Rescheduling could be at risk after Supreme Court decision
Panic is setting in over fears rescheduling may not happen after the Supreme Court overturned the Chevron ruling.
Last week, the U.S. Supreme Court threw out the 40-year-old case against Chevron, a move that was celebrated by many in the cannabis industry who thought it would open the door to federal legalization, via lawsuits against the Drug Enforcement Administration.
But now the opposite could happen; existing cannabis operators could be shut down.
Chevron case
The U.S. Supreme Court ruled 40 years ago that federal agencies, specifically the Environmental Protection Agency in the Chevron case, “have the authority to regulate a specific this,” Leah Heise, a partner at Wolf Meyer and a Constellation Advisor at consulting firm Kearney told Green Market Report.
The basis for the ruling was that these agencies deal with issues that are scientifically complex, so they are best equipped to decide the rules. This typically led courts to defer to agency decisions, which made it very difficult to challenge those rules. That decision withstood more than 70 previous attempts to overturn it.
But with the latest ruling, that deferral can be more readily called into question, Heise said.
“If the federal agency is telling you … you can’t put X amount of CBD inside of a product, well, I’m going to sue the agency, and I’m going to tell the court that they don’t know what they’re talking about,” she said. “And the federal agency can no longer rely on the fact that (it is) supposed to be the expert in overseeing these things.”
At first glance, that could look like a great scenario for cannabis, with the outlaw industry able to tell the government to take a hike. Heise said that if she were advising a corporation or was inside of an MSO or another well-funded company, she’d be very carefully looking at every regulation and statute that applied.
“I’m going to see where I can push the boundaries so that I can put more revenue back into my profits and losses,” she said.
No more Schedule III?
Because of this, Heise thinks Schedule III is off the table.
“I’m concerned that not only will it be reversed, but that it may not happen because the agency is going to have to be far slower and more meditative about how they’re doing this rulemaking,” she said. “An agency’s goal, anytime they’re issuing regulations, they’re always thinking about the challenges that are coming. What’s their budget to enforce against these challenges? So they’re going to try to be as clear as possible, but I think we’re going to see it be very, very slow.”
Josh Schiller of Boies Schiller, who recently fought to reschedule cannabis agreed saying, “Along with Chevron, I think rescheduling is gone. I think it’ll be canceled.”
Schiller expects that after the Department of Justice’s current public comment period on the proposed rescheduling move is over, one or more anti-cannabis groups will file legal challenges to rescheduling in the conservative-friendly Fifth Circuit Court of Appeals – based in Louisiana – and that such challenges will be upheld based on the Chevron ruling.
“They will file cases, and they’ll say a court should decide whether marijuana is capable of being abused and/or is considered medicinal, and they’ll throw out everything the Biden Administration has done to try to get marijuana reclassified. So that effort, which was supposed to help the industry, will be stayed for a while, if not permanently,” Schiller predicted.
The agencies will be looking to Congress for more guidance on the laws instead of the other way around, much like the U.S. Food and Drug Administration asking Congress for assistance regulating CBD. But that’s no slam dunk either, as the FDA has failed to get any direction from lawmakers.
The ripple effect even hits the banks. Heise said, “Can banks rely on the fact that the federal government has said they won’t prosecute them if they work with cannabis? Will they pull out? Can we as an industry rely on a statement from the Department of Justice that they’re not going to prosecute? I mean, it puts every opinion letter, every opinion memo into question.”
Securities law
The ruling could also curb the power of the Securities and Exchange Commission. Green Market Report has covered numerous examples of fraudulent players taking advantage of cannabis investors. Often retail investors complain that the punishments for the bad actors are too light, and they never recover their lost investments.
With the Supreme Court limiting the agency’s power, cannabis investors will have nowhere to turn if they get ripped off. It could be open season for con artists in the world of cannabis penny stocks.
