In 2022, the Biden Administration initiated efforts to reevaluate how cannabis is classified under federal law, leading the DEA to start a formal rule-making procedure this year.
If the agency ultimately agrees with the Health and Human Services (HHS) Department’s recommendation for reclassification, the effects at the state level are likely to be minimal. Without broader federal changes, state programs for medical and recreational marijuana will remain at odds with federal law. Current regulations provide states with little leeway to legalize substances classified under Schedule III.
Consequently, the agency is unlikely to issue licenses to state-regulated cannabis businesses, and the FDA is not expected to approve botanical marijuana as a prescription drug. This means the legal status of the state marijuana market will likely remain as uncertain as it is today.
However, the situation in Washington, D.C., is distinct. Reclassifying marijuana could significantly impact the local cannabis market in the country’s capital. This is due to a budget provision—the Harris rider—introduced in 2014 by Maryland Republican Representative Andy Harris.
The amendment, attached to D.C.’s annual appropriations bill, aimed to limit the District’s ability to implement broader marijuana policies. It was introduced after the D.C. Council decriminalized marijuana possession and voters passed Initiative 71, which legalized cannabis use, possession, and limited home cultivation.
When the Harris rider was enacted, D.C.’s non-voting Congressional delegate, Eleanor Holmes Norton, pointed out that the provision restricted the use of funds to “enact” but not to “carry out or enact” cannabis policies. This allowed the state Attorney General to affirm that the measure could proceed as self-enacting legislation, enabling certain cannabis-related activities without the need for additional government action.
Since the measure didn’t legalize marijuana sales or establish a framework for regulatory oversight, D.C. has been unable to regulate recreational cannabis sales, as doing so would require new legislation prohibited by the Harris rider.
This legal limitation has contributed to the growth of a gray market in D.C., where businesses comply with Initiative 71 by “gifting” marijuana with the purchase of other items. These operations lack the consumer protections seen in other states with regulated cannabis markets. To address this issue, the D.C. Council has focused on expanding its medical cannabis program as it cannot directly regulate recreational sales under the current law.
Rescheduling cannabis could present an opportunity for D.C. to achieve comprehensive cannabis regulation. The Harris rider specifically prohibits the use of funds to regulate substances classified as Schedule 1 or certain tetrahydrocannabinols. If marijuana is moved to Schedule III, this restriction may no longer apply.
Even if the Council moves forward with legislation to regulate recreational cannabis, opposition from some members of Congress is expected. However, unless Congress takes direct action to block such measures, rescheduling could give D.C. the authority to establish a regulated cannabis market and regain control of its marijuana policy.
The entire marijuana industry, including entities like Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON), awaits the final rule-making decision that the DEA will announce. That decision could reshape the trajectory of the marijuana industry in the U.S.
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