New York is one of the signature cities in the world. The marijuana industry sees it as one of the top global markets. The state government had a strong plan to roll out recreational  and changed in within a few weeks of launch. Chaos ensued and the issuing of licenses basically became a trickle.  But is New York finally getting its marijuana act together?

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The chaos allowed around 2,000 illicit dispensaries to open in the state, with around 2,500 in greater New York City. There were even unlicensed retailers within 3 blocks of NYC’s iconic City Hall. After trying to force landlords to shutter the stores and then begging social media companies to unplatform them, the government had to act. The state legislature passed new laws to crack down on the unsanctioned shops. Previously, the city’s power to step in had been limited and the legal market was bogged down in red tape.

The state is proud they have closed roughly 1,000 illicit stores in the state with over 750 NYC alone. Over 41,000 violations have been issued, totally $65,671,487 in penalties. The city estimates it has already seized a total value of $41,443,792 in products, whose fate remains unclear.

In an added complication, it seems part of the products sold came from the California black market. The closures could benefit the Golden State’s efforts to wrangle their mess. The Empire State has less than 200 retailers so this can be a huge boom for them. The illicit market was very profitable in NYC, with some estimates of $1.5 billion in sales in 2023.

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Andrew Cooper, Chair of hte Cannabis & Psychedelics Practice Group at NY headquartered Falcon Rappaport & Berkman LLP had a comment on it. “There is no doubt that the current initiatives which have been implemented to shut down illicit cannabis operations as part of the newly enacted budget have been an overwhelming success with over 230 illegal cannabis stores padlocked and over 6,000 pounds of illicit product valued at $22 million seized since May 21, 2024. In the 10 weeks since enforcement actions began, regulated cannabis sales are up 72 percent in New York City with retailers collectively reporting $2.6 million in weekly revenue growth over the same period. This puts New York on pace to sell $520M of Cannabis in 2024, with some people suggesting that it could break $700M.”

 “Because the sheriff’s office can now enter and inspect businesses without a court order, it’s able to quickly raid retail stores and seize products. Unfortunately, legal CBD and Hemp stores who, arguably, are not selling illegal weed have been getting caught up in these raids as well.  In many instances, Sheriff’s deputies and NYPD officers, many of whom are wholly unfamiliar with the relevant regulations including the fact that CBD and Hemp can be sold with the appropriate license, still confiscate legal products and arrest shop owners” continued Cooper.

Governor Kathy Hochul and Mayor Eric Adams celebrated the success of the crackdown on Wednesday.

“In the three months since launching ‘Operation Padlock to Protect,’ our administration has delivered major results on a major quality of life and public safety issue,” Adams said. “For too long, illegal shops have contributed to a feeling that anything goes on our streets.”

Is New York finally getting its marijuana act together, the industry is certainly hoping it is.

The federal government has decided to move toward marijuana rescheduling.  So what’s next and how long until it done?

The Drug Enforcement Agency (DEA) has agreed with Health and Human Service’s (HHS) recommendation for cannabis to be rescheduled to Schedule III, with Schedule III drugs defined as having a moderate to low potential for physical and psychological dependence (Schedule III drugs include ketamine, anabolic steroids, and testosterone). This rescheduling will have a significant impact on state-legal cannabis businesses, but some uncertainty remains. Once the DEA publishes its proposed rule, it will be reviewed by the White House Office of Management and Budget (“White House”) and if approved, it would then proceed to a public comment period. Notably, the DEA could reschedule cannabis by issuing a final order and bypass the notice and comment period which would allow the change to become effective 30 days after publication in the Federal Register.

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However, it seems certain that the DEA will elect to do so by proposed rule, which is followed by a comment period of between 30-90 days. This comment period will be followed by a formal administrative hearing if requested, which rescheduling opponents will most certainly want, along with a flood of comments ranging from why cannabis should remain in Schedule I to why it should not be rescheduled lower than Schedule II. While rescheduling to Schedule III is almost certain, it is critical that proponents submit comments as well in order to ensure a robust record supporting marijuana’s reclassification.

Once the comment period and administrative hearing have concluded, the DEA will review the entire record and issue its final rule based on its analysis, HHS’ analysis, the comments submitted, and the administrative hearing record. The timeframe for issuing a final rule is uncertain and not statutorily defined, but since the DEA is required to review and respond to every comment submitted during the notice period, it could take some time.

Whether the DEA goes straight to issuing a final order or allows notice and comment, after the final decision/order is issued, it will not become effective until 30 days after it is published in the Federal Register. During this time, an aggrieved party that participated in the notice and comment period has 30 days to file a lawsuit to seek judicial review of the agency’s decision. In the event of a lawsuit, it is possible the effective date of the reclassification is delayed by a court order.

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Federal Regulations

Cannabis rescheduling is likely to inspire further federal regulations, but the nature of said regulations is uncertain. Since 2009, during the Obama administration, the federal government has declined to enforce federal law against the overwhelming majority of state compliant marijuana businesses. The federal government’s reluctance since the 2013 Cole Memorandum continued despite the DOJs enforcement guidance being rescinded during the Trump administration. It is possible we will see the DOJ reissue another enforcement memo. While it is still uncertain, enforcement action may follow cannabis rescheduling in an attempt to form a more cohesive national industry. For example, rescheduling cannabis to Schedule III may push the FDA to enforce against false and misleading drug claims as it has for hemp products. The DEA would continue to regulate cannabis as it had under Schedule I, however, they could now require dispensaries to conform to pharmacy regulations and the significant requirements associated with such. It is unclear but unlikely that the DEA will enforce pharmacy requirements upon state-legal dispensaries, since the difficulties and required resources associated with such enforcement will likely be too burdensome for the DEA immediately following rescheduling.

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The FDA may also become more involved in the regulation of cannabis, particularly concerning cannabis products’ dietary supplements and conventional food claims. While regulatory clarity would be welcome, we must be careful as to over-regulating the various cannabinoids (or compounds found in cannabis). It is likely that the FDA receives an influx of new drug applications following cannabis rescheduling, as FDA approval of any specific cannabinoids as drugs may be quite valuable. However, since FDA-approved medications cannot typically be legally added to conventional foods or dietary supplements, FDA approval of certain cannabinoids would create a complicated regulatory environment and spur subsequent consumer confusion (similar to the FDA’s approval of CBD in the form of Epidiolex).

Timeline

As for the timing of the rescheduling process, it will not happen overnight. Following approval by the White House, the DEA will likely initiate a public comment period. While this comment period itself will likely last from 30 to 90 days, the overall rescheduling process may take much longer. A previous drug rescheduling via rulemaking, for Hydrocodone Combination Products, took years to fully reschedule (though the timeline from HHS’ recommendation to the new rule taking effect was within one year). Following the quick turnaround by HHS to recommend cannabis rescheduling, it is possible that the DEA publishes its final rule as early as 2024.

Terran Cooper is a regular contributor to The Fresh Toast.  He is part of Falcon Rappaport & Berkman LLP. This article was developed in part with the help of Andrew Cooper and Matthew Foreman.