The DEA Announces Intent To Reschedule Cannabis From Schedule I To Schedule III: What Does This Mean For The Industry?

The Biden administration's plan to reclassify cannabis as a Schedule III substance through the Drug Enforcement Administration (DEA) could have profound implications for New York City's cannabis industry, the state, and the entire nation. This move, recognizing cannabis's medical benefits, signifies a major departure from its longstanding criminalization under the Controlled Substances Act and could significantly impact research and the industry as a whole.

What Is Schedule III?

The U.S. Department of Justice (DOJ) is proceeding with this recommendation, grouping cannabis with current Schedule III drugs like ketamine and Tylenol with codeine, indicating a lower risk profile. However, the White House Office of Management and Budget (OMB) has to approve the request. This process is expected to be lengthy, involving public comment, and could take months to finalize.

Currently designated as a Schedule I substance alongside heroin and ecstasy, cannabis has faced strict restrictions and has been deemed to have no accepted medical use. The proposed reclassification to Schedule III follows a comprehensive review by the U.S. Food and Drug Administration (FDA), prompted by President Biden's support for the change.

In New York, where medical and adult-use cannabis are legal, this reclassification could open up new research opportunities and lead to potential illegal penalty reform. However, as with all of the 37 states plus the District of Columbia that have implemented some legalized cannabis program, New Yorkers will have to wait.

Potential Problems: What Does The Move To Schedule III Mean For The Cannabis Industry?

Restorative justice nonprofit Last Prisoner Project shared via Instagram that "there are no changes in how the criminal legal system punishes cannabis users" that will accompany the shift from Schedule I to Schedule III This is because under federal law, cannabis would remain illegal for recreational use, further perpetuating conflict with states that have legalized it.

Rescheduling Does Not Free Cannabis Prisoners, And Causes Federal-State Conflict

As Honeysuckle reported in August 2023 when the FDA first recommended that the DEA reschedule the plant, a move to Schedule III encompasses just as many potential problems as it does solutions. Rescheduling will not free anyone currently incarcerated on cannabis charges, nor would it guarantee any expungement of records in states where it is not already the policy to do so. And what becomes of the states that have legalized cannabis? Would their medical and adult-use markets be forced to close? Would their small businesses and local craft brands be shut out of the industry, assuming that these businesses might have trouble coping with the expensive price tags of pharmaceutical compliance?

Schedule III Could Cause Cannabis Accessibility Issues

Schedule III makes cannabis accessible only via pharmaceutical prescription. The disparity between rich and poor in our nation's healthcare system may well be exacerbated by the imposition of rescheduling, because to have access to a pharmaceutical prescription, one needs a regular medical physician. That also assumes that one has a medical doctor willing to write such a prescription. Even in states with current medical programs, many healthcare professionals have been reluctant to engage with cannabis. Could the advent of new research under Schedule III make them more confident in the plant? It's possible, but not guaranteed. 

Could Rescheduling Erase Cannabis Product Categories?

There's also the consideration that creating that pharmaceutical barrier could wipe out entire product categories of innovation that don't meet DEA or FDA standards. That infused seltzer you liked at a party? The cooking oil or honey you used for an elevated dinner with friends? Those chocolates that helped you sleep? If they're from a small company or pioneering a new category, they are in high danger of being snapped out of existence.

What Does Schedule III Mean For Cannabis Businesses And Tax Code 280E?

Supporters of the move to Schedule III are optimistic about the idea that cannabis businesses could finally stop worrying about Tax Code 280E, which prevents companies working with controlled substances from deducting standard business expenses. This could happen. But what's more likely is that large corporations and multi-state operators (MSOs) will be the only cannabis brands to benefit from such a thing. Meanwhile, the small businesses and family-owned brands, the heart of the cannabis community, are extremely unlikely to derive any perks from this. These are the businesses suffering the most under 280E, and it's more possible that they will be crushed in the fervor to adapt to rescheduling than they will benefit from it.

A Symbolic Move That Doesn't Align With The Public: NORML On Schedule III

Yet despite these points and the ongoing federal-state dispute, the move is viewed as symbolic. The reclassification, recommended by the U.S. Department of Health and Human Services (HHS), would acknowledge cannabis's medical uses for the first time in 50 years. 

Paul Armentano, Deputy Director of the National Organization for the Reform of Marijuana Laws (NORML), remarked, "It is significant for these federal agencies, and the DEA and FDA in particular, to acknowledge publicly for the first time what many patients and advocates have known for decades: that cannabis is a safe and effective therapeutic agent for tens of millions of Americans." Yet he reiterated warnings that have come from many at NORML, the country's oldest cannabis legalization advocacy organization, that rescheduling doesn't fully  align with public opinion or states where cannabis has been legalized or decriminalized.

"The goal of any federal cannabis policy reform ought to be to address the existing, untenable divide between federal marijuana policy and the cannabis laws of the majority of U.S. states" Armentano continued. "Rescheduling the cannabis plant to Schedule III fails to adequately address this conflict, as existing state legalization laws — both adult use and medical — will continue to be in conflict with federal regulations, thereby perpetuating the existing divide between state and federal marijuana policies."

The shift to Schedule III will have broad effects on the industry, including potentially enabling New York's cannabis businesses to access banking services more freely—which has been a headache for sometime now. However, more comprehensive legislation is needed to fully address the conflict between federal and state cannabis laws. It will be important to monitor how this change unfolds and its specific implications for New York City's market, New York State, and the nation as a whole.

What Are Cannabis Industry Leaders And Stakeholders Saying About The DEA's Shift To Schedule III?

Cannabis industry leaders, stakeholders, and advocates reacted to the DEA's announcement with a "full spectrum" of emotions. Some were celebratory, although many fell somewhere in between optimism and disappointment that the agency did not embrace the vast evidence in support of descheduling. Still others derided the move. As advocate @statsobers posted on Instagram: "Making it Schedule III doesn't help at all."

Joseph A. Bondy, Founding Principal, The Law Offices of Joseph A. Bondy, and Vice Chair, NORML Board of Directors

"Despite today's historic announcement by the DEA to move botanical cannabis to Schedule III, there remains much work to be done. Marijuana is not ketamine or anabolic steroids, and should not be scheduled alongside them. Moreover, there are no state-licensed ketamine shops that I know of, and no one should need to be a patient simply to buy cannabis – particularly from 'Duane Weed' or 'Weedgreen's.' NORML's consumer advocacy work is as essential as ever to achieving full-scale, de-scheduled legalization, throughout the nation.

We need to bring all our pot prisoners home, and ensure that no one is jailed, stigmatized, or marginalized ever again for using this beautiful and benign botanical."

Sarah Gersten, Executive Director, Last Prisoner Project

"Last Prisoner Project believes that complete descheduling and full legalization of cannabis is a necessary step towards correcting past injustices and creating a fair and equitable criminal legal system. We will continue to work tirelessly to ensure that individuals burdened with past cannabis convictions have their records expunged and that all cannabis prisoners are released, regardless of the federal scheduling decision. Despite not achieving full legalization, we must use this historic moment to push the fight for cannabis justice forward and we intend to do so by leveraging this reclassification for broader criminal legal reforms as outlined here."

Michael Bologna, CEO, Dip Devices

"The rescheduling of cannabis represents a significant shift in the government's understanding of drug policy's ethical dimensions and the damaging individual and community-level impact that the restriction of cannabis has had. This shift is a moral imperative more than a long-overdue legal response to what has occurred at the state level for cannabis regulation. By acknowledging cannabis's potential for positive social impact and its role in equitable healthcare access, a crucial step toward dismantling the harmful legacy of the war on drugs and creating a more just and compassionate society has been taken. However, it must be followed by a full descheduling with accompanying prisoner release, and expungement plans to more equitably address the issues of cannabis restriction."

Ricky Williams, Founder, Highsman and Co-founder, Cannabis Freedom Party

"Moving cannabis from Schedule I to a Schedule III drug on the Controlled Substances List is just the first winning drive in what's going to be a long hard-fought game to bring about an end to the War on Drugs. While some may say that descheduling is truly what's needed, today's decision put necessary points on the board for medical cannabis patients across this country."

Chris Roberts, Political Reporter/Analyst, MJBizDaily

"This is big, yes, but it's only a step on a longer road. This is an historic development with revolutionary implications. Once it's finalized, legal marijuana businesses will enjoy tax savings and ought to have an easier time finding investors, but the main impact is additional pressure on Congress to finally bend to public opinion and change outdated Nixon era policies."

Sarah Carter, Communications Director, Symple Seeds

"The reclassification of cannabis from Schedule I to Schedule III reflects a growing recognition of the nuanced nature of cannabis and its potential medical applications. As a company deeply invested in providing comprehensive seed solutions, we view this development as a positive step toward removing unnecessary barriers surrounding cannabis, paving the way for more stable, inclusive and sustainable industry practices."

David Craig, Chief Marketing Officer, Illicit Gardens

"Today's historic rescheduling proves what cannabis enthusiasts  have always known—cannabis is a legitimate medicine with proven uses. While this isn't the dream of full recreational legalization at the federal level many were hoping for, this is the next best thing and one with immediate positive impacts for all cannabis businesses and consumers alike. If there's one thing cannabis businesses are, it's resourceful, and with these loosening of restrictions we can finally see what this industry really can do."

John Hartsell, Co-founder, DIZPOT

"Cannabis has long been known as a safe and beneficial plant medicine and deserves a place in the legal medicinal marketplace. Prohibition only enriches big pharma while imprisoning good people. De-scheduling the plant is the only way mainstream use of cannabis will be adopted and consumed for life-saving purposes."

Alyza Brevard Rodriguez, Owner, The Other Side Dispensary

"Reclassifying cannabis from a Schedule I to a Schedule III means so much for our dispensary, The Other Side, and New Jersey. It's not only the potential tax benefits and financial relief through write-offs, especially during the crucial early years of opening a business, but it also opens doors for more research opportunities, reducing stigmatization and legitimizing the industry further. These changes could usher in a new era of acceptance and growth for cannabis businesses, fostering innovation and expanding its role in the economy."

Gretchen Gailey, Co-founder, American Cannabis Collective

"While this move is undoubtedly a huge win for patients, we must not lose sight of the broader context. Moving cannabis to Schedule 3 does not mark the end of prohibition. We caution against any attempts to overstate the significance of this decision. It remains imperative for states to continue their efforts to legalize cannabis and for the federal government to take decisive action to fully deschedule cannabis. This decision may bring an end to certain regulatory burdens such as Section 280E, but its implications for the industry as a whole remain uncertain."

Frederika McClary Easley, Vice President, Minority Cannabis Business Association

"This move is of course not the end goal, but it is a step in the right direction. Cannabis needed a win, needed movement… here we are. We must continue to apply pressure to ensure that small, minority owned businesses feel relief and ultimately to free the plant and the people."

—

Written By:

Kally Compton (They/Them/She/Her) is a culture writer, poet, and content creator. Based in New York, they currently write and contribute to various culture, cannabis, and fashion publications. They are the former Editorial and Production Director for The Lexington Line, LIM College's culture and fashion magazine.