Marijuana [1] is currently classified as a Schedule I drug under the federal Controlled Substances Act (the Act) along with heroin, LSD, and ecstasy. Cocaine, methamphetamine, methadone, oxycodone, and fentanyl (which are Schedule II drugs) and codeine, ketamine, and anabolic steroids (which are Schedule III drugs) are in less restrictive Schedules than marijuana.[2] Over the years, various groups have sought to reschedule marijuana under the Act without success. The issue resurfaced, however, during the Biden Administration, resulting in an administrative request from the Department of Justice, Drug Enforcement Administration (DEA) to have marijuana transferred from Schedule I to Schedule III. Schedule III drugs, substances, or chemicals are defined as drugs with a moderate to low potential for physical and psychological dependence. [3]
Over the last three years, the request has worked its way through the administrative rulemaking process and an evidentiary hearing was scheduled to commence on January 21, 2025. However, the presiding Administrative Law Judge (ALJ) recently postponed the evidentiary hearing, prolonging a decision on rescheduling marijuana indefinitely.
This article discusses the recent effort to reclassify marijuana as a Schedule III drug, why the change matters to the business community, the reason for the ALJ’s decision to postpone the evidentiary hearing, and what happens next.
Recent Efforts to Reclassify Marijuana as a Schedule III Drug
In 2022, President Biden asked the Attorney General and the Secretary of Health and Human Services (HHS) to “initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.”[4] HHS did as the President requested, ultimately finding that marijuana has a potential for abuse less than the drugs or other substances in Schedules I and II and that the abuse of marijuana may lead to moderate or low physical dependence or high psychological dependence, corresponding to classification as a Schedule III drug.
On May 21, 2024, the DEA published a notice of proposed rulemaking (Notice) to transfer marijuana from a Schedule I drug to a Schedule III drug under the Act, consistent with HHS’s conclusions. It is important to note that the Notice provides that if transferred into Schedule III, the manufacture, distribution, dispensing, and possession of marijuana will remain subject to the applicable criminal prohibitions of the Act. Furthermore, any drugs containing a substance within the Act’s definition of marijuana will remain subject to the applicable prohibitions in the Federal Food, Drug, and Cosmetic Act (FDCA).[5] To be clear, transfer from Schedule I to Schedule III affects medical marijuana operators and users only. The Schedule change will have no impact on recreational marijuana operators or users, who remain subject to federal criminal prosecution.
Why Rescheduling Matters
The cannabis industry continues to push for the legalization of marijuana and declassification, and the proposed reclassification of marijuana to Schedule III falls short of that goal. Nevertheless, the Schedule change will likely impact the business community in a variety of ways.
For example, as a Schedule III drug, marijuana would, for the first time, be recognized by the federal government as having medicinal purposes and a lower potential for abuse than a Schedule I or II drug. In addition, physicians would now be allowed to prescribe marijuana to their patients under federal law. As a result, Schedule III reclassification will likely open the door for funding and research on the effects and medicinal use of cannabis and encourage pharmaceutical companies to enter the market to create and sell new cannabis products.
Medical marijuana operators may also realize tax benefits under Schedule III reclassification. Under federal tax laws, any trade or business trafficking in controlled substances identified in Schedules I or II are prohibited from deducting business expenses from their taxable income.[6] Those prohibitions do not apply, however, to businesses legally manufacturing, distributing, dispensing, or possessing Schedule III drugs (unless, of course, state law provides otherwise). This change could lead to significant tax savings for some cannabis operators.
Why did the ALJ Postpone the Rescheduling Hearing?
After publishing the Notice, the DEA solicited and received public comments on the proposal through July 22, 2024 as well as numerous requests for an evidentiary hearing as allowed under federal administrative law.[7] Responding to the hearing requests, the DEA set a hearing to commence on December 2, 2024.[8] The purpose of the hearing is to receive factual evidence and expert opinion regarding whether marijuana should be transferred to Schedule III. “Interested persons”[9] who wanted to participate in the hearing were required to provide written notice of their desired participation to the DEA by September 30, 2024, so that the DEA Administrator could determine who would be allowed to participate in the hearing.
On October 31, 2024, the DEA Administrator identified twenty-five (25) individuals and entities who would be allowed to participate in the hearing (most of whom represent law enforcement and anti-marijuana lobbies) and sent the list to the designated ALJ.[10] On December 2, 2024, the ALJ conducted a preliminary hearing which lasted several days and resulted in the ALJ setting the ground rules for the evidentiary hearing and a hearing start date of January 21, 2025.
Meanwhile, a group of pro-rescheduling participants filed a motion with the ALJ, seeking to have the DEA removed and disqualified from defending the proposed rule due to its alleged conflicts of interest and ex parte communications with opposition parties. The ALJ denied the group’s request, prompting the group to ask the ALJ to reconsider that ruling or, in the alternative, allow them to take an interlocutory appeal of the order to the DEA Administrator.[11]
On January 13, 2025, the ALJ entered an order, denying the group’s request for reconsideration, finding the group failed to establish a clear error of law, newly discovered evidence, or a need to prevent manifest injustice. However, the ALJ granted the group’s request for leave to file an interlocutory appeal to challenge the ruling to avoid the exceptional delay, expense or prejudice to the parties which may occur if the ALJ’s refusal to remove the DEA is found to be in error. The ALJ then cancelled the hearing set to commence on January 21, 2025, pending resolution of the interlocutory appeal. The ALJ ordered the parties to provide him with a joint status update every ninety (90) days from the issuance of the order until the appeal is resolved.[12]
What Happens Next?
The appeal to the DEA Administrator must now be argued and decided before the rescheduling request can proceed to an evidentiary hearing. It is unknown how long that process will take. It is also unknown what stance the Trump Administration will take on rescheduling. On the campaign trail, President Trump stated that he supported reclassification of marijuana as a Schedule III drug,[13] but he has since nominated Terry Cole as the DEA Administrator. Mr. Cole worked at the DEA for twenty-two years and then as Virginia’s top public safety official and is reported to have taken an anti-cannabis stance in the past.14 The public is left to wait and watch for a ruling on the appeal.
Our Team
If you have a question about the proposed rescheduling of marijuana in your business, please contact our Cannabis Group today.
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[1] Marijuana is defined by the Act to mean, “the plant Cannabis satvia L., whether growing or not; the seeds thereof, the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin.” 21 U.S.C. § 802(16)(A).
[3] Id.
[4] The White House, Statement from President Biden on Marijuana Reform (Oct. 6, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/10/06/statement-from-president-biden-on-marijuana-reform/.
[6] 26 U.S.C. § 280E.
[7] The Drug Policy Alliance reports that the DEA received 42,925 comments and that 69.3% of those comments supported descheduling, decriminalizing, or legalizing marijuana at the federal level. https://drugpolicy.org/news/nearly-70-of-public-comments-on-rescheduling-proposal-support-federal-marijuana-decriminalization-new-analysis-shows/.
[9] An “interested person” is defined as “any person adversely affected or aggrieved” by the proposed rule. See 21 C.F.R. § 1300.01(b).
[10] https://mjbizdaily.com/25-witnesses-tapped-for-marijuana-rescheduling-hearing.
[11] Typically, an order cannot be appealed until a final judgment or decision has been made in the lower tribunal on all the issues or claims before the lower tribunal. Under certain circumstances, however, a lower tribunal may allow an “interlocutory appeal” of a particular ruling to take place before a final judgment or decision has been made. See also 21 C.F.R. § 1316.62 (allowing interlocutory appeals from presiding officers’ rulings).
[13] https://truthsocial.com/@realDonaldTrump/posts/113105431683796730.