DEA – Cannabis Industry

May 17, 2024May 22, 2024 by Duane Morris

DEA Rescheduling, Pa. Legalization Efforts May Breathe New Life Into Cannabis Practices

Duane Morris cannabis industry group team lead Paul Josephson spoke with The Legal Intelligencer on Pennsylvania cannabis legalization as the Drug Enforcement Administration has officially moved to reschedule marijuana from a Schedule I to a Schedule III substance.

“There’s not a legal practice area that hasn’t touched or worked for our cannabis practice here,” he said, although he and other attorneys emphasized the potential growth in financing work should rescheduling and local legalization efforts go through.

“Removing this from Schedule I … it provides immediate tax relief to companies in the cannabis business,” Josephson said, explaining that as the law currently stands, cannabis businesses aren’t allowed to deduct business expenses when they calculate and pay taxes, resulting in razor-thin profit margins. “When rescheduling happens, when that monkey comes off the back of the industry, it will improve cashflows for everyone in the business and allow for more investment.” Read more on the Duane Morris website.

May 3, 2024May 6, 2024 by Duane Morris

The American Lawyer Features Duane Morris on Cannabis Rescheduling

Seth Goldberg, partner and team lead of Duane Morris’ Cannabis Industry Group, spoke with The American Lawyer about how the firm is preparing for cannabis rescheduling.

“What makes reclassification a watershed event is that it frees up capital and allows for more growth and allows for potential consolidation and more successful companies, more competition with respect to multistate operators and get back to a place of equity investment,” said Goldberg.

“We have been preparing for that, and lawyers in each of our practice areas—whether IP, corporate, employment—who have cannabis practices are already thinking about how they‘re going to advise clients in the cannabis industry and also outside of the cannabis industry with respect to how reclassification impacts that type of law.” […]

The combined impact on cannabis businesses of tax liabilities and lack of access to financing “can’t be overstated,” Goldberg said. Removal of 280E “will have an immediate impact on operator balance sheets,” he said. Continue reading “The American Lawyer Features Duane Morris on Cannabis Rescheduling”

April 30, 2024 by Seth A. Goldberg

DEA Recommendation to Reschedule Cannabis is Imminent

Multiple news sources reported today that the DEA will be recommending rescheduling cannabis to a Schedule III drug. The recommendation will then lead to a public comment period and then a Final Rule will be issued, so the actual reclassification of cannabis is months away. However, as with recent moves toward rescheduling, such as the HHS recommendation and President Biden’s directive to study whether to reschedule, today’s news and the forthcoming recommendation will boost the cannabis market, as operators and investors look forward to a better performing industry resulting from the reclassification. The actual reclassification will have an immediate impact on operator profitability, as IRS Code 280E, which prevents cannabis operators from deducting normal business expenses, will no longer apply to cannabis businesses. This is just one of the very significant changes to the industry that will spur more capital and more growth. Banks and other sources of capital that have been reluctant to enter the space may finally get off the sidelines and join the game, which would obviously be the shot in the arm the industry has needed for some time.

October 30, 2023November 2, 2023 by Seth A. Goldberg

Did Congress Intend to Legalize Intoxicating Hemp Products in the 2018 Farm Bill?

The 2018 Farm Bill legalized “Hemp,” defining it as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” The .3% delta-9 THC threshold distinguishes hemp from marijuana, which remains a federally unlawful Schedule I controlled substance, based on the psychoactive effect of delta-9 THC.

Today, consumers can walk into convenience stores, gas stations, and the like, or shop online, and purchase an array of cannabis products that have the same psychoactive effects as delta-9 THC in federally unlawful Marijuana, i.e., delta-9 THC at greater than .3% on a dry weight basis, but, because they were manufactured using “derivatives, extracts, cannabinoids, isomers” found in Hemp, their manufacturers claim they are legal. These products, which contain delta-8 THC, delta-10 THC, and other chemical compounds, are the result of chemical processes that convert the Hemp “derivatives, extracts, cannabinoids, isomers” into compounds that are the functional equivalent of the delta-9 THC in federally unlawful Marijuana.

Manufacturers of delta-8 products believe the 2018 Farm Bill does not prohibit the conversion of the “derivatives, extracts, cannabinoids, isomers” in Hemp into an intoxicating compound, which begs the question: did Congress really intend to legalize intoxicating compounds created from Hemp “derivatives, extracts, cannabinoids, isomers” that are functionally equivalent to the delta-9 THC in federally unlawful Marijuana? It would seem that the .3% delta-9 THC distinction between Hemp and Marijuana is about psychoactive effect, not about a particular chemical.

August 30, 2023 by Brad A. Molotsky

Changes to the Controlled Substances Act for Cannabis to make it a Schedule III Drug – The Winds May Be Blowing this Way

Earlier today, on August 30, 2023, the U.S. Department of Health and Human Services (HHS) officially recommended that cannabis be moved from Schedule I to Schedule III under the Controlled Substances Act (CSA) – a landmark recommendation from HHS which indicates that HHS no longer considers cannabis to be a drug with high abuse potential and no medical value.

After completing a scientific review into cannabis per a requested review from the Biden Administration, HHS advised the Drug Enforcement Administration (DEA) that it believes marijuana should be placed in Schedule III of the Controlled Substances Act.

Note, HHS’s recommendation is NOT binding on the DEA but given the report’s findings and growing public sentiment is likely that the DEA agrees with the recommendation and shifts its policy.

Historically, cannabis has been federally prohibited as a Schedule I controlled substance. As noted by many pundits, the rescheduling to Schedule III would have major implications for researchers who have long criticized the Schedule I classification that creates significant barriers to access for studies.

For researchers, this change would likely mean that they would no longer need to go through the onerous registration process with the DEA in order to access cannabis for studies as a Schedule III drug. The shift to Schedule III would also enable various federal tax deductions to become applicable to the cannabis industry and unlock value for them that is currently stuck in an onerous tax structure under the Internal Revenue Code. Schedule III drugs are not subject to the same onerous structure under federal rules.

The cannabis ball is now firmly in the DEA’s court as the DEA has the final authority to schedule a drug as Schedule III rather than Schedule I under the CSA (or transfer a controlled substance between schedules or remove such a drug from scheduling altogether).

Parting Hits – With Congress due to reconvene after Labor Day, and the Biden Administration looking for a win on moving this issue along, look for pressure to continue to mount for some type of Congressional action in the Banking arena under a SAFE legislation bill and for the DEA to move through their rule making process in a swift and firm manner.

Duane Morris has a full service cannabis group that helps clients and investors in a wide array of cannabis-related issues including, but not limited to, licensing, fundraising, intellectual property protection and real estate. If you have any questions, please do not hesitate to contact Brad Molotsky or the attorney with whom you regularly communicate at Duane Morris.

November 22, 2019 by Duane Morris

U.S. Senators Urge Changes to Testing Requirements Under USDA Interim Final Rule for Hemp Program

When the United States Department of Agriculture released the interim final rule for the hemp program in October 2019, many stakeholders—including businesses and state agencies—were caught off guard by certain testing-related requirements contained in the rule. Because hemp is now legal under the 2018 Farm Bill if it contains no more than 0.3 percent THC concentration, testing for THC levels is critical. However, significant questions and issues with the testing requirements must be clarified.

On November 20, 2019, Senators Ron Wyden and Jeff Merkley, both from the state of Oregon, submitted a letter to the secretary of the USDA, in which they flagged—“in no particular order”—five controversial testing-related requirements and requested modifications to those requirements. Below, we have summarized the senators’ concerns and proposed solutions to three particularly controversial testing-related requirements in the interim final rule.

View the full Alert on the Duane Morris LLP website.

September 3, 2019 by Duane Morris

DEA Announcement on Improving Access to Marijuana Research

On August 26, 2019, the Drug Enforcement Agency (DEA) issued a press release announcing “it is moving forward to facilitate and expand scientific and medical research for marijuana in the United States.” This announcement comes in the midst of a growing demand for marijuana for medical and scientific research. Several years ago, in an August 11, 2016, press release, DEA first announced its intention to “expand… the number of DEA-registered marijuana manufacturers” because “only one entity was authorized to produce marijuana to supply researchers in the United States: the University of Mississippi.” Since that announcement, 33 entities have applied to DEA for a marijuana manufacturer registration. However, the approval process was stalled during Attorney General Jeff Sessions’ term in office, and to date no new applications have been approved. Meanwhile, the number of entities registered by DEA to conduct research on marijuana, marijuana extracts or marijuana derivatives has jumped from 384 in January 2017 to 542 in January 2019. Thus, while demand for marijuana for research purposes has increased sharply, the number of suppliers has remained stagnant.

View the full Alert on the Duane Morris LLP website.

October 12, 2018October 12, 2018 by Seth A. Goldberg

The DEA Affirms CBD Derived from “Marijuana” Is Federally Unlawful

The Controlled Substances Act defines “marijuana” as: all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin. Such term does not include the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.

The DEA has recently affirmed its position that CBD sourced from the parts of the plant that are included in the definition of marijuana are unlawful. This is true even if the CBD does not contain any THC. CBD derived from the excluded parts of the marijuana plant does not violate federal law. Were it to investigate/prosecute a business or individual for possessing CBD, the DEA would place the onus on the target to prove the CBD was sourced from the lawful parts of the plant.

Just like THC-containing products that are lawful under a state’s marijuana laws, CBD that may be lawful under a state’s marijuana laws, is still federally unlawful if sourced from the parts of the plant included in the definition of marijuana.