Potential Impacts of the Federal Reclassification of Marijuana

Authors: Lori Lustrin and Crystal Singh

In May, President Biden announced the Drug Enforcement Administration (DEA)’s proposed rule reclassifying marijuana from a Schedule I drug to a Schedule III drug under the Controlled Substances Act (CSA).

Schedule I classification is reserved for substances with a high potential for abuse and no accepted medical usage—such as heroin, ecstasy, and LSD—and thus carry the most severe criminal penalties. The proposed removal of marijuana from Schedule I after more than 50 years marks what President Biden described as a “monumental” shift in policy. This change comes on the heels of increasing evidence of cannabis’ therapeutic benefits,¹ widespread state legislation legalizing medical and recreational marijuana, and a record high of 70% of Americans supporting legalization.² 

The acknowledgement by the federal government that there is a potential medical benefit to marijuana will have a widespread impact on the industry. Legislators in states that have yet to pass laws legalizing marijuana will now have a new platform for proposing legislation. And, for constituencies advocating for legalization on the federal level, the classification downgrade can only be seen as a step in the right direction.

The new classification is also a positive development for researchers who have been significantly restrained in their ability to access and study cannabis. Reclassifying marijuana to Schedule III will ease restrictions on access, allowing more research into medical benefits and potential risks. Pharmaceutical companies may also be incentivized to consider the future development of marijuana-derived medications. 

The reclassification will also have significant economic implications for cannabis companies. Not surprisingly, the cannabis industry has experienced an increase in investor confidence following the announcement of the reclassification of marijuana. Dispensary stock prices saw a notable increase. Those companies are also now eligible for business expense tax deductions that are foreclosed to Schedule I sellers. 

Notwithstanding the new classification, the manufacture, distribution and possession of marijuana remains illegal under federal law even in states that have adopted legalization legislation. As a result, basic institutional luxuries enjoyed by businesses—such as federal banking, bankruptcy protection, and federal trademark registration—remain unavailable to cannabis companies. And, paradoxically, at least in the short term, reclassification may prompt calls for heightened federal regulation, particularly from agencies like the FDA. The determination that cannabis is of “medical use” will invariably raise questions regarding the method and mode of distribution for cannabis-derived products. Traditionally, prescriptions and a pharmacy are required to distribute drugs for medical use. 

The proposed rule is subject to a public comment period, which expires July 22, 2024, and judicial review before it becomes final.  More than 25,000 comments have been submitted thus far both supporting and opposing the rule. Notable stakeholders such as the U.S. Cannabis Council and the National Organization for the Reform of Marijuana Laws (NORML) intend to submit a comment before the public period concludes.³   Prohibitionist organization Smart Approaches to Marijuana (SAM) also plans to weigh in on the issue. 

We will continue to monitor these developments during the public comment period and beyond, providing insights into the ever-changing legal landscape surrounding cannabis.

[3] Schedules of Controlled Substances: Rescheduling of Marijuana, Regulations.gov, https://www.regulations.gov/document/DEA-2024-0059-0001