This is the first of 13 posts over the next 13 business days describing the impacts of marijuana’s rescheduling. An homage to Phish’s historic run at Madison Square Garden in the Summer of 2017, Budding Trends Baker’s Dozen will address how rescheduling affects various areas of the law and our daily lives. Enjoy the run.
Ok, campers, rise and shine — the federal government has finally, albeit partially, rescheduled medical marijuana. If you are a state-licensed medical cannabis operator, this is good news in a number of ways. You’re no longer subject to 280E (and perhaps that will apply retroactively) and it should be easier to access capital from banks and investors. You’re also far less likely to find yourself running afoul of the law in the day-to-day operation of your business.
But, and this is significant, these benefits are not self-executing. State-licensed medical cannabis operators must register with the DEA (ideally within the next 60 days) and follow certain specific requirements set out in the acting attorney general’s final order.
Here’s what you need to know and do:
Registration
Apply for DEA registration as a manufacturer, distributor, or dispenser. Submit proof of your state medical marijuana license along with the applicable DEA form(s). The good news: If you apply within 60 days of publication, you can keep operating under your state license while DEA processes your application, which DEA is directed to complete within six months. Your state license serves as conclusive evidence of state-law authorization, so DEA must grant registration unless doing so would be inconsistent with the public interest or relevant international treaties (most importantly, the Single Convention).
Know Your Lane
Your DEA registration is capped at what your state license allows. Manufacturers can cultivate, produce, process, package, label, and transfer to registered distributors or other manufacturers. Distributors can receive from manufacturers and transfer to dispensers or other distributors. Dispensers can dispense to individuals authorized by state law to possess marijuana for medical purposes. None of these registrations authorize non-medical purposes.
Records, Reports, and Order Forms
You only need to submit what the DEA administrator determines is necessary to satisfy federal statutory and treaty obligations — and state-required records are accepted to the maximum extent permissible. This is a deliberate burden-reduction measure for operators.
Prescriptions
State-authorized certifications or similar documents (including electronic ones) are sufficient for dispensing, as long as they include the user’s name and address, are dated and signed on the day of issuance, and identify issuing practitioners with their state license number.
Labeling, Packaging, and Security
You can rely on state-law requirements for labeling, packaging, disposal, and physical security in lieu of otherwise-applicable federal requirements, as long as your label includes the statutory warning required by 21 U.S.C. § 825(c) (“The Secretary shall prescribe regulations under section 353(b) of this title which shall provide that the label of a drug listed in schedule II, III, or IV shall, when dispensed to or for a patient, contain a clear, concise warning that it is a crime to transfer the drug to any person other than the patient”).
The DEA Crop Purchase Quirk
Manufacturers have an unusual additional obligation tied to the Single Convention: You must establish a nominal price for your marijuana crops, after which DEA purchases them at that price and sells them back to you (or a related entity) at the same price plus an administrative fee. You must also store crops in a facility to which DEA maintains access until that transaction is complete, and your registration must specify the areas where cultivation is permitted.
Watch Your State License
If your state license is suspended, revoked, or expires, your DEA registration automatically suspends. Federal authorization tracks state authorization, so keeping your state license in good standing is essential.
Tax
Consult your tax counsel about Section 280E. The order notes that state licensees will no longer be subject to that deduction disallowance going forward, and the DEA even encourages Treasury to consider retroactive relief — but the order explicitly says it is not a determination of federal tax liability. Contact us so that we can put you in touch with our tax professionals to advise on appropriate tax mitigation strategies.
Conclusion
This is a big deal. The biggest deal in marijuana in the last 50 years, if not ever. But state-licensed medical cannabis operators need to be thoughtful and diligent about applying the new rules.
