DEA Chief Administrative Law Judge Derek C. Julius has halted the federal cannabis rescheduling hearing to evaluate whether a new Government Accountability Office report should be admitted as evidence. The pause comes as the hearing examines the Biden administration's proposal to move cannabis from Schedule I to Schedule III under the Controlled Substances Act.
The GAO report, which prompted the pause, found that both the DEA and FDA lack formal procedures for evaluating and scheduling controlled substances. The watchdog agency recommended that both departments establish clear policies to address these procedural gaps.
Judge Julius's decision adds another delay to a rescheduling process that has already stretched across multiple administrations. The hearing, which began accepting testimony late last year, has drawn participation from state regulators, medical researchers, and cannabis industry stakeholders arguing both for and against the proposed schedule change.
The Procedural Question
The GAO findings raise fundamental questions about the legal framework underlying the rescheduling decision. If the agencies responsible for evaluating cannabis lack standardized procedures for such evaluations, it could affect the validity of their scheduling recommendations.
The Department of Health and Human Services recommended Schedule III placement for cannabis in August 2023, following a review requested by President Biden. That recommendation triggered the DEA's formal rulemaking process, which includes the current administrative hearing.
But the GAO report suggests the evaluation methods used to reach that recommendation may not follow established procedures—because those procedures don't exist in writing.
What Schedule III Would Mean
Moving cannabis to Schedule III would maintain federal prohibition but allow state-licensed businesses to claim standard business tax deductions under Section 280E of the tax code. Currently, cannabis companies operating legally under state law cannot deduct ordinary business expenses on their federal tax returns, creating effective tax rates that can exceed 70%.
The change would also ease some research restrictions and potentially open new pathways for medical cannabis development. Yet it would not resolve the fundamental conflict between state legalization and federal prohibition.
Industry groups have offered mixed reactions to the Schedule III proposal. Some see it as meaningful progress, while others argue that only full descheduling—removing cannabis from the Controlled Substances Act entirely—would address the core regulatory problems facing the sector.
Timeline Uncertain
Judge Julius has not indicated how long the pause will last or whether the GAO report will ultimately be admitted into the hearing record. The administrative hearing process has no firm deadline, and the final scheduling decision rests with the DEA administrator, not the administrative law judge.
Even after the hearing concludes and Judge Julius issues a recommendation, the DEA will need to review that recommendation and issue a final rule. That rule would then be subject to potential legal challenges, adding further uncertainty to the timeline.
The pause comes as the cannabis industry faces mounting economic pressure. Wholesale prices have declined sharply in mature markets, and many operators are struggling with the combined burden of 280E taxation and state-level regulatory costs.
For now, state-licensed cannabis businesses and the patients and consumers they serve remain in regulatory limbo, waiting for federal agencies to resolve questions about their own evaluation procedures before those agencies can finalize any changes to cannabis scheduling.
This article is based on original reporting by ganjapreneur.com.
