated under Schedule III. 

What they’re saying: “This is monumental,” Biden said. “Today my administration took a major step to reclassify marijuana from a Schedule I drug, to a Schedule III drug.”

The White House is going all out to tout the move. Vice President Kamala Harris also made a video, and Press Secretary Karine Jean-Pierre discussed how rescheduling would remove barriers for research, among other benefits, during a press conference

And: “Our ultimate goal is federal legalization, and we see Schedule III as a necessary and critical step along the way. We will submit comments in the coming days in support of the proposed rule,” Ed Conklin, the director of the US Cannabis Council, an industry trade group, said. 

What’s in the proposed rule document: The 92-page document outlines the specific steps that need to be taken for the Schedule III shift. It also contains some important tidbits for the industry:

  • It’s the Drug Enforcement Administration’s purview to actually reclassify cannabis. But the report says the “DEA has not yet made a determination as to its views of the appropriate schedule for marijuana,” so this isn’t a done deal. 

  • The document discusses how the move would have “significant economic impact” for cannabis companies by removing the 280E tax. 

  • The document also discusses that cannabis, if moved to Schedule III, would fall under the Food and Drug Administration’s purview. That means there is a possibility that all state-legal cannabis would have to be prescribed, obviously throwing a wrench in a lot of cannabis markets.

Quick take: Most experts I’ve spoken with believe this is unlikely. It would certainly be unusual for the federal government to ease restrictions on cannabis just to crack down on states that voted to legalize it. 

Still, the DOJ would need to clarify exactly how the federal government would treat state-legal cannabis. That could look like a new version of the Cole Memo, a now-rescinded memo that directed DOJ officials to keep their hands away from state-legal cannabis. 

Back up: Rescheduling is part of Biden’s push to reform cannabis laws, both as a way to fulfill a 2020 campaign promise and to turn out young voters in November. 

Last year, the Department of Health and Human Services called on the DEA to reschedule cannabis. The ball has been firmly in the DEA’s court for months since, with little movement until recently. 

The Associated Press first broke the news that cannabis would be rescheduled — long whispered in cannabis industry circles but never fully verified — at the end of April

The posting of the proposed rule, and Biden’s announcement, are confirmation that this is happening, and it’s being led from the very top. 

And more: The Department of Justice also released an Office of Legal Counsel opinion justifying the legal basis for rescheduling (and perhaps, warding off future legal challenges), dated to April 11. You can read that here.

The OLC opinion, a 36-page document, is interesting for a few reasons:

  • It outlines why the argument that moving cannabis to Schedule III violates United Nations treaty agreements doesn’t apply in this specific case. This argument is popular with anti-legalization Republican lawmakers like Sen. Mitt Romney and nonprofit groups like Smart Approaches to Marijuana, and could form the basis of a legal challenge. 

  • The OLC opinion also questions the DEA’s five-part test to determine whether drugs can be rescheduled, given the research limitations around medical cannabis and the DEA’s consistent rejection of petitions to reschedule cannabis so that research can be conducted. (If you’re confused, it’s because the rules are confusing — it’s a sort of chicken-or-egg problem). 

  • The OLC opinion is pretty harsh on the DEA’s process throughout. It’s kind of striking to read. 

What’s next? It will still be some time before rescheduling is official — the proposed rule kicks off a 60-day public comment period. Then, there may be legal challenges before the final decision is made. 

The final word: Without Congressional action on something like the SAFER Banking Act, it’s still unclear how cannabis businesses would be treated by the federal government.

And there is still a need for guidance from the Financial Crimes Enforcement Network, or FINCen, to clarify how banks, stock exchanges, and other financial institutions will handle businesses selling a controlled substance to consumers. 

All that is to say, there are still a lot of unanswered questions. We’re looking forward to more clarity from the DOJ.


🗨️ Quote of the day

“Far too many lives have been upended because of a failed approach to marijuana. And I’m committed to righting those wrongs. You have my word on it,” President Joe Biden said in a video touting his administration’s push to reclassify cannabis as a less dangerous drug. 

Watch it here:

Quick hits

A prominent anti-drug group, Community Anti-Drug Coalitions of America (CADCA) said that federal cannabis prohibition makes it “difficult” to implement cohesive safety standards for cannabis products across states, reports Marijuana Moment

Moving cannabis to Schedule III wouldn’t bring state-legal cannabis businesses into compliance with federal law, according to a new report published by the Congressional Research Service.

📊 Earnings round-up

Rubicon Organics reported a $1.8 million loss on $8.9 million of revenue for the first quarter of 2024. 

🚀 Deals, launches, partnerships

Jeeter, which calls itself the #1 pre-roll brand in the country, is expanding to Massachusetts

Flower Power Genetics launched and bills itself as a “leading provider of premium medical cannabis genetics,” according to a press release. The company says it wants to focus on growing cannabis that focuses on other cannabinoids instead of the highest THC percentage possible.

Panacea Life Sciences and Sky Wellness are entering into a partnership to license and market CBD products. 

Sunderstorm’s KANHA is building up its presence in Asia, by marketing two new CBD product lines in Japan that are produced in the company’s Thailand facility. 

RPK Biopharma, a subsidiary of SOMAI Group, is expanding its partnership with cannabis brand Cookiesto include the UK and Europe. The company will grow Cookies-licensed genetics at its Portugal facility.

😂 One fun thing

Check out this interactive chart published by New York’s government that breaks down all the dispensaries in the state and the tax revenue they’ve generated:

📰 What we’re reading

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