Closing out 2024, you’ll see that not much changed for the cannabis industry or users since the end of last year.
Safe banking legislation didn’t even get onto the Senate floor. A new Farm Act that might redefine legal hemp was delayed, again. A dozen or so other pieces of federal cannabis legislation went nowhere. The biggest change was with states reining in hemp-derived cannabinoids (HDC) as 13 of them passed new laws and three more did so by governor or regulatory fiat.
Sure, the U.S. Department of Justice finally issued a proposed rule to change marijuana to a Schedule III controlled substance. But as groundbreaking as that move was, the DEA’s lax attitude has its own administrative law judge questioning where the agency really stands on the issue. And while a final rule could conceivably be issued sometime this year, legal challenges are delaying enactment of a rule that would really only benefit cannabis companies by reducing their tax load.
Nebraska voters passed a pair of medical marijuana initiatives. But lawsuits challenging them will test how long patients and industry hopefuls will have to hold their hit. More poignantly, it was the only state to liberalize cannabis usage as adult-use ballot measures failed in Florida, North Dakota and South Dakota.
It wasn’t all bad news though. A few states that legalized in 2023 started issuing business licenses and opened markets. And ironically, positive change may come with a new Republican administration backed by a Republican Congress. It all depends on President-Elect Donald Trump’s successful choices to lead the Department of Justice and the DEA.
Marijuana rescheduling hearing canceled
The biggest news of the year was the U.S. Department of Justice’s proposal to move marijuana to the less-restrictive Schedule III of the Controlled Substances Act. While such a move would not legalize cannabis as it is now regulated in 42 states, it would be a boon for businesses, many of which are struggling financially, by eliminating the 280e tax deduction restriction.
However, the rescheduling process has been slow-going, and on Monday, Jan. 13, DEA Chief Administrative Law Judge John J. Mulrooney III canceled a highly anticipated administrative hearing that was scheduled to begin Jan. 21.
After being rejected by Mulrooney before, Village Farms International and Hemp for Victory filed a renewed request to have the DEA removed as the proponent of the rule. The companies said they found new evidence that DEA representatives had allegedly improperly communicated with rescheduling opponents that were allowed to be designated participants while rejecting “researchers, doctors, scientists, and the State of Colorado, which has competently regulated a medical marijuana program for over a decade,” said the Jan. 6 filing.
“The new evidence presented in this filing strongly suggests the DEA is using its authority in these proceedings to subvert the process and thwart the Schedule III proposal which it vehemently opposes,” said the plaintiff’s lawyer, Shane Pennington, a partner at Porter Wright Morris & Arthur, in a statement.
Mulrooney, while calling alleged communications between unknown representatives of the DEA and anti-legalization organization Smart Approaches to Marijuana (SAM) “distasteful and arguably unhelpful to the public’s perception that the proceedings will be transparent,” originally denied the request on Nov. 27 because he didn’t have authority to remove the DEA from the proceedings.
He again denied the request. “The Movants here have neither established the requisite level of cognizable prejudice to the ultimate outcome, nor sought a realistic remedy,” he wrote in his Jan. 13 order.
But he is allowing Hemp for Victory and Village Farms to file an interlocutory appeal, which “returns jurisdiction of the matter to the full control of DEA Agency leadership in all respects.”
The matter is stayed pending resolution of the appeal. He ordered the parties to provide a status update in 90 days.
Meanwhile, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit denied an emergency motion to stay the rulemaking process requested by Doctors for Drug Policy Reform (DDPR).
DDPR appealed the DEA’s and Mulrooney’s decisions to deny the organization the opportunity to be a designated participant in the hearing. The organization’s attorneys at Yetter Coleman LLP in Houston claim DEA Administrator Anne Milgram provided no reasoning as to why she rejected DDPR as an interested party or why she limited the number of participants to 25.
In the DEA’s Dec. 20 opposition for an emergency injunction, U.S. Department of Justice Attorney Daniel Aguilar disclosed that 163 people or organizations requested to testify at the ALJ hearing. He said in the filing that DDPR didn’t identify any evidence they intended to present or how they would be “adversely affected or aggrieved.”
Separately, a U.S. District Court judge on Jan. 6 denied DDPR’s co-counsel Matt Zorn’s personal motion for a preliminary injunction because the DEA didn’t respond to his Freedom of Information Act Request for any email communications between the DEA and SAM.
And on Nov. 27, the U.S. District Court, Western District of Washington at Seattle, rejected a similar motion for a TRO filed by Panacea Plant Sciences CEO David Heldreth. Heldreth challenged the procedures claiming the DEA did not seek input from small businesses or tribal governments.
Notably, Donald Trump is to be sworn in as president again on Jan. 20. Historically, new presidents place holds on all rulemaking in process, and it’s very likely that Milgram will be replaced. So it remains to be seen what the new administration will decide to do about rescheduling marijuana.
Adult-use legalization stalls
Last year saw a slowdown of cannabis legalization. Nebraska was the only state to legalize medical marijuana as voters overwhelmingly approved a pair of ballot initiatives: Measure 437 to legalize doctor referrals and patient use and Measure 438, which would create a regulated medical cannabis market.
Legal challenges by former state Sen. John Kuehn have tied up the measures in court. Gov. Jim Pillen certified the initiatives and signed proclamations declaring them law on Dec. 12. But he clearly didn’t want to as he said “serious issues remain regarding the validity of these petitions under federal law and the Nebraska Constitution.”
If the laws are allowed to go into effect, the new Nebraska Medical Cannabis Commission is to establish rules for marijuana business registrations by July 1, 2025, and begin granting registrations by Oct. 1.
But the biggest disappointment was in Florida. Despite receiving millions of dollars in campaign contributions from multi-state operator Trulieve, an initiative to legalize adult use in Florida failed. So did initiatives in South Dakota and North Dakota.
Likewise, bills to legalize adult use failed to advance in Pennsylvania, Hawaii, Kentucky, Louisiana, New Hampshire, West Virginia and Wisconsin. A medical use proposal died in Indiana, and another was tabled Kansas. In Virginia, where it’s legal to possess and use, a bill to establish an adult-use cannabis market passed the legislature but was vetoed by the governor.
Expect fresh attempts to legalize in these states, as well as Texas, this year.
Meanwhile, other states that legalized in the last year or two finally got business licensing underway and are launching new markets are Delaware, Ohio, Kentucky and the much overdue New York.
16 states restrict hemp cannabinoids
Since hemp was legalized in 2018, the growth of unregulated HDC products has exploded and competes against the regulated cannabis market.
Concerned about the uncontrolled sale of intoxicants, particularly to minors, HDC restrictions were passed in Connecticut, Georgia, Iowa, Louisiana, Minnesota, New Hampshire, New Jersey, Oregon, South Dakota, Utah, Vermont, West Virginia and Wyoming. Bills died in California, Mississippi, Missouri, Montana, Nebraska, North Carolina and South Carolina.
After bills to strictly regulate or HDC consumables in Missouri and California failed to advance, the governors attempted to enact sweeping bans of the products under executive order. A state court judge upheld California’s ban following a legal challenge from the hemp industry. Enforcement of the Missouri ban, however, is limited after the secretary of state blocked emergency rulemaking and the Department of Health and Senior Services decided to not embargo intoxicating hemp products.
In September, the Tennessee Department of Agriculture approved rules that would restrict legal hemp to contain no more than 0.3% total THC, including THCA. They were supposed to take effect Dec. 26. But a state judge in Nashville issued a temporary injunction from enforcing the rules until Feb. 18, according to the Tennessee Lookout.
Expect this wave of HDC regulation to continue, especially since renewal of the federal Farm Bill has been put off for another year. Already, there are bills pending in Ohio, California, Missouri, Illinois and New York.
