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US recommendation to reschedule cannabis marks ‘significant shift in drug policy’ and ‘new opportunities’ for industry

The US Department of Health and Human Services (HHS) recommendation to reschedule cannabis marks a significant shift in drug policy, untangling decades of prohibition and offering new opportunities for the industry, writes FoxNRTH’s Principal, Chris Murray. But there are still a number of questions that need to be answered. 

To discuss this article, please contact Chris Murray at info@foxnrth.com

To the delight and surprise of many across the world, on Thursday, August 30, 2023 a statement was released from the Department of Health and Human Services in the United States government which stated that the Secretary of HHS would be recommending rescheduling cannabis (marijuana) to a schedule III controlled substance.

With this change, the United States has begun to untangle a federal drug policy of prohibition that has been in place and exported globally since the 1960s.

Now as the American and global cannabis industry waits for the official change of schedule to be made, many businesses are trying to make sense of what this opportunity provides to them. Although reducing regulatory and compliance barriers, as well as reclassifying how cannabis is defined will introduce a number of new paths to market for the industry, one core focus will be on 280E.

Until the multi-state operators emerged in the United States, references to 280E were fairly limited to courts focusing on the prosecution of drug trafficking. In its spirit, the law works to entangle financial malfeasance with broader illicit activity.

By moving cannabis to Schedule III on the Controlled Substances schedule, 280E is no longer applicable as it is specific to Schedule I and II substances. In short, 280E goes away and presents a very interesting situation for the IRS. Can deferred expenses now be recouped? Will the IRS use its discretion to reject the expense claims anyway? Which it can do. Or perhaps the IRS gets ahead of this and produces its own guidance for filing? Regardless of how the financial changes occur, it remains highly likely that the cannabis industry stands to be far more profitable going forward.

Practically speaking, the rescheduling of cannabis does not make cannabis federally legal, nor does it make State-produced medical or recreational cannabis legal. What it does is make the prescription of cannabis as a medical substance more secure as the federal government would now be acknowledging existing medical properties.

This acknowledgment is where opportunity lies. Although many companies have chosen not to focus on developing medical cannabis products across the United States, it may in fact be the case that medically focused products are the first products to benefit from interstate commerce. This type of opportunity would ultimately be predicated on what standards are implemented and whether the FDA is involved in establishing a regulatory regime.

In examining the landscape for companies we work with we have focused our recommendations on consolidating the feedback the government has provided in increments over the last two to three years. For example, it is very likely that any cannabis product that is not a registered pharmaceutical drug that is allowed for sale and use will need to follow the FDA botanical drug production standards which the FDA has stated would be a key factor in the consideration of any hemp-derived products.

Another area of consideration for companies looking to develop successful medical cannabis products for the US market going forward is to begin collecting data. The FDA has doubled down on its recognition of the value of real-world data and evidence and any cannabis company that is currently selling medical products could begin to start to collect that preliminary data to support future product submission requirements.

On the global scale, there are certainly considerations that will need to be made as the change relates to the single convention on psychotropic substances but there’s also potential opportunity for international cannabis manufacturers in the United States. As was just referenced one of the areas that state cannabis production may struggle is upgrading their production environments to a GMP standard. As it stands presently there is only one public cannabis company that has completed FDA inspections and has delivered approved research material to American researchers. This company is MediPharm Labs based in Ontario, Canada.

In conclusion, the recommendation to reschedule cannabis to a Schedule III controlled substance by the Department of Health and Human Services marks a significant shift in drug policy. This move untangles decades of prohibition, offering new opportunities for the cannabis industry. While not equating to federal legalization, it strengthens the recognition of medical cannabis. Businesses can capitalize on this by adhering to evolving FDA standards and collecting real-world data for future products.

This change also has global implications, potentially allowing international cannabis manufacturers access to the U.S. market. Navigating this transition requires aligning strategies with government feedback and regulatory changes. The rescheduling sets the stage for a more integrated and commercially viable future for the cannabis industry.

Answers still to come

  • When we can expect changes to come into force.
  • What are the implications of domestic rescheduling as it relates to the US’s participation in the UN Single Convention treaty?
  • What active ingredients would be defined as part of cannabis on Schedule III?
  • What degree of changes will be needed for state regulations that directly reference the Schedule 1 status of marijuana?
  • What the role of the FDA will be once the government has officially acknowledged the medical potential of cannabis?
  • What the impact will be on DEA permit holders?

About FoxNRTH

FoxNRTH is the product of well over a decade of experience working in multiple regions around the world across half a dozen industries. Please email for further information and to contact Chris: info@foxnrth.com

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