ALERT: New Executive Order on cannabis re-scheduling

On December 18, President Donald Trump signed an executive order directing the US Attorney General and federal agencies to expedite the rescheduling of cannabis from Schedule I to Schedule III, a reclassification with potentially significant implications for the cannabis industry and researchers. The executive order also urges Congress and federal agencies to review the definition of hemp to permit patients to access full-spectrum cannabidiol (CBD). Simultaneously, additional reporting has indicated that CMS is considering a pilot program wherein CBD products will be reimbursable under Medicare.

Cannabis is currently classified as Schedule I, which is defined as having no currently accepted medical use, a high potential for abuse, and a lack of accepted safety for use under medical supervision. Restrictions on researchers of Schedule 1 substances are significantly more burdensome than other classifications. Schedule 1 classification has also always been an obstacle for cannabis businesses, as Section 280E of the Internal Revenue Code prohibits businesses selling Schedule 1 or 2 substances from deducting standard business expenses. Successful rescheduling of cannabis will loosen tax burdens on cannabis businesses and potentially open the doors for further research. Rescheduling may have a myriad of other potential impacts, including easing risk and compliance barriers for financial services and insurers or impacts to employee drug testing rules. The executive order’s emphasis on full-spectrum CBD and hemp also follows closely on the heels of recent controversial changes made to federal law concerning hemp that have troubled the industry.

Rescheduling cannabis still falls short of full legalization – without FDA approval, state cannabis businesses currently would still be violating federal law. Many questions remain concerning how state-licensed cannabis and hemp businesses will operate under different federal regulations. The timing of the rescheduling is also unclear. Cannabis and hemp businesses, healthcare providers, researchers, and employers should begin to plan for the potential impact of rescheduling and the interplay with other areas of state and federal law. Kiliaen Strong and Dilworth Paxson’s experienced cannabis, healthcare, employment, and tax attorneys stand ready to guide clients forward through this transition.