Federal Reclassification of Cannabis Will Not Kill the Industry

Marijuana Federal De-schedulingBusiness planning is both science and art, research and forecasting. In cannabis, the forecasting quotient is challenging compared to other industries. That is because federal prohibition has created a dance around conflicts in law that is equally awkward and intricate, alongside an ever-evolving panoply of state and local rules. Our cannabis corporate attorneys field questions regarding federal prohibition daily, including the big one: what happens if the Drug Enforcement Administration (DEA) reschedules cannabis, from Schedule I to Schedule II? We typically answer, “not as much as you may think.”

We recently wrote about how the DEA will consider rescheduling marijuana sometime in 2016. The DEA will entertain this notion pursuant to a letter from Elizabeth Warren and other Senators, and following a Food and Drug Administration (FDA) recommendation on the topic. To keep it fun, DEA will not disclose what that recommendation actually is, though rumor has it that marijuana will be shuttled from Schedule I to Schedule II later this summer. As per most federal action when it comes to cannabis, this strikes us as illogical and out-of-touch.

Moving cannabis from Schedule I to Schedule II, rather than descheduling it entirely, would seat cannabis in the same restrictive category as opium, morphine and cocaine. Though barriers to research for Schedule II drugs are slightly lower than their Schedule I counterparts, the move would indicate the government’s adherence to its stubborn and unscientific position that cannabis has “a high potential for abuse.” Presumably, FDA-approved derivatives of pot eventually would become available for prescription, but only with the highest restrictions. This is a far cry from regulation of alcohol or tobacco, harmful substances which are not classified by DEA, but left to the states to govern.

So why do we predict rescheduling will not be big news for most of our clients? Because rescheduling would not impair the many thousands of recreational and medical marijuana businesses that currently serve people in over half of the country. Authority for state-legal pot operations has nothing to do with the classification of marijuana on the controlled substance continuum. Period. In fact, the federal Controlled Substances Act (CSA) outlaws the manufacture, distribution and sale of cannabis whether classified as Schedule I or II (or elsewhere) under the Act. With rescheduling, state legal pot businesses would still operate in violation of federal law exactly as they do today.

It stands to reason that if the federal government will tolerate a Schedule I substance being sold throughout the country in the face of federal prohibition, it will also tolerate the states politely ignoring a Schedule II restriction. Even in the strange world of federal marijuana policy, it would be counterintuitive for the federal government to designate cannabis as less dangerous via Schedule II, only to shutter the few dozen state programs that were tolerated by the federal government when marijuana was in Schedule I.

Stepping back, it is also important to note that Department of Justice memoranda, along with Congressional defunding of the war on cannabis, serve as the true legal basis for the federal government’s tolerance of state-legal pot. If cannabis were rescheduled, the federal prerogative would apply to a substance considered less officially dangerous than before. So, rescheduling would offer additional justification for the federal hands-off policy as to state-level canna-business.

Public support for legalizing marijuana is now up over 60% and because half the states now have legal marijuana in some form or another, the genie is out of the bottle. There is likely no going back to the days of comprehensive and meaningful CSA enforcement. That will not change regardless of where cannabis is scheduled, and it should give some solace to state-level entrepreneurs.

In all, state-level markets and their operators — our clients — would not be affected dramatically by Schedule II cannabis. Even if certain cannabis drugs are ultimately developed by large pharmaceutical companies and granted FDA approval (which is already happening anyway), and even if those drugs are dispensed at Walgreens, mom and pop will run on their parallel track, selling marijuana flower, edibles, topicals, extracts and concentrates — just as they do today.

A dual track system for cannabis would be strange, but it isn’t much stranger than today’s status quo. From a business planning perspective, pot entrepreneurs have nothing new to fear. So don’t lose sleep over Schedule II. If it happens, it will be just another strange step in the federal government’s treatment of cannabis.