2023 was an active year in both the cannabis and psychedelics spaces, with significant developments across policy, research, litigation, and beyond. While states have largely led on the policy front, we expect increased federal attention in both areas this year, in addition to continuation of state policy developments.
Rescheduling of Marijuana Under the Controlled Substances Act
Major federal cannabis reform appears to be on the horizon, but don’t hold your breath for legalization under federal law in 2024. Although legalization—i.e., complete removal or descheduling of marijuana under the federal Controlled Substances Act (CSA)—is doubtful to happen anytime soon, marijuana is likely to be rescheduled from Schedule I to the less restrictive Schedule III category under the CSA, perhaps as early as this year. The U.S. Department of Health and Human Services (HHS) recommended in August 2023 that the Drug Enforcement Administration (DEA) reschedule marijuana from Schedule I to Schedule III, and DEA is currently reviewing and considering that recommendation – note that HHS’s (really, the U.S. Food and Drug Administration’s (FDA)) recommendation just recently became public because of a Freedom of Information Act (FOIA) lawsuit filed against HHS. Most signs indicate that the rescheduling will occur, which would be a historic shift in federal cannabis policy. However, the exact timing in which rescheduling might occur is not certain.
The CSA contains five schedules into which drugs, substances, and certain chemicals to make drugs may be categorized, ranging from Schedule I (most restrictive) to Schedule V (least restrictive). Since 1970, marijuana has been designated a Schedule I substance under the CSA, meaning that, by definition, it has a high potential for abuse and no currently accepted medical use – some examples of other Schedule I drugs are heroin, lysergic acid diethylamide (LSD), and methylenedioxymethamphetamine (MDMA) (ecstasy). Schedule III, on the other hand, consists of drugs that have a lower potential for abuse than those on Schedules I and II, have a currently accepted medical use, and abuse of the substance may lead to only moderate or low dependence. Schedule III includes substances like Tylenol with codeine and anabolic steroids.
On October 6, 2022, President Biden issued a statement that, among other things, initiated the administrative process to review how marijuana is scheduled under the CSA. Less than one year later, in August 2023, it was reported that FDA had completed its review of marijuana's potential medical uses and public health risks, and the Assistant Secretary for Health at HHS issued a letter to DEA recommending that marijuana should be moved from Schedule I to Schedule III under the CSA. On January 12, 2024, HHS released a full, unredacted copy of its over 250-page findings and recommendation that accompanied its August 2023 letter to DEA, which included reviews and recommendations from FDA and the National Institute on Drug Abuse (NIDA) for rescheduling of marijuana to Schedule III. This marks the first time the federal government has acknowledged that cannabis has currently accepted medical use, although most states had already acknowledged as much by adopting their own medical cannabis laws and implementing programs related to the same.
As far as timing for potential rescheduling, HHS’s recommendation with respect to its findings on the science behind marijuana's potential health risks and benefits is binding on DEA, see 21 U.S.C. § 811(b), but DEA still has final authority regarding the decision whether to reschedule marijuana after considering relevant criteria. DEA would then undergo a rulemaking process including a public notice-and-comment period, and will allow interested parties to request hearings on the proposed rules. Even then, some expect a variety of lawsuits to emerge that could slow down the rescheduling process.
To be clear, rescheduling marijuana under Schedule III would not legalize it. However, rescheduling would have meaningful implications. For example, cannabis businesses would no longer be precluded from taking business deductions or credits under federal tax law, which presently imposes a significant burden and financial handicap (to put it mildly) for cannabis businesses compared to other businesses. Specifically, marijuana would no longer be subject to Internal Revenue Code Section 280E, which prohibits any businesses “trafficking in controlled substances (within the meaning of schedule I and II of the [CSA])” (i.e., marijuana) from taking business deductions or credits. Rescheduling to Schedule III could also remove some obstacles on medical research regarding cannabis and potentially permit doctors to issue prescriptions for medical cannabis. Some have suggested such a change would place all medical marijuana production under federal government oversight and would spell the end of all state marijuana programs. Such a dramatic shift seems unlikely, however, as federal regulators have allowed state medical and adult-use programs to flourish, despite marijuana’s current status as a Schedule I controlled substance. In addition, simple rescheduling, absent appropriations from Congress to FDA and/or DEA, would not necessarily yield active oversight from these agencies. They both have significant portfolios already, and to actively regulate a complex new area of the law without dedicated budgets (and personnel) to do so seems very unlikely.
SAFER Banking Act
Rescheduling marijuana would also provide additional pressure for much-needed banking reform—namely, the passage of the Secure and Fair Enforcement Regulation (SAFER) Banking Act – this legislation, or similar measures, has passed the House of Representatives numerous times. It has never passed the Senate. Many financial institutions have chosen not to provide services to state-legal cannabis businesses for fear of violating federal anti-money laundering laws or aiding and abetting a federal crime. SAFER would create protections for financial institutions to accept deposits and provide services (including bank accounts, checks, and credit cards) to state-licensed cannabis businesses. As noted above, several iterations of the SAFER Banking Act have failed in the Senate, and although the Act passed the Senate Committee on Banking, Housing and Urban Affairs with a bipartisan vote of 14-9 on Sept. 27, 2023, passage of the law by the entire body in 2024 is far from certain.
Hemp Derivatives Litigation
Litigation will likely continue through 2024 in various state and federal courts regarding the legality and regulation of certain intoxicating hemp-derived substances such as delta-8 tetrahydrocannabinol (THC). The Agricultural Improvement Act of 2018 (the “2018 Farm Bill”) legalized hemp (defined in the bill as cannabis with a delta-9 THC level of not more than 0.3 percent on a dry weight basis) by removing it from the CSA. The law, however, left open a potential loophole whereby intoxicating hemp derivatives that mirror the effects of delta-9 THC, such as delta-8 and delta-10 THC, are technically legal under the 2018 Farm Bill because they do not contain more than 0.3 percent delta-9 THC. A growing number of lawsuits have arisen in various states where members of the hemp industry have sought to bar enforcement of state policies and laws precluding or restricting the sale of intoxicating products derived from legal hemp. One argument raised by hemp advocates is that those state laws should be preempted by the 2018 Farm Bill, which otherwise legalized hemp and hemp derivatives nationwide. This fight has arisen in several states, including Virginia, Arkansas, Texas, Maryland, and Alaska, and courts have come down on both sides of the issue. A growing number of states are enacting similar policies, which will undoubtedly lead to more lawsuits.
The 2018 Farm Bill was set to expire on September 30, 2023, and some had hoped that the new iteration of the Farm Bill would contain language addressing this issue. However, Congress did not adopt a new version of the bill, and in November 2023, the 2018 Farm Bill was extended through September 30, 2024. Still, it is unclear whether the 2024 Farm Bill (assuming it comes together by the new deadline) will settle the issue. Rather, it may be left to the states and the courts to hash out. In any event, one thing is certain—litigation over delta-8 THC and other so-called intoxicating cannabinoids will continue this year.
States That May Be Next To Legalize Cannabis
At this point, the majority of states (40) and the District of Columbia (DC) have legalized medical cannabis, and 24 states have legalized cannabis for adult use (DC has an adult-use “gifting” program, but not a regulated commercial program). The question remains: who’s next? The states with the best shot at joining the cannabis legalization wave could include Florida, Pennsylvania, Hawaii, and/or New Hampshire. Florida must first overcome a court challenge to permit the issue to go before voters, although Governor Ron DeSantis said on January 22, 2024 that Florida voters will likely see legalization on the November ballot (assuming the Florida Supreme Court approves the measure). The Court is expected to decide on this matter soon – the proposal was challenged by the state's attorney general. Pennsylvania, on the other hand, has seen multiple legalization efforts get deadlocked in the Commonwealth’s legislature. Still, with its neighbors having already legalized adult-use cannabis, Pennsylvania remains on the list of those likely to legalize next, even if it does not happen this year. Spectators are similarly watching legalization proposals in Hawaii and New Hampshire.
Psychedelics Developments
Stakeholders have observed that the recent research and policy developments in the psychedelics space look similar to the developments in the cannabis space from 2010 – 2015 (i.e., those that shaped the modern cannabis landscape). Both California and Massachusetts are set to consider psychedelics policy measures this year, either through legislation, ballot initiative, or both. Separately, Colorado will begin reviewing applications for psilocybin licensure before the end of this year. Finally, this year FDA will continue to consider a new drug application (NDA) filed by MAPS in late 2023, requesting approval of MDMA to treat post-traumatic stress disorder (PTSD). FDA previously granted breakthrough therapy designation for MDMA-assisted therapy for PTSD. If FDA approves MAPS’ NDA, it would be the first psychedelic therapeutic ever approved in the U.S.
