Marijuana laws need incremental reform to spur the most change
President Biden accelerates Marijuana review: major reforms expected as federal agencies aim for quick action.
President Joe Biden announced a scheduling review process for marijuana last October, initiating an expedited review of how cannabis should be regulated as a controlled substance at the federal level, which Health and Human Services Secretary Xavier Becerra recently said federal agencies hope to complete this year. Cannabis advocates and the industry should be ready for the potential impact of incremental reform.
Controlled substances are subject to strict limits on their sale, manufacture, distribution, and possession. These limitations are based on certain factors, such as a substance’s potential for abuse and accepted medical use for treatment in the US.
Now that this new federal review is underway, there are only a few possible outcomes. The Food and Drug Administration will recommend that marijuana be either left in Schedule I (the highest level of restriction), removed from the list of federally controlled substances (de-scheduled), or transitioned to a lower level of control (re-scheduled).
The FDA likely won’t decide to keep marijuana in Schedule I. Those strict controls are appropriate only if there’s a high potential for abuse and no accepted medical use for the substance—which isn’t the case for marijuana. The FDA will follow the science and find that Biden was right in calling the current regulation of marijuana a “failed approach.”
It’s also improbable that the science will lead the FDA to recommend that cannabis be de-scheduled—that more likely will require an act of Congress. Though ideal for the industry and reform advocates, de-scheduling is unlikely here because cannabis is a psychoactive substance.
More plausibly, the review of scientific evidence will lead the FDA to make a more moderate recommendation: Keep cannabis on the list of controlled substances but move it to a more appropriate schedule. This is sub-optimal for those who argue in favor of “de-schedule or bust,” but provides significant upside to the small and large businesses in this burgeoning cannabis marketplace—as long as marijuana is correctly placed in Schedule III, IV, or V through this administrative process.
There are 38 state medical markets in the US where doctors are recommending marijuana for chronic pain and other ailments, which Congress repeatedly has recognized and protected. That demonstrates cannabis has an “accepted medical use.”
Moreover, the risk profile presented by cannabis compares favorably to substances in lower schedules. Marijuana’s abuse potential is more like Ambien and less like fentanyl. With nearly 100,000 deaths last year, fentanyl clearly has a far more significant potential for abuse than marijuana. (According to a 2017 DEA report, marijuana was associated with zero deaths).
In addition to being more scientifically appropriate, placement at Schedule III, IV, or V would address a critical problem for cannabis businesses: Section 280E of the tax code. Under this tax provision, cannabis businesses can’t take deductions for ordinary business expenses, resulting in crippling tax bills and differential treatment for the cannabis industry compared to other sectors of the economy.
Some estimates put the effective federal income tax rates for cannabis businesses at 80%. Section 280E applies only to Schedule I or II substances, so moving marijuana to Schedule III, IV, or V would be a boon to small and large businesses in this industry. It would also eliminate potential civil or criminal penalties for people struggling to pay these significant tax bills under Section 280E—a win for drug reform advocates.
Some people argue that rescheduling to Schedule III, IV, or V would mean putting the FDA in control of the cannabis marketplace, but that’s not quite the case. As its name implies, the FDA regulates products intended to be used as food, drugs, or other categories, such as “cosmetics.” These terms have precise regulatory definitions. On or off any schedule, the FDA could regulate cannabis products today based on their intended use—but it isn’t.
The wide array of cannabis products, from edibles to topicals, presents difficulties for a one-size-fits-all approach to cannabis regulation. The agency acknowledged these difficulties in a May 25 stakeholder call with the industry regarding hemp-derived cannabidiol, which faces similar issues. As with any federal agency, the FDA doesn’t have limitless resources, so it must act within its regulatory authority and be subject to its resource constraints.
Given these constraints, the agency has acknowledged that it’s taking a risk-based approach to enforcement, writing, “our enforcement efforts continue to target products posing the greatest risks.” It’s therefore likely that the agency decides not to act against state-legal (and state-regulated) cannabis products, even if they technically fall under FDA authority.
Instead, the FDA likely will continue to target products posing the greatest risks, as it has done against CBD products making unsubstantiated health claims or intoxicating products marketed to children. Fears that the FDA will destroy a $30 billion industry by displacing existing state regulatory systems are overblown, especially given the associated federalism concerns and the agency’s relatively lax enforcement efforts regarding cannabis and cannabis-derived products to date.
The industry should get comfortable with the benefits that Schedule III, IV, or V would reap. Sometimes in Washington, we must take the incremental win and then continue the longer battle.
An all-or-nothing approach could have serious consequences for the industry that supports 500,000 jobs. Moving cannabis to schedules III, IV or V is a step in the right direction that will buy much-needed time.
