US Justice Department Downgrades Risk of State-Licensed Medicinal Marijuana

Medicinal marijuana products that are legal at the state level will see looser federal regulation under an order the U.S. Department of Justice published Thursday, while a process that could remove the drug in all forms from the federal list of the most dangerous drugs is set to begin in late June.

Buds of marijuana on display inside Mother Earth Wellness in Pawtucket, Rhode Island. (Photo by Christopher Shea/Rhode Island Current)

The order, signed by acting Attorney General Todd Blanche, shifts many marijuana products from Schedule I — the Drug Enforcement Administration’s list of drugs with the greatest potential for abuse and least legitimate use — to Schedule III.

That will open the door to greater research and provide an effective tax break for businesses that sell medicinal marijuana that is legal under state law.

The move follows President Donald Trump’s executive order last year directing the DOJ to move toward rescheduling.

“The Department of Justice is delivering on President Trump’s promise to expand Americans’ access to medical treatment options,” Blanche said in a statement. “This rescheduling action allows for research on the safety and efficacy of this substance, ultimately providing patients with better care and doctors with more reliable information.”

The order applies to state-licensed medical marijuana products in the states that allow medicinal use of the drug.

The move means those businesses can deduct business expenses from their federal taxes, and researchers have access to state-legal products. As a Schedule I drug, only cannabis grown in a federal facility could be studied, severely limiting the supply available to researchers.

The DEA also scheduled a hearing on broader reclassification to begin June 29 and end no later than July 15. That hearing will explore the possibility of rescheduling marijuana products that could include recreational use.

The order likely has no immediate impact on the difficulty marijuana businesses have had accessing the banking system. Institutions that lend to even state-legal businesses could be prosecuted on federal money laundering charges for offering banking services to businesses that violate federal drug laws.

‘Historic’ shift

Moving a limited number of products from Schedule I, which includes drugs such as heroin and cocaine, to Schedule III, which includes highly regulated prescription drugs such as acetaminophen with codeine, does not satisfy advocates who have called for complete legalization.

But it does represent a major shift in the federal government’s official position on cannabis, several pro-legalization groups said.

“It’s historic because the federal government, historically, has denied the existence of medical cannabis, even as a concept,” Paul Armentano, the deputy director of the advocacy group the National Organization for the Reform of Marijuana Laws, said in an interview.

The federal government was in recent memory “outright hostile” to medicinal marijuana, Armentano added. The order “finally acknowledges and recognizes not only the legitimacy of marijuana as a medicine, but also the legitimacy of these state programs, and it is trying now to integrate these state programs into our own existing federal regulatory schemes.”

Forty states and the District of Columbia allow medicinal marijuana.

Jasmine Johnson, CEO of Florida-based cannabis company GŪD Essence, wrote in an email that the federal government’s acknowledgment of cannabis’ legitimate medical value was the most important part of the order.

“That shift alone helps move the industry out of decades of stigma and opens the door for expanded research, more institutional participation, and a more rational regulatory framework,” she wrote.

Medicinal vs. recreational

Recreational use will see no immediate changes from the order. In the 24 states in which recreational use, also called adult use, is legal, businesses that sell both medicinal and recreational products may experience confusion.

Chuck Smith, the CEO of Colorado Leads, an industry group, said in a statement that for Colorado cannabis businesses, “the immediate effects of this order are significant but relatively narrow.”

“Hybrid businesses should expect a transitional period in which federally covered medical activity and federally non-covered adult-use activity may be treated differently for registration, tax, and compliance purposes,” Smith said.

Such businesses would likely not see a tax benefit “when it comes to producing and selling, arguably, the products that consist of the majority of their business,” Armentano said.

Ryan Hunter, the chief revenue officer for Colorado-based marijuana company Spherex, called the DOJ order “a very silly announcement,” noting that it created a third regulatory category of a single plant species.

“Though this is all the same plant,’ hemp and medical marijuana ‘are now considered Schedule III substances under the Controlled Substances Act (similar to Tylenol + Codeine),” while non-medical use is still considered Schedule I, he wrote in a statement. “My mind boggles at these arbitrary and artificial distinctions, but here we are.”

Eventual changes

Johnson, the Florida CEO, said she expected regulators to eventually merge how they treat different uses of the drug.

“The distinction between medicinal and recreational use has always been more regulatory than practical. From an operator’s standpoint, the same plant, supply chain, and compliance standards exist regardless of how it’s categorized,” she wrote.

“Over time, we’ll likely see a continued shift toward a more unified framework that reflects how consumers actually engage with cannabis, rather than maintaining rigid distinctions that complicate operations.”

by Jacob Fischler, Virginia Mercury

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