The end of marijuana prohibition is coming. But how the federal policies will change could have a dramatic effect on the nation's burgeoning legal marijuana businesses, which could fall victim to the same scourge that has hampered so many other nascent industries: regulations.

At the end of this month, the Food and Drug Administration and the Drug Enforcement Administration will announce their decision whether or not to reclassify marijuana under the Controlled Substances Act. The agencies did not give a hint as to which way they are leaning, but there are a number of moves they could take--the plant could be de-scheduled completely like alcohol or tobacco; it could remain as a Schedule I drug (it's current classification) or some of the plant's active chemicals could be rescheduled while the whole plant could remain illegal.

The real concern among those in the industry is what happens if the FDA and DEA reschedule marijuana as a Schedule II drug. FDA regulation experts say if pot is placed in the same category as legal pharmaceutical formulations of opioids like oxycodone and stimulants like amphetamine the burden of keeping up with regulatory compliance might be too costly for many of today's small marijuana companies.

"Schedule II would be a nightmare for the cannabis industry," says Andrew Ittleman, a lawyer and partner at Fuerst Ittleman David & Joseph in Miami. His firm helps companies navigate FDA's laws and regulations. 

Right now, since marijuana is classified as an illegal drug with no medical benefits, the drug's prohibition is policed by the Drug Enforcement Administration and other law enforcement agencies. But if it is reclassified as a drug with medical benefits, the FDA would lead the charge in regulating its manufacture, distribution, sale, and use.

What's more, under the Schedule II classification, every cannabis-derived product would be subject to the kind of scrutiny typically reserved for drugs like Adderall and OxyContin. If, for instance, a brand says its Cannabidiol (CBD) oil cures seizures or Tetrahydrocannabinol edibles (THC) relieve pain, the products will be targeted for testing. If the claims turn out to be unproven, that company could be charged with criminal misbranding, says Ittleman. So rather than just going back to the drawing board, a company's operators might face prison time or fines. Further, if a company's manufacturing facilities aren't up to FDA standards, the products made in those facilities would be considered an "adulterated drug," or impure and unfit for consumption, under federal law, says Ittleman.

To be sure, ensuring your products are viable and safe for consumers is a worthy endeavor. There are, after all, a great many reasons why many regulations exist in the first place. Additionally, this new classification could give marijuana something of a credibility boost--that is, it puts the drug in the same league as legal, but controlled substances that are regulated by the government, prescribed by degree-holding doctors, and dispensed by licensed pharmacists.

The trouble is, the marijuana industry as it exists today simply isn't prepared for the rigors of transforming into a pharmaceutical industry.  

If marijuana becomes a Schedule II drug, the FDA would subject companies to intense inspections and testing. Companies would need to get their packaging and labeling approved by the FDA; the Federal Trade Commission would be there to ensure companies don't sink to unfair or deceptive marketing and advertising practices. If marijuana was de-scheduled, and placed into the same category of alcohol and tobacco, it would fall under the purview of the Bureau of Alcohol, Tobacco, Firearms, and Explosives. That has its own maw of legal hoops to maneuver.

"If the FDA came out and said we are making cannabis Schedule II and the entire industry didn't change, the whole industry would be illegally trafficking a Schedule II substance," says Hank Levy, a CPA for marijuana companies, including Harborside, one of the largest dispensaries in the nation. Simply put, the industry as it stands today would not be legal under a whole set of other laws.  

"I don't see Schedule II as being any help here for the existing cannabis industry at all," says Ittleman, who notes that the changes likely open the door to big pharmaceutical companies that have the experience manufacturing Schedule II controlled substances. "This is the red carpet for Purdue Pharma and Pfizer to enter the industry," adds Ittleman.

Even so, marijuana entrepreneurs remain undeterred. The cannabis industry is a $40 billion dollar market regardless of federal law and it's not going away.

Last December at a Meetup group event in New York City called High NY, marijuana entrepreneur Steve DeAngelo, the founder of Oakland, California-based Harborside, took questions from the audience regarding the future of the industry. DeAngelo, who started as an activist in Washington, D.C., now runs a $30 million a year dispensary. DeAngelo has battled federal law enforcement to successfully avoid commercial forfeiture and is currently battling the IRS in an effort to change tax code 280e.

One audience member asked: What happens if the industry loses the war? What if a new president comes in and orders the DEA to drop out of black helicopters and arrest every entrepreneur in all 24 states where some form of the marijuana economy enjoys state law protections? What if the DEA and FDA do the same thing to marijuana as they did with opium and outlaw the actual plant and only permit pharmaceutical pills? What would the marijuana industry do if suddenly pot was only legal in pill form?

DeAngelo smiled and said the marijuana plant cannot be stopped by a government, a new president, or a cadre of agencies.

"We'll take to the hills, like we always have," said DeAngelo, explaining that farmers in northern California have been growing in the isolated foothills of the Emerald Triangle since the 1960s. "It's a plant and it can grow anywhere. The only way they can take it away from us is if we give it to them."

 

Published on: Jun 17, 2016