Cannabis Archives - The National Law Forum

FTC/FDA Send Letters to THC Edibles Companies Warning of Risks to Children

Earlier this week, the Federal Trade Commission (FTC) and Food and Drug Administration (FDA) sent cease-and-desist letters to several companies warning them that their products, which were marketed to mimic popular children’s snacks, ran the risk of unintended consumption of the Delta-8 THC by children. In addition to the FDA’s concerns regarding marketing an unsafe food additive, the agencies warned that imitating non-THC-containing food products often consumed by children through the use of advertising or labeling is misleading under Section 5 of the FTC Act. The FTC noted that “preventing practices that present unwarranted health and safety risks, particularly to children, is one of the Commission’s highest priorities.”

The FTC’s focus on these particular companies and products shouldn’t come as a surprise. One such company advertises edible products labelled as “Stoney Ranchers Hard Candy,” mimicking the common Jolly Ranchers candy, and “Trips Ahoy” closely resembling the well-known “Chips Ahoy.” Another company advertises a product closely resembling a Nerds Rope candy, with similar background coloring, and copy-cats of the Nerds logo and mascot. This is not the first time the FTC has warned companies about the dangers of advertising products containing THC in a way that could mislead consumers, particularly minors. In July of 2023, the FTC sent cease-and-desist letters to six organizations for the same violations alleged this week – there companies copied popular snack brands such as Doritos and Cheetos, mimicking the brands’ color, mascot, font, bag style, and more.

This batch of warning letters orders the companies to stop marketing the edibles immediately, to review their products for compliance, and to inform the FTC within 15 days of the specific actions taken to address the FTC’s concerns. The companies also are required to report to the FDA on corrective actions taken.

Supreme Court Decision Overturns Chevron: Impact on Cannabis Industry

Last month, the United States Supreme Court issued its decision and opinion in Loper Bright Enterprises v. Raimondo, significantly overruling the nearly 40-year-old precedent set by Chevron. The Chevron decision required federal courts to defer to a government agency’s interpretation of an ambiguous statute unless that interpretation was “arbitrary, capricious, or manifestly contrary” to the statute. This meant that if an agency such as the DEA published a bulletin or letter interpreting an ambiguous law, courts were generally bound to follow this interpretation due to the agency’s presumed expertise.

The Shift in Legal Interpretation

Loper Bright Enterprises has fundamentally changed this legal landscape. Now courts, rather than government agencies, are considered the best equipped to interpret ambiguous statutes. This shift means that a government agency’s interpretation of an ambiguous statute is now merely persuasive and not binding on the courts. This can be likened to a Pennsylvania court interpreting a Pennsylvania law and considering, but not being bound by, a Delaware state court’s interpretation of a similar corporate law. Just as Pennsylvania courts can choose to defer to, distinguish from, or disregard Delaware court decisions, federal courts now have the same discretion regarding agency interpretations of ambiguous statutes.

Impact on the Cannabis Industry

This change has significant implications for the cannabis industry. The Drug Enforcement Administration (DEA) enforces federal drug laws and has issued numerous letters and bulletins determining the legality of various cannabis substances. For example, the DEA issued opinions that seemingly argued that Delta-8 THC products and THCA products were not allowed under the 2018 Farm Bill. I have generally disagreed with these interpretations, believing that the DEA incorrectly cited statutes related to hemp at harvest rather than downstream products.

With Loper Bright Enterprises, these DEA letters will lose their authoritative value. Courts are no longer bound to follow DEA interpretations and can more readily consider arguments opposing the DEA’s stance. This development is critical for the cannabis industry, as it opens the door for courts to reinterpret federal drug laws and potentially challenge the DEA’s restrictive interpretations of the 2018 Farm Bill.

The Importance of This Shift

The overruling of Chevron by Loper Bright Enterprises marks a pivotal change in administrative law, particularly impacting the cannabis industry. This shift of interpretive authority from government agencies to the courts means there is now greater potential for legal challenges to restrictive interpretations of cannabis laws. This change enhances the ability of cannabis businesses and advocates to contest adverse decisions and interpretations by the DEA and other agencies, potentially leading to more favorable outcomes for the industry.

It Ain’t Over ‘til It’s Over: IRS Reminds Taxpayers That Section 280E Applies to Marijuana Companies Until Rescheduling Becomes Law

This is a tax blog. Stay with me – it’s short.

While marijuana advocates celebrate the potential rescheduling of marijuana from Schedule I to Schedule III, the taxman has made clear that marijuana remains a Schedule I substance subject to Section 280E of the Internal Revenue Code. For those who aren’t cannabis tax specialists, 280E provides that:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

Marijuana is a Schedule I controlled substance and is subject to the limitations of the Internal Revenue Code. As we previously reported, the Justice Department recently published a notice of proposed rulemaking with the Federal Register to initiate a formal rulemaking process to consider rescheduling marijuana to Schedule III under the Controlled Substances Act. That change would remove marijuana from the purview of 280E.

Predictably, a number of cannabis operators couldn’t help themselves and began filing amended returns seeking to avail themselves of what they apparently felt was a change in the law. The response from the IRS is clear:

Taxpayers seeking a refund of taxes paid related to Internal Revenue Code Section 280E by filing amended returns are not entitled to a refund or payment. Until a final rule is published, marijuana remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code Section 280E.

The reasoning is simple – marijuana is a Schedule I substance until it is not. While there is currently in place a process that could lead to the rescheduling of marijuana, it has not actually been rescheduled.

Cannabis operators can dream of a time when they will not be subject to the ravages of 280E, but for now that remains just out of grasp, albeit tantalizingly close.

As usual, stay tuned to Budding Trends. We’ll be monitoring all the impacts of rescheduling, including tax implications like this one.

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The FDA Wants To Reschedule Cannabis. Does That Mean All Employees Can Soon Legally Use It?

On May 21, 2024, the Drug Enforcement Agency (DEA) issued a notice of proposed rulemaking indicating that the U.S Food and Drug Administration (FDA) intends to transfer marijuana from Schedule I to Schedule II of the Controlled Substances Act (CSA). This notice is consistent with opinions from the Department of Health and Human Services (HHS) acknowledging that marijuana has currently accepted medical uses as well as HHS’s views about marijuana’s abuse potential and level of physical or psychological dependence. But assuming that the proposed rescheduling goes through, does that mean that cannabis is now federally legal, leaving employees free to consume cannabis like any other legal substances such as alcohol?

The short answer is “no.”

While rescheduling cannabis as a Schedule II drug may go a long way to opening doors for additional cannabis research and generally changing perceptions on cannabis use, such rescheduling does not make possession or use of cannabis “legal” at the federal level. The federal ban, though, is still against the weight of the direction many states are heading across the country. Recreational cannabis is now legal in 24 states and the District of Columbia. Considering that just 12 years ago there were only two states with legal recreational cannabis, it is not hard to see where the trend is heading. In fact, when accounting for medical cannabis programs, there are now only six states that do not offer any sort of legalized cannabis.

Perhaps unsurprisingly, recent drug testing data suggests that the increasing legality at the state level is resulting in increased cannabis use across the country. Positive drug tests for cannabis are on the rise. In Michigan, for example, positive cannabis drug tests have more than tripled since 2008. Notably, while cannabis positive tests are on the rise, use of other drugs such as opiates and cocaine have been steadily decreasing. Another study related to drug testing showed that employees are increasingly trying to thwart these drug tests. In 2023, drug tests with signs of tampering increased an astonishing 633% — the highest rate in more than 30 years.

With all these factors in mind, what might the “best practice” be for employers as it relates to the treatment of cannabis among their workforce? Of course, the answer is not a “one-size-fits-all” issue. The decision will depend on a number of factors, including certain jurisdictions’ prohibition on testing for cannabis, anti-discrimination laws protecting the use of cannabis, laws requiring drug testing for certain jobs, and position-specific questions surrounding job duties (e.g., desk job versus operating heavy machinery or other safety-sensitive positions). Still, what many employers may have considered as a best practice for years is one that should be reconsidered in light of these rapid developments.

DOJ Confirms Moving Marijuana to Schedule III; Sidesteps Anticipated Impact on State Cannabis Markets

On May 16, 2024, the Department of Justice (DOJ) initiated the formal rulemaking process to move marijuana to Schedule III of the Controlled Substances Act. The DOJ’s notice of proposed rulemaking unfortunately sidesteps the hard questions about the impact of rescheduling on the existing state adult-use and medical cannabis markets.

Summary of Content

The 92-page notice of proposed rulemaking primarily summarizes and comments on last year’s recommendations by the Department of Health and Human Services to reschedule marijuana, as well as related legal concerns such as compliance with international treaty obligation. The DOJ emphasizes that if marijuana is transferred to Schedule III, “the manufacture, distribution, dispensing, and possession of marijuana would also remain subject to applicable criminal prohibitions under the CSA [Controlled Substances Act],” and that marijuana would remain subject to applicable provisions of the Food Drug and Cosmetic Act.

With respect to the critical question of impact on the cannabis markets, however, the DOJ is silent and merely states that it is “seeking comment on the practical consequences of rescheduling marijuana.”

By way of explanation, the DOJ offers:

“DOJ recognizes this action may have unique economic impacts. As stated above, marijuana is subject to a number of State laws that have allowed a multibillion dollar industry to develop. DOJ acknowledges that there may be large impacts related to Federal taxes and research and development investment for the pharmaceutical industry, among other things. DOJ is specifically soliciting comments on the economic impact of this proposed rule. DOJ will revise this section at the final rules stage if warranted after consideration of any comments received.” (Emphasis added.)

Robust Public Comments Expected

For an industry that has been eagerly awaiting to hear how the DOJ will approach rules that address the interplay between existing state cannabis laws and the complex web of federal laws around Schedule III drugs, the DOJ’s notice is disappointing and may not bode well for a smooth rulemaking process. DOJ will accept public comments for 60 days once the notice of proposed rulemaking has been published in the Federal Register. We can expect robust commentary from cannabis businesses, state regulators, trade organizations and ancillary industries.

Regardless of the outcome of the final rulemaking, it seems apparent that clarity through congressional action is needed more than ever.

FTC Moves to Strike Most Noncompetes: Considerations for Cannabis Companies

As Bradley previously reported, the Federal Trade Commission at the beginning of last year issued a notice of proposed rulemaking to effectively ban employee noncompete provisions as an unfair method of competition in violation of Section 5 of the FTC Act. Following a 16-month administrative process that drew more than 26,000 public comments, the FTC on April 23, 2024, issued its final rule that will, according to the FTC, “promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.”

Key Features of the Final Rule

Key features of the final rule include:

Defining “noncompete clauses” as a term or condition of employment that either “prohibits” a worker from, “penalizes” a worker for, or “functions to prevent” a worker from (a) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (b) operating a business in the United States after the conclusion of the employment that includes the term or condition.
Treating existing noncompetes differently depending on the category of worker.
- For “senior executives,” existing noncompetes may remain in force. The term “senior executive” refers to workers earning more than $151,164 who are in a “policy-making position.” As so defined, the FTC estimates that senior executives represent less than 0.75% of all workers.
- For all other categories of workers, existing noncompetes will be unenforceable following the effective date (i.e., 120 days following its publication on the Federal Register).
Banning new noncompetes for all workers following the effective date.
Requiring employers to provide “clear and conspicuous notice” to workers who are not senior executives and are subject to existing noncompetes that such provisions are no longer enforceable. The FTC included model language in the final rule that satisfies the notice requirements.
Excluding banks but not bank affiliates. Because the FTC does not have regulatory authority over banks, it does not apply to banks. The rule does apply to bank affiliates however as those entities are within FTC jurisdiction.
Excluding nonprofit entities. The final rule does not apply to nonprofit entities, such as nonprofit hospitals, as they fall outside of the jurisdiction of the FTC Act. The FTC notes, however, that not all entities that claim tax-exempt status in their tax filings are automatically outside of the scope of the final rule. Rather, the FTC applies a two-part test to determine whether the purported nonprofit is within the scope of the FTC Act, focusing on the source of the entity’s income and the destination of the income.
Excluding noncompetes in the sale of business context. The final rule generally does not apply to business owners upon the “bona fide” sale of a business. The final rule expanded the sale of business exception found in the proposed rule.
The final rule does not apply where a cause of action related to a noncompete accrued prior to the effective date of the final rule.

What Does the New Rule Mean for the Cannabis Industry in Particular?

The FTC contends that the final rule will benefit the U.S. economy by, among other things, increasing worker earnings, reducing healthcare costs, spurring new business formation, and enhancing innovation. But what will it mean for the U.S. cannabis industry specifically?

As we’ve written about before, there’s a significant amount of proprietary information that may give players in the cannabis space a competitive edge – e.g., customer lists, grow processes, or unique cannabinoid extracts, plants, and products. Because marijuana is still a Schedule I substance under the Controlled Substance Act, however, there are open questions about whether an entity engaged in marijuana-related commercial activity can avail itself of federal law protections, such as U.S. patent and trademark laws. If an entity cannot avail itself of those federal law protections, the ability to turn to state contract law becomes even more important to protect its investments. That’s where noncompetes could come in — going a long way to protect an individual from taking and utilizing a company’s or individual’s investments. The FTC final rule largely would put an end to the ability to use noncompete protections, save for the exceptions outlined above. That may be an even bigger blow to the cannabis industry as compared to other industries who can readily utilize federal law protections. On the other hand, the cannabis industry is largely transient and collaborative, and many cannabis companies and individuals in the industry may be willing to take the good with the bad when it comes to the absence of noncompete rules.

What’s Next?

First, the final rule is not yet in effect. It will go into effect 120 days after its publication in the Federal Register.

Second, we expect there will be significant legal challenges and efforts to halt the implementation of the rule.

The final rule was issued following a 3-2 vote by the commissioners, with the two newly appointed Republican commissioners – Melissa Holyoak and Andrew Ferguson – voting against the rule. In their prepared remarks, the dissenting commissioners questioned the FTC’s legal authority to take such sweeping action.

The final rule has already prompted a legal challenge. Shortly after the FTC’s public meeting approving the final rule, the U.S. Chamber of Commerce released a statement indicating its intent to “sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.” True to its word, the Chamber filed yesterday a Complaint for Declaratory Judgment and Injunctive Relief in U.S. District Court for the Eastern District of Texas (Chamber of Commerce of the United States of America v. Federal Trade Commission, Case No. 6:24-cv-00148 (E.D.Tex. filed April 24, 2024)). The lawsuit mounts a number of legal challenges to the final rule.

Will Hemp Save the World, Before the Government Kills It?

There is a great line in the wonderful film Charlie Wilson’s War, where Charlie Wilson (played remarkably by the inimitable Tom Hanks) describes the successful, if relatively covert, involvement of the United States government in the Soviet-Afghan War: “These things happened. They were glorious and they changed the world… and then we f***d up the endgame.”

With the next Farm Bill somewhere on the horizon, I believe we are approaching a similar moment for the future of hemp. I believe the future of hemp is glorious and that it can change the world. What will we do to the endgame?

This is an analysis about the current state of hemp and whether that industry will revolutionize the world before the government relegates it back to the ash heap of history. It just so happens to dovetail with my personal experience representing clients in connection with the hemp business.

In the Beginning…

Back in the “stone age” (circa 2017) when I decided I wanted to be a cannabis lawyer, I began with a focus on hemp. [As a brief aside, telling people in Alabama you practice cannabis law in 2017 must have been what Noah felt like when he was telling people it was about to start raining.]

The 2014 Farm Bill, which for the first time legalized “industrial hemp” as distinct from marijuana under the Controlled Substances Act and allowed state agricultural departments and universities to license the production of hemp, cracked the door for a nascent and limited hemp market, and it was a remarkable time to advise new hemp operators and investors about how to maximize this opportunity within the contours of the law.

At the same time, I was regularly receiving calls from existing clients, colleagues within the firm, and strangers about how their non-cannabis companies should conduct themselves when approached by hemp companies who wanted to do business with them. The latter category included banks, insurance companies, real estate companies, and myriad companies who had questions about how their employees’ use of hemp interplayed with the companies’ existing drug testing policies. Most of the time the companies were reluctant to have anything to do with hemp, but the conversations were interesting, and it was clear that most companies realized the landscape was changing. It was the Wild West, and I was having a ball.

Rocket Fuel

Enter the 2018 Farm Bill and the explosion of the hemp industry. The 2018 Farm Bill dropped the word “industrial” and defined “hemp” as:

the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.

In addition to removing the limitations from the 2014 Farm Bill licensing, the 2018 Farm Bill also moved oversight authority from the Department of Justice and DEA to the USDA and FDA.

The 2018 Farm Bill was a tectonic shift, and we recognized the new regime’s potential almost immediately, predicting the following:

Increased “smart” money and research. Because hemp has been a Schedule I substance along with marijuana for decades, many sophisticated sources of funding have abstained from ﬁnancing the industry. This placed hemp at a competitive disadvantage to other commodities and prevented hemp from reaching its full potential. Now that hemp can be manufactured and sold without substantial legal risks, look for the money to ﬂow toward this underserved sector. Publicly traded companies, private equity ﬁrms, venture capitalists and other investment groups will all take signiﬁcant stakes in both the manufacturing and selling of hemp and hemp-derived products. In addition to traditional commercial development eﬀorts, much of this cash is likely to be spent to hire top researchers to develop proprietary strands of hemp to meet a range of product applications and to take steps to protect the resulting intellectual property.
Explosion of hemp and hemp-derived products. Fueled in large part by this injection of ﬁnancing from sophisticated investors, there is likely to be an explosion in the ways that hemp is used. Hemp already has hundreds — if not thousands — of known uses, and that number should grow substantially once the industry is exposed to the market forces that come with smart money and increased research. The biggest winner may be the hemp-derived CBD business. Hemp-derived CBD is a compound believed to have signiﬁcant therapeutic beneﬁts without an appreciable psychoactive component. The Washington Post has reported that “dozens of studies have found evidence that [CBD] can treat epilepsy as well as a range of other illnesses, including anxiety, schizophrenia, heart disease, and cancer.” One industry analysis predicts that the hemp-CBD market alone could hit $22 billion by 2022. The health and wellness sector should see particular hemp-related activity and growth in the coming years.
Increased ancillary services provided to hemp-related businesses. Because hemp has been included within the deﬁnition of marijuana under federal law for decades, most banks, law ﬁrms and other service providers have avoided providing services to hemp businesses to avoid the risk of charges of money laundering or conspiring to violate state and federal drug laws. The absence of such service providers has fostered a great deal of uncertainty in an area where certainty and clarity have been sorely needed. With hemp’s new legal status, look for professional service providers to enter the market in 2019 and beyond. Of course, entities looking to provide services to hemp-related businesses should take adequate precautions to ensure those businesses are only producing federally legal hemp.
Consolidation and integration. An interesting phenomenon in “legal” marijuana states has been the rapid consolidation and integration of marijuana growers, processors and dispensaries. Some states have mandated vertical integration (e.g., the growers are the sellers) through regulation. And a number of large cannabis companies have acquired grow operations or multi-unit dispensaries rather than establish a cannabis presence in a state from scratch. The hemp industry is likely to follow a similar path, both through government regulation and because larger companies are likely to seek to obtain suﬃcient quantities of hemp through consolidation and vertical integration. Accordingly, attorneys and investors should anticipate signiﬁcant merger and acquisition activity in the coming years.
Federal regulations and state regimes. The 2018 Farm Bill does not create an entirely unregulated playing ﬁeld for hemp. Over the coming months, the U.S. Department of Agriculture and Food and Drug Administration will issue regulations implementing the 2018 Farm Bill. State governments will also unveil plans governing the testing, labeling and marketing of hemp-related products, as well as the licensing and monitoring of hemp-related businesses.

I’m proud to say that we were pretty much on the money with these projections, and countless studies and data confirm that hemp can be a viable product with countless form factors that help shape the global economy.

That is when I realized that I might be able to make a career as a cannabis lawyer.

The Good with the Bad

Of course, the development of the hemp industry has not been without controversy – in fact it may be the controversy that has spurred much of the development.

I would be lying to you if I told you that every hemp or hemp-derived product was designed with the best of intentions or contained appropriate mechanisms to ensure consumer safety. There are certainly hemp-derived products on the market that have not been subjected to sufficient product development and testing, and that are being marketed in ways that rightfully should concern policymakers and the public. Novel, psychoactive cannabinoids that fall within the bounds of the terms, if perhaps not the spirit, of the Farm Bill fill the shelves of stores around the country with little to no mechanisms for enforcement. That should change, and Americans should have confidence that the products made available to them are safe and effective.

In response to this proliferation, a number of states have enacted rules and regulations restricting the production and sale of certain hemp-derived cannabinoids. A number of those rules – for example, age and purity restrictions for psychoactive cannabinoids – seem well-intentioned, and we expect to see more of those unless and until the federal government takes further action.

On occasion, however, it appears that the motivations of policymakers may be less pure. It is no secret amongst those in the cannabis industry that marijuana licensees in states that have legalized marijuana are no fans of the unregulated hemp-derived psychoactive industry. After all, marijuana companies are subject to astronomical taxes and endure regulatory costs that make turning a profit far more difficult than if they were able to offer a product that offered a somewhat similar “high” without the institutional overhead and headwinds. Florida may be the clearest and most recent example. With adult-use marijuana widely expected to become law in Florida soon, the state legislature recently passed a law largely prohibiting delta-8 and delta-10.

On the other hand, it would be wrong, even lazy, to suggest that the development of hemp-based products has been without substantial benefits to society as a whole. Entrepreneurs are developing hemp-based substitutes for any number of the most common products used around the globe, meaning that the addressable market for hemp is everyone on earth and beyond.

A younger version of me once wrote, in comparing the addressable market for marijuana to that of hemp:

Hemp, on the other hand, has the potential to dwarf marijuana in the global market. Unlike its sister plant, hemp has the capacity to replace products we use every day without us even realizing it. For example, hemp can provide a substitute for concrete, plastic, fuel, automotive parts, clothes, etc. These are products nearly all consumers need but they neither realize nor care what the products are made of, as long as they work. In that way, while the market for marijuana is limited to consumers looking to purchase marijuana, the market for hemp includes anyone who purchases products that can be manufactured by hemp. In part for these reasons, experts predict four to five times growth in the industrial hemp market in the next five years.

I stand by those words. I am convinced that hemp can change the world.

But I am equally convinced that local, state, and federal governments can, without the appropriate consideration for hemp’s benefits, relegate the plant back to its prohibition era status and deny the world its many benefits. The policy choices made by state governments, and perhaps most importantly by the federal government during the next Farm Bill, could fundamentally alter the future of hemp. Will it be a soon-forgotten shooting star that dazzled the world for a decade and then burned out, or will we look back at the past decade as the renaissance of one of civilization’s oldest and most versatile plants?

Conclusion

I’ll end where I began because Philip Seymour Hoffman’s work is revered by the Budding Trends community (and anyone with taste), and because the film’s ominous conclusion is a message for anyone who wants to see the hemp industry thrive in the years ahead.

As Hanks’ character celebrates the Afghan defeat of the Soviets, the hardened CIA analyst played by Hoffman offers this parable:

On his sixteenth birthday the boy gets a horse as a present. All of the people in the village say, “Oh, how wonderful!”

The Zen master says, “We’ll see.”

One day, the boy is riding and gets thrown off the horse and hurts his leg. He’s no longer able to walk, so all of the villagers say, “How terrible!”

The Zen master says, “We’ll see.”

Some time passes and the village goes to war. All of the other young men get sent off to fight, but this boy can’t fight because his leg is messed up. All of the villagers say, “How wonderful!”

The Zen master says, “We’ll see.”

The message behind this story is pretty clear. We’re prone to jump to conclusions about whether something is “good” or “bad.” We are especially quick to label something as “bad.” The reality is that things can be either good or bad, both good and bad, or neither. When it comes to whether Congress and the states will recognize hemp’s great potential, I guess we’ll see.

Cannabis Rescheduling: HHS Findings and Legal Implications

On August 29, 2023, the U.S. Department of Health and Human Services (HHS) made a groundbreaking recommendation to the Drug Enforcement Administration (DEA) – that cannabis should be rescheduled from Schedule I to Schedule III under the Controlled Substances Act (CSA). This recommendation was made pursuant to President Biden’s request that the Secretary of HHS and the Attorney General initiate a process to review how cannabis is scheduled under federal law. In recent days, the unredacted 252-page analysis supporting the August recommendation was released pursuant to a Freedom of Information Act request. While the DEA is presently reviewing HHS’s recommendation and has final authority to schedule a drug under the CSA, it is ultimately bound by HHS’s recommendations on scientific and medical matters.

Why does this matter? Cannabis1 has been a Schedule I substance since the CSA was enacted in 1971. Substances are controlled under the CSA by placement on one of five lists, Schedules I through V. Schedule I controlled substances are subject to the most stringent controls and have no current accepted medical use. As a result, it is illegal under federal law to produce, dispense, or possess cannabis except in the context of federally approved scientific studies. Violations may result in large fines and imprisonment, including mandatory minimum sentences. Comparatively, Schedule III substances are considered to have less abuse potential than Schedule I and II substances, and have a currently accepted medical use in the United States.

In recent years, nearly all the states within the U.S. have revised their laws to permit medical cannabis use. And 24 states, as well as the District of Columbia, have eliminated certain criminal penalties for recreational cannabis use by adults. However, under the U.S. Constitution’s Supremacy Clause, federal law takes precedence over conflicting state laws. Thus, states cannot actually legalize cannabis use without congressional or executive action, and all unauthorized activities under Schedule I involving cannabis are federal crimes anywhere in the United States.2

Notable Findings in HHS’s Recommendation

For HHS to recommend that the DEA change cannabis from Schedule I to Schedule III, HHS had to make three specific findings: 1) cannabis has a lower potential for abuse than the drugs or other substances in Schedules I and II; 2) cannabis has a currently accepted medical use in treatment in the U.S.; and 3) abuse of cannabis may lead to moderate or low physical dependence or high psychological dependence. HHS considered eight factors to make those findings, some of which include: cannabis’s actual or relative potential for abuse; the state of current scientific knowledge regarding the drug; the scope, duration, and significance of abuse; and what, if any, risk there is to public health. The unredacted analysis provides further insight into HHS’s determination to make the forementioned findings.

CANNABIS HAS A POTENTIAL FOR ABUSE LESS THAN THE DRUGS OR OTHER SUBSTANCES IN SCHEDULES I AND II.

To evaluate cannabis’s potential for abuse,3 HHS compared the harms associated with cannabis abuse to the harms associated with other substances, such as heroin (Schedule I), cocaine (Schedule II), and alcohol.4 HHS reported that evidence shows some individuals take cannabis in amounts sufficient to create a health hazard to themselves and the safety of other individuals and the community. However, HHS also reported evidence showing the vast majority of cannabis users are using cannabis in a manner that does not lead to dangerous outcomes for themselves or others. From 2015 to 2021, the utilization-adjusted rate of adverse outcomes involving cannabis was consistently lower than the respective utilization-adjusted rates of adverse outcomes involving heroin, cocaine, and other comparators. Further, cannabis was the lowest-ranking group for serious medical outcomes, including death. Overall, the data indicated that cannabis produced fewer negative outcomes than Schedule I, Schedule II drugs, and, in some cases, alcohol.

CANNABIS HAS A CURRENTLY ACCEPTED MEDICAL USE IN TREATMENT IN THE UNITED STATES

To determine whether cannabis has a currently accepted medical use (CAMU) in the U.S., HHS evaluated a two-part standard: 1) whether “[t]here exists widespread, current experience with medical use of the substance by [healthcare providers] operating in accordance with implemented jurisdiction-authorized programs, where medical use is recognized by entities that regulate the practice of medicine”; and 2) whether “[t]here exists some credible scientific support for at least one of the medical uses for which Part 1 is met.”

Under Part 1, HHS confirmed that more than 30,000 healthcare providers across 43 U.S. jurisdictions are authorized to recommend the medical use of cannabis for more than six million registered patients for at least 15 medical conditions. The Part 1 findings, therefore, supported an assessment under Part 2. Under Part 2, HHS reported that, based on the totality of the available data, there exists some credible scientific support for the medical use of cannabis. Specifically, credible scientific support described at least some therapeutic cannabis uses for anorexia related to a medical condition, nausea and vomiting (e.g., chemotherapy-induced), and pain.

Overall, while HHS reported that cannabis has a currently accepted medical use in the U.S., the Food and Drug Administration (FDA) underscored that such a finding does not mean that the FDA has approved cannabis as safe and effective for marketing as a drug in interstate commerce under the Federal Food, Drug, and Cosmetic Act.

ABUSE OF CANNABIS MAY LEAD TO MODERATE OR LOW PHYSICAL DEPENDENCE OR HIGH PSYCHOLOGICAL DEPENDENCE.

Lastly, HHS concluded that research indicated that chronic, but not acute, use of cannabis can produce both psychic and physical dependence in humans. However, while cannabis “can produce psychic dependence in some individuals,” HHS emphasized that “the likelihood of serious outcomes is low, suggesting that high psychological dependence does not occur in most individuals who use marijuana.”

Legal Ramifications of New Scheduling

Changing cannabis from Schedule I to Schedule III may potentially allow cannabis to be lawfully dispensed by prescription5 and states’ medical cannabis programs may now be able to comply with the CSA. However, it would not make state laws legalizing recreational cannabis use in compliance with federal law without other legal changes by Congress or the executive branch. Under the change, medical cannabis users may be eligible for public housing, immigrant and nonimmigrant visas, and the purchase and possession of firearms. They may also face fewer barriers to federal employment and eligibility to serve in the military. Researchers would face less regulatory controls, and the DEA would no longer set production quota limitations for cannabis. Because the prohibition on business deductions in Section 280E of the Internal Revenue Code only applies to Schedule I and II substances of the CSA, changing cannabis from Schedule I to Schedule III would allow cannabis businesses to deduct business expenses on federal tax filing.

Importantly, some criminal penalties for CSA violations depend on the schedule of the substance. Thus, if cannabis were to be reclassified as a Schedule III substance, some criminal penalties for CSA violations would no longer apply or be significantly reduced. However, CSA penalties that specifically apply to cannabis, such as quantity-based mandatory minimum sentences, would not change under a new rescheduling.

Many advocates consider HHS’s findings a step in the right direction. Specifically, supporters consider the findings further evidence that cannabis should be removed from the CSA altogether and regulated akin to tobacco and alcohol (referred to as descheduling). Given the momentum of cannabis legalization across U.S. states and breakthroughs in the medical and scientific advantages of cannabis, Congressional or Executive legalization, or – at very least – descheduling of cannabis may be on the horizon.

1 The CSA classifies the cannabis plant and its derivatives as “marijuana.” The CSA definition of marijuana excludes (1) products that meet the legal definition of hemp and (2) the mature stalks of the cannabis plant; the sterilized seeds of the plant; and fibers, oils, and other products made from the stalks and seeds.

2 Congress has granted the states some leeway in the distribution and use of medical marijuana by passing an appropriations rider preventing the Department of Justice from using taxpayer funds to prevent states from “implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.” Courts have interpreted this as a prohibition on federal prosecution of state-legal activities involving medical cannabis.

3 In its report, HHS defined “abuse” to mean the “intentional, non-therapeutic use of a drug to obtain a desired psychological or physiological effect.”

4 Alcohol is not a scheduled controlled substance, but was used as a comparison because of its extensive availability and use in the U.S., which is also observed for the nonmedical use of cannabis.

5 Although the FDA has approved some drugs derived from cannabis, cannabis is not presently an FDA-approved drug.

Ohio Votes for the Decriminalization of Marijuana

On November 7, 2023 Ohio voters approved the Issue 2 ballot initiative, which will make substantial revisions to Ohio’s cannabis laws[1] and make Ohio the 24th state[2] to legalize recreational marijuana. Issue 2 was introduced by the Coalition to Regulate Marijuana Like Alcohol which, according to the group, sought to legalize and regulate the cultivation, manufacturing, testing and sale of marijuana and marijuana products to adults and also legalize home grow for adults. Reports suggest over two million Ohioans voted to approve Issue 2, a relatively high turnout given 2023 was an off-year election.[3]

Passage of Issue 2 creates Chapter 3780 in the Ohio Revised Code, which makes several changes to how Ohio law addresses marijuana, including:

Empowering a division within the Ohio Department of Commerce to regulate, investigate and penalize cannabis operators and laboratories;
Legalizing and regulating the cultivation, manufacture, testing and sale of cannabis;
Decriminalizing the cultivation and growing of up to six plants per person and 12 plants per residence;
Permitting the sale of cannabis products in the form of plant material and seeds, live plants, clones, extracts, drops, lozenges, oils, tinctures, edibles, patches, smoking or combustible product, vaporization of product, beverages, pills, capsules, suppositories, oral pouches, oral strips, oral and topical sprays, salves, lotions or similar cosmetic products and inhalers;
Providing for a 10% adult use tax—which is separate from the sales tax—on the sale of cannabis, the proceeds of which will be deposited in the Adult Use Tax Fund and further distributed to four newly created funds:
- 36% to the Cannabis Social Equity and Jobs Fund
- 36% to the Host Community Cannabis Fund
- 25% to the Substance Abuse and Addiction Fund
- 3% to the Division of Cannabis Control and Tax Commissioner Fund;
Establishing the cannabis social equity and jobs program, which will focus on addressing historically disproportionate enforcement of marijuana-related laws through efforts such as licensing and financial assistance;
Authorizing landlords and employers to prohibit the use of cannabis in certain circumstances;
Creating a program for cannabis addiction services; and
Designating Franklin County, Ohio courts as the venue for any court actions related to Chapter 3780.

The law becomes effective 30 days after passage of Issue 2.

The passage of Issue 2 will not be a carte blanche to cultivate, sell and possess marijuana/cannabis. Criminal penalties will also be enforced, including minor misdemeanors for the use of cannabis in public areas, criminal sanctions for fraudulent purchase by those under 21 years old, application of O.R.C. § 4511.19 (“OMVI”) against persons operating a vehicle or bike while using or under the influence of cannabis and application of O.R.C. § 2925.11 (“Possession of controlled substances”) against anyone possessing a greater amount of cannabis than authorized.[4] Unless cannabis is reclassified as a Schedule I Controlled Substance, it remains illegal under federal law.

People and entities seeking to operate as a cultivation facility or adult use dispensary will be required to apply for, and be granted, a certificate of operation. Licensure will occur through the Ohio Department of Commerce.[5]

Legally, Issue 2 was an “initiated statute”[6] that amended the Ohio Revised Code rather than amending the Ohio Constitution,[7] meaning the Ohio General Assembly could pass laws to modify the changes implemented under the ballot initiative. As such, the regulatory details of the legalization and sale of marijuana in Ohio is far from set in stone.

Passage of Issue 2 presents a new and lucrative opportunity for Ohio entrepreneurs and businesses and Dinsmore attorneys have extensive experience in licensure and regulatory compliance of such facilities. If you have questions about applying for a certificate of operation, or whether your activities will comport with Ohio’s new laws, please contact a Dinsmore attorney.

[1] According to the ballot initiative text, “adult use cannabis, cannabis, and marijuana are all defined to mean marihuana” as defined in O.R.C. § 3179.01.

[2] The District of Columbia, Guam, and the Northern Mariana Islands have also legalized recreational marijuana.

[3] Final Issue 2 count available here.

[4] See O.R.C. §§ 3780.99(A)-(C), 3780.36(D)(1).

[5] O.R.C. § 3780.03.

[6] According to the Ohio Secretary of State, “initiated statutes” allow citizens to submit a proposed law to the people of Ohio for a statewide vote if that citizen feels that an issue is not addressed properly in the Ohio Revised Code.

[7] On November 7, Ohio also voted on amendment of the Ohio Constitution relating to abortion and other reproductive decisions

Article by Daniel S. Zinsmaster , Christopher B. Begin of Dinsmore & Shohl LLP

For more articles on Cannabis, visit the NLR Biotech, Food, Drug section.

Marijuana in the Manufacturing Workplace

The requirement to maintain a safe workplace often clashes with state and local laws that protect the rights of individuals who use marijuana while off-duty, creating unique challenges for manufacturing employers.

Manufacturing employers still may prohibit the use of marijuana at work, as well as marijuana impairment at work. But marijuana drug testing is complicated and controversial because of the legal protections for off-duty marijuana use in some states and cities, the legal protections for medical marijuana users in many jurisdictions, and because there are no drug tests that can detect current marijuana impairment or very recent use of marijuana.

Federal Law

Manufacturers no longer should defend “zero tolerance” marijuana drug testing policies. Previously, employers could argue that marijuana still is illegal under federal law or that the employer is a federal contractor that must comply with the federal Drug-Free Workplace Act. The federal government has not enforced the law that makes marijuana illegal for some time, and it has permitted states to create and enforce their own laws with respect to medical and recreational marijuana.

Some courts have recognized that the federal government is allowing state governments to regulate marijuana and, therefore, courts are enforcing state marijuana laws despite marijuana’s illegal status at the federal level. Courts also have rejected arguments that federal contractors “must follow federal law” because the federal Drug-Free Workplace Act does not require drug testing and does not permit employers to regulate off-duty conduct.

State Laws

At present, 39 states and the District of Columbia have medical marijuana laws, while 22 states and the District of Columbia have recreational marijuana laws (Maryland’s law will take effect in July and others will be enacted in the coming months). Many of these laws provide employment protections to applicants and employees. The variations in the laws make it difficult for multi-state manufacturers to have consistent marijuana policies in all locations.

What It Means for Employers

Due to the recent trend in some states to protect off-duty use of marijuana, and even prohibiting pre-employment marijuana testing, many manufacturers are discontinuing pre-employment marijuana testing, especially in states where marijuana is legal. Applicants often are surprised to learn that a positive marijuana drug test will lead to withdrawal of the job offer. If the positive marijuana drug test result is due to medical use (and there are no general off-duty protections in the state), manufacturers must be familiar with the applicable law.

Some states prohibit discrimination against medical marijuana users, while other states may allow an employer to take an adverse employment action if the job is considered “safety-sensitive,” i.e., a job with dangerous duties, as defined by applicable state law.

In certain other states where discrimination is prohibited and the manufacturing employer has safety concerns, the employer should engage in the “individualized assessment” and “direct threat analysis” required under state laws that mirror the federal Americans With Disabilities Act. This process includes discussions with the applicant and the applicant’s physician to assess the safety risk.

Reasonable suspicion marijuana testing is permissible in most states because impairment at work never is permitted. In states where off-duty marijuana use is protected, manufacturers should rely on the impaired behaviors when taking disciplinary action, rather than rely solely on the positive marijuana drug test result (assuming that testing for marijuana is permitted). This is because marijuana stays in the human body for a long time, so the positive drug test result is not conclusive proof that the employee was impaired at work. Manufacturers also should make sure that supervisors and managers are trained to observe and document reasonable suspicion determinations properly, as these documented observations will be key evidence in a potential lawsuit.

To make matters even more complicated, CBD (cannabidiol), “low THC,” and hemp products are being marketed and sold everywhere since Congress legalized hemp (having no more than 0.3 percent THC, the psychoactive component of marijuana) in 2018. Separate from marijuana laws, the use of “low THC” or CBD products is allowed in a number of states, usually for medical purposes, which means that manufacturing employers should tread carefully when an applicant or employee claims to use CBD products for medical reasons. While many CBD and hemp products are marketed as having little or no THC, these statements may not be true, because the U.S. Food and Drug Administration does not yet regulate them. These products may cause positive drug test results for marijuana. There has been an increase in lawsuits where former employees claim that their positive marijuana drug test results allegedly were caused by CBD products.

While it appears that marijuana eventually will be legalized at the federal level, manufacturers must ensure they are complying with all applicable laws. Manufacturing employers should:

Review drug and alcohol policies for compliance with applicable drug testing and marijuana laws;
Remove marijuana from the drug testing panel in locations where testing for marijuana is prohibited and locations where off-duty use is protected and consider removing it in other locations where it may be an obstacle in the hiring process;
Train Human Resources employees and other managers to engage in the interactive process with employees who use medical marijuana (or medical CBD products); and
Train supervisors to make appropriate and timely “reasonable suspicion” determinations.

For more cannabis legal news, click here to visit the National Law Review.

Tag: Cannabis

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