The US Drug Enforcement Administration (DEA) will reschedule cannabis from Schedule I to Schedule III under the Controlled Substances Act, according to the Associated Press. The rescheduling would ease some federal restrictions on cannabis and herald significant changes in the legal, regulatory, and business landscapes for the cannabis industry. This recommendation comes eight months after the U.S. Department of Health and Human Services (HHS) recommended the change, following a review initiated by the Biden Administration in October 2022.

For the cannabis industry, the move could eliminate a substantial tax burden imposed by the IRS Code Section 280E. Currently, this provision prevents legal cannabis companies from deducting ordinary business expenses.

Neither DEA nor the White House had confirmed AP’s report at the time of this writing. The DEA’s proposal would have to be reviewed by the White House Office of Management and Budget (OMB). Upon OMB approval, the proposed rule would be released, and DEA would initiate a public comment period. The Agency will publish a final rule after reviewing all public comments. This can be a lengthy process.

Cannabis is currently classified as a Schedule I drug, alongside heroin and LSD. In Schedule III, cannabis would join substances such as ketamine and certain anabolic steroids. The DEA’s decision aligns with a recommendation from the HHS, which was the first public acknowledgment by the US federal government of cannabis's potential therapeutic benefits.

Shifting cannabis to Schedule III will not resolve the conflicts between federal law and the state-level legal status of cannabis, whether for medical or recreational use.

Shifting cannabis to Schedule III will not resolve the conflicts between federal law and the state-level legal status of cannabis, whether for medical or recreational use. Traditionally, Schedule III substances can only be legally possessed with a physician's prescription from licensed pharmacies. 

We expect advocacy groups and federal agencies to urge Congress to establish new regulations for cannabis. FDA has taken the position that it cannot regulate cannabis and cannabinoids through any of its existing regulatory frameworks. As recently as April 11, FDA Commissioner Robert Califf, under intense pressure on a number of issues, including cannabis regulation, from members of the House Oversight and Accountability Committee, urged Congressional action to establish a “Harm Reduction Center” at FDA that could regulate adult-use cannabis and related products. 

In the meantime, some members of Congress are exploring initiatives to support the growth of cannabis businesses in states where cannabis has been legalized for medical or adult recreational use. One such measure is the SAFER Banking Act, which aims to give legal marijuana businesses access to traditional banking services. The SAFER Act has received some bipartisan support, but its fate is unknown in this election-year climate.