DOJ Formally Proposes to Reschedule Marijuana

On May 21, the U.S. Department of Justice (DOJ) formally submitted a Notice of Proposed Rulemaking, which, if finalized would reschedule marijuana as a Schedule III controlled substance.

Under current federal law, marijuana is classified as a Schedule I controlled substance, which means it has no currently accepted medical use but has a high potential for abuse.

The formal move to reschedule marijuana is the result of a recommendation issued by the U.S. Department of Health and Human Services (HHS) in August 2023 that highlighted marijuana’s increasing accepted medical uses and lower risk compared with other Schedule I controlled substances, which include heroin, LSD, and ecstasy.

If finalized, the proposed rule will not change marijuana’s legal status in many regards.

• Possession and distribution of marijuana: Will remain unlawful under federal criminal law.
• Medical and recreational marijuana programs that are legal under state laws: Will remain unlawful under federal law.
• Prescribing and dispensing of marijuana: Rescheduling of marijuana will not legalize this or expand medical marijuana beyond the scope of current state-authorized medical marijuana programs.
• Marijuana-related businesses will still need to operate with an understanding of the risks associated with the ongoing federal prohibitions on marijuana that will not be changed by the proposed rescheduling.

Though many Schedule III substances can be prescribed by physicians, they must first be approved by the U.S. Food and Drug Administration (FDA). While the FDA has approved some medications containing cannabis or synthetic cannabinoids like Sativex, Marinol and Epidiolex, this approval does not extend to other marijuana products.  Thus, while state-level marijuana programs will continue to operate, rescheduling will not legalize them under federal law.

Keep in mind, the ongoing federal-state legal discrepancies would remain, although businesses would likely continue to experience minimal federal interference in state-regulated medical marijuana operations that comply with state laws. This is due to ongoing appropriations riders passed by Congress, which restrict DOJ’s ability to spend federal dollars on prosecutions relating to state-authorized medical marijuana programs and prosecutorial enforcement discretion.

What Will Change?

One of the most significant effects of rescheduling marijuana will be on the taxation of marijuana-related businesses. If marijuana is moved to Schedule III, it will no longer be subject to Internal Revenue Code 280E (IRC 280E), which currently prevents businesses dealing with Schedule I or II substances from claiming tax credits or deductions, except for the cost of goods sold. This rule has significantly increased the tax burden for marijuana businesses compared to those in other industries.

If the proposed rule is finalized, marijuana-related business would be able to claim tax credits deductions.

Finally, the proposed rescheduling may have an impact as to whether medical marijuana users will enjoy federal employment law protections such as accommodations under the American with Disabilities Act (ADA). Under the ADA, the use of medical marijuana has been regarded as illegal and therefore not subject to protection under federal law. Several courts examining the issue have based their decision upon the significance of Schedule I classification as having “no currently accepted medical use.” The proposed rescheduling, which would recognize some accepted medical use, could change that analysis.

Nevertheless, employers will continue to face uncertainties and questions when enforcing their drug testing policies as the federal courts interpret the significance of the rescheduling as well as conflicting state law which have increasingly required protection for medical marijuana usage.

DOJ is accepting public comments on the proposed regulation until July 20.

Please contact Matt Harrell, Rebecca Sha, Courtney A. Hurtig, Beau Haynes, or any member of the Phelps Health Care team if you have questions or need advice or guidance.