Will rescheduling reroute the future of interstate commerce for cannabis?

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Image of police stopping a commercial truck at the state line

(Illustration by Julia Wytrazek for MJBizDaily/Emerald)

(This story is part of the cover package in the November-December issue of MJBizMagazine.)

Some cannabis executives are hopeful that if the federal government moves marijuana from Schedule 1 to 3 of the Controlled Substances Act, then transporting MJ products across state lines will be allowed.

But that is only partially true, marijuana industry lawyers say.

Schedule 3 (as well as Schedules 4 and 5) permits interstate commerce only for drugs approved by the U.S. Food and Drug Administration, such as anabolic steroids, ketamine, testosterone and Tylenol with codeine – plus dronabinol, Marinol and Syndros, which are synthetic THC formulations used to increase appetite in patients undergoing chemotherapy or suffering from anorexia.

Would flower, concentrates, THC-infused edibles and other products sold at medical marijuana dispensaries and adult-use retailers be permitted for interstate commerce?

Not legally, unless they have FDA approval.

“That’s the key. If you have an FDA-approved cannabis product, then … like any other Schedule 3 drug, like Tylenol with codeine, you’re going to be able to have interstate commerce,” said attorney Justin Brandt of the law firm Bianchi & Brandt in Scottsdale, Arizona.

“But state-legalized medical cannabis in and of itself doesn’t automatically become a Schedule 3 marijuana product.

“It’s still separate and distinct, and it’s still technically outside the purview of the FDA and the Controlled Substances Act. It’s still technically federally illegal.”

Building momentum

While non-FDA-approved marijuana products would still be federally illegal, many observers believe the plant’s rescheduling would make federal authorities less inclined to target cannabis businesses that transact cross-border sales.

For the past several years, Congress has regularly passed budget legislation that prohibits using federal money to crack down on state-regulated medical cannabis businesses.

Such legislation is a major reason why the federal government has mostly left marijuana companies alone for nearly a decade – and that is with marijuana classified as a Schedule 1 substance.

Should marijuana be moved to Schedule 3, lawyers and other industry observers anticipate that the feds will be even less likely to interfere with regulated businesses that comply with state laws.

And if states have implemented agreements that allow for interstate commerce under certain conditions – think California, Oregon and Washington – the federal government will be even less likely to interfere when marijuana is at Schedule 3, some observers reason.

“If cannabis – either flower or some extract or derivative or combination – gets approved by the FDA for doctors to prescribe, that is fully in interstate commerce, and there’s nothing impeding it in interstate commerce,” said Eric Berlin, who heads the U.S. and global cannabis teams at global law firm Dentons.

“The states could open up interstate commerce to a certain degree. If Oregon and California decided that they somehow would open up some level of interstate commerce for certain products … I don’t know that the government would do anything about that,” Berlin added.

Vince Ning, CEO of Nabis, a cannabis-distribution company that serves about 300 brands and 1,300 retailers in California and is expanding to New York, agreed that rescheduling wouldn’t change anything legally for state-regulated marijuana products.

But he predicted it would alter federal law enforcement attitudes and policies about state-regulated marijuana and interstate commerce.

Rescheduling, then interstate commerce?

If rescheduling happens, “then immediately there’s a lot of positive sentiment toward pushing for interstate commerce,” Ning said.

California, Oregon and Washington all have passed interstate commerce laws that permit licensed cannabis businesses to transport THC products across state lines and into other regulated markets – but only if the federal government legalizes marijuana or its interstate commerce.

Potential rescheduling “at the very least pokes the federal government to consider whether they will allow or regulate interstate commerce,” Ning said.

He added that he believes the federal government wouldn’t interfere with marijuana interstate commerce if it complied with state rules.

“If the federal government doesn’t say anything, then the states can technically cooperate on an interstate level,” Ning said.

But Ning also warned, given that so many cannabis markets have a glut of product, marijuana legally imported from other states could exacerbate the difficult business climate in oversaturated markets if interstate commerce isn’t done correctly.

“A lot of states probably are plenty fearful that California products flooding into their market will immediately plunge the prices of goods, which would actually hurt the domestic market within a particular state,” Ning said.

In those situations, he added, states concerned about tumbling prices would probably seek to impose import and export tariffs – as well as interstate commerce taxes – to shield their local cannabis industries.

Cannabis no different than alcohol?

Ning noted that such policies are not so unusual because states have their own alcohol-distribution laws that companies must comply with.

“Every state has its own tax laws if you transport liquor. If you wanted to transport alcohol across state lines, you have to go through specific distributors. Different states have different taxes, require different sets of paperwork,” Ning said.

“So, you have to abide by the compliance within each state. It’s a lot of overhead. But I think that cannabis is probably headed in that direction, just given how the market has evolved thus far.”

Hawaii also is testing federal marijuana enforcement waters.

In June, Hawaii legislators passed House Bill 1082, a piece of legislation that permits state-licensed companies to sell wholesale marijuana to cannabis businesses, including those located on other islands.

Those rules went into effect Aug. 7. That’s important because traveling from one island to another requires crossing federal waters.

Big Island Grown, headquartered in Hilo, Hawaii, completed its first inter-island transport to Green Aloha dispensaries on Kauai on Sept. 1.

Jaclyn Moore, CEO of Big Island Grown, noted that the Hawaii legislation cautions cannabis businesses that state law does not negate federal marijuana prohibitions.

“It’s still very much at your own risk, even though it was passed into law,” Moore said.

Does Moore have peace of mind that the feds won’t somehow interfere with interisland marijuana shipments?

“Who knows what the feds are going to choose to do or not do? The best way to operate is to be as compliant as possible, go above and beyond compliance requirements,” she said. “Because regulators know that there is also a problem with the illicit market, and if the feds are going to exercise their enforcement powers, the greater need for enforcement is with the illicit market, not with super-compliant state businesses.”