On August 30, the U.S. Department of Health and Human Services (HHS) made a recommendation to the U.S. Drug Enforcement Administration (DEA) that cannabis be moved from a Schedule I Controlled Substance to a Schedule III Controlled Substance under the federal Controlled Substances Act. While a great deal has been speculated about the potential impact of rescheduling on state licensed cannabis businesses, pharmaceutical companies, health plans, insurance companies, and federal agencies such as the Food and Drug Administration (FDA), rescheduling is uncertain and much is unknown about the specifics of implementation.
Responding to these uncertainties presents a formidable challenge to regulators in states that have legalized medical and/or recreational cannabis use. How should they respond? Let’s start by looking at what regulators could do now.
A Plan of Action for State Regulators Right Now
We know, clinically guided, science-based cannabis therapy has been proven to provide life-altering benefits for relief from symptoms such as cancer treatment, pain, anxiety, and sleep disorders. It is the responsibility of state regulators to maximize the number of people in their state who benefit from this without waiting or expecting federal rescheduling to fix everything. State regulators need to play a lead role in encouraging and facilitating clinical research by rethinking and reconfiguring state research licenses (which, although well intentioned, are mostly unused due to onerous licensing requirements and lack of intellectual property right protections) and by engaging with private sector companies performing clinical cannabis research, potentially sharing data and providing financial support.
Additionally, regulators need to protect their equity programs by making the necessary changes to residency requirements to survive likely Dormant Commerce Clause challenges and to prepare to make necessary regulatory changes to align state-level dispensing, testing, packaging, and labeling requirements with federal standards.
Regulators in states where the preponderance of cultivation is indoors need to protect their cultivation industries through reduced license fees; energy and water conservation incentives; and encouragement of private agri-tech startups that use leading edge, AI-based technologies to bring higher yields, reduced spoilage, and increased labor productivity to cultivators both large and small.
What’s Next if Rescheduling is Approved?
What happens next with rescheduling? What if state regulators don’t answer the call?
If the DEA approves HHS’ rescheduling recommendation, a formal DEA rulemaking process will follow and, after that, there are likely to be significant legal challenges requiring DEA to develop a convincing argument about what has changed from the 2016 DEA/HHS determination that cannabis should stay on Schedule 1 and whether rescheduling violates significant international treaties (Single Convention).
If rescheduling survives all these hurdles, there are still some major unknowns. First, Dormant Commerce Clause challenges to prohibitions on interstate commerce will become more frequent and likely more successful. If the requirement that everything sold in-state must be grown in-state is eliminated, high cost, primarily indoor cultivation states in the Midwest and Northeast could see their entire grow industry put at an insurmountable competitive disadvantage.
Secondly, while the prevailing assumption is that the FDA will assume regulatory authority under Schedule 3, that agency has resisted this kind of authority in the past and has no experience in regulating a drug-like cannabis. Whatever federal regulatory structure is put in place will result in a potential conflict between state and federal dispensing, formulation, labeling, and testing requirements. Additionally, it is unknown how the equity mandates that many states have adopted (specifically, residency requirements) will survive if the Dormant Commerce Clause is invoked.
And finally, while research will become easier without the current cumbersome requirement of obtaining a DEA license, the fact that cannabis will still be a federally illegal substance under Schedule III means that medical schools and teaching hospitals may still be reluctant to conduct training and clinical research. Similarly, major pharmaceutical companies are not likely to up their engagement in cannabis drug development.
The uncertainties around the timing and impact of rescheduling presents an enormous challenge to state cannabis regulators who are responsible for standing up and maintaining safe, equitable, and financially sound industries. They need to find the balance between being ready to react quickly and effectively if rescheduling occurs and taking immediate steps to maximize the benefits of legalized cannabis, particularly for medical use, without waiting for rescheduling to be the cure all.
