Marijuana Rescheduling Would Not Bring State Markets ‘Into Compliance’ With Federal Law, Congressional Researchers Say

If the federal government reschedules marijuana as proposed by the Justice Department, that would not legalize cannabis or bring state-regulated markets “into compliance” with federal law, congressional researchers said in a new analysis.

However, moving marijuana from Schedule I to Schedule III of the Controlled Substances Act (CSA) would allow state-licensed cannabis businesses to take federal tax deductions and remove certain barriers to marijuana research, the Congressional Research Service’s (CRS) “Legal Sidebar” report says.

Days after it was confirmed that the Drug Enforcement Administration (DEA) agreed with the U.S. Department of Health and Human Services (HHS) that cannabis should be reclassified, CRS published an overview of legal implications on Thursday.

Perhaps most importantly, the non-partisan office reiterated that rescheduling marijuana, “without other legal changes, would not bring the state-legal medical or recreational marijuana industry into compliance with federal controlled substances law.”

“With respect to the manufacture, distribution, and possession of recreational marijuana, if marijuana were moved to Schedule III, such activities would remain illegal under federal law and potentially subject to federal prosecution regardless of their status under state law,” it said.

“Some criminal penalties for CSA violations depend on the schedule in which a substance is classified. If marijuana were moved to Schedule III, applicable penalties for some offenses would be reduced. However, CSA penalties that apply to activities involving marijuana specifically, such as the quantity-based mandatory minimum sentences discussed above, would not change as a result of rescheduling. DEA is not required to set annual production quotas for Schedule III controlled substances.”

However, the potential reclassification would not affect a longstanding congressional appropriations rider preventing the Justice Department from using its funds to interfere in state medical cannabis programs.

The report echoes points CRS made in a separate marijuana analysis published in January.

Unlike Schedule I drugs, substances in Schedule III are defined as having “an accepted medical use and may lawfully be dispensed by prescription,” but only if the Food and Drug Administration (FDA) approves a specific product, CRS said. FDA has approved certain cannabis-based medications, but botanical marijuana that’s available in state markets is unlikely to meet the agency’s standards for widespread approval.

One of the key legal effects of moving marijuana to Schedule III concerns an Internal Revenue Service (IRS) code known as 280E, which blocks individuals from taking federal business deductions for expenses related to commerce involving Schedule I and Schedule II substances.

“Other collateral legal consequences would continue to attach to unauthorized marijuana-related activities,” CRS said.

Such “collateral consequences arising from the federal prohibition of marijuana,” the report says, include implications for bankruptcy proceedings, immigration status and gun ownership.

The report also explains that scheduling changes can be implemented both through the administrative process that led to the new reclassification decision and through acts of Congress.

“If Congress wishes to change the legal status of marijuana, it has broad authority to do so before or after DEA makes any final scheduling decision,” CRS said. “Several proposals from the 118th Congress would remove marijuana from control under the CSA or move the substance to a less restrictive schedule.”

“Rescheduling or descheduling marijuana under the CSA could raise additional legal questions,” it said, noting the potential role of FDA in regulating cannabis products and the possibility of Congress establishing a regulatory framework for marijuana.

To that end, Senate Majority Leader Chuck Schumer (D-NY) and colleagues reintroduced legislation this week to federally legalize cannabis and impose certain regulations. The bill’s prospects are dubious in the current divided Congress, however.

Meanwhile, the top Democrat in the U.S. House said on Wednesday that the Biden administration’s move to reschedule marijuana is a “step in the right direction,” but it should be followed up with congressional action such as passing the legalization bill Schumer filed.

“While most recent proposals would relax federal regulation of marijuana, Congress could also seek to impose more stringent controls,” the CRS report says. “One proposal from the 118th Congress would withhold certain federal funds from states in which the purchase or public possession of marijuana for recreational purposes is lawful.”

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