Expert Analysis: Shane Pennington Breaks Down The Rescheduling of Cannabis #TheDime

Emergency Update: Shane Pennington Breaks Down Cannabis Rescheduling

Shane Pennington: If you do not get engaged — put your resources, I'm talking about your time, your money, your knowledge, your freaking network — behind this, it won't happen. And on the other side, Kevin Sabet and Smart Approaches to Marijuana — do not have any doubt about the fact that they are mobilizing already. We know this. Bryan Fields: What's up guys, welcome back to another episode of The Dime. I'm Bryan Fields, and with me is my co-host Kellan. This week we've got a very special guest, Shane Pennington, partner at Porter Wright. Shane, thanks for taking the time. How you doing today? Shane Pennington: Doing great, really happy to be here. Bryan Fields: Kellan, how are you doing? Kellan: I'm doing really great, really excited to talk to Shane, really excited to dive into this mess that is federal cannabis law. How are you, Bryan? Bryan Fields: I'm stoked. I think rescheduling is a topic that's on everybody's mind, but I think the problem is not everyone understands the intricacies involved. Before we get into East Coast, West Coast — Shane, I know you may not have a loyalty to either coast — do you want to put yourself on the map? Shane Pennington: To the extent I have loyalties, it's to Texas. That's where I was born and raised, and once you're born there, that sticks with you. I live in New York now because I have greater loyalties to my wife, but that's about it — Texas is my state and my coast. Bryan Fields: Smart man, siding with the wife. You never go wrong there. So Shane, before we dive deep into rescheduling, I think it's important to talk about some of the players involved, and then put a bow on it — is it as massive of a reform as everyone believes it could be? Shane Pennington: The players involved — you've got HHS, which makes the evaluation and recommendation to DEA. DEA then involves the public; the public has their say, which is extremely important. Then we get a final rule from DEA eventually, and presumably this one's going to court — it'll go to a federal court of appeals, and then it'll be finalized. Is it a big deal? Yeah, it's pretty much unquestionably the biggest deal in federal cannabis policy since Nixon signed the Controlled Substances Act into law in '71. It's a huge deal, and I think people don't fully understand why. Part of the reason is they have mistaken assumptions about what the alternatives are. A lot of people say descheduling is the only way that matters, and they don't actually understand what descheduling means and doesn't mean. Their opposition to schedule three threatens to keep it in schedule one, which would be a complete and humiliating disaster for the cannabis reform movement — the president kicks this off, serves it up on a silver platter, and if you get in the way of it and we're stuck in schedule one for who knows how long, that's a worst-case scenario we should all do everything possible to avoid. Bryan Fields: So where are we today, January 11th? Let's go from there. Shane Pennington: We have HHS's scheduling recommendation, which has been sent to DEA. That's a big part of this because HHS's views are binding on DEA for scientific and medical questions, which cabins DEA's discretion to a good degree. The process involves DEA looking at that recommendation, putting a proposed rule in the Federal Register — that's the next step we're waiting on. Then there's a 60-day public comment period. People can ask for hearings before an administrative law judge as well, and those hearings are on the record — you can put on witnesses, cross-examine, put on evidence — it's a full-blown trial on the proposed rule. The ALJ will look at all that, resolve objections, make findings of fact and conclusions of law. Then DEA has to look at all the comments and ALJ findings, and then issue a final rule that appears in the Federal Register. Its effective date has to be 30 days after it appears, unless DEA finds good cause — there are exceptions, but generally a 30-day delay. During those 30 days, anybody can seek judicial review in a federal appellate court. I suspect whichever way this goes, it's a Goldilocks situation — some will say the porridge is too hot, some too cold — and we're likely to see litigation. That matters because a court could change the decision. You're not done once you're done. Beyond that, for people interested in 280E relief, a court can, under certain circumstances, stay the effective date of a final rule even longer. That will probably be a fight at the beginning of the lawsuit. If you're interested in seeing cash flow relief, you have to hope you win that battle of not staying the effective date, and then hope you win the litigation too so you can preserve the win. This process normally takes a very long time, but this is unprecedented, and HHS did its part really quickly, so there's good reason to hope it'll be way faster than normal. That said, the average time for this process historically has been 9.2 years. Even if we move at bullet-train speed — and some are predicting it'll be done by the election — that would be extremely fast. We don't even have the proposed rule yet. If we get to February 1st and there's still no proposed rule, and then March 1st, at some point it becomes impossible for an agency with a small staff to move that fast. Bryan Fields: Is there any political influence — say Democrats, given it's an election year — that could expedite the timeline, or is it out of their hands? Shane Pennington: I'd analogize it to this — if you put a gun to my head and said my five-year-old daughter's life depends on me running a sub-four-hour marathon, I would run as fast as I could. But I'm a 40-year-old man who doesn't run — I would die trying, but I probably wouldn't actually be able to do it, even with every lever pulled. I'm not saying the administration hasn't already put all the influence it has behind expediting this — I'm saying some parts are just out of DEA's control. It can't control how many comments it receives from the public, and this is a big one. I'm going to comment, because you have to comment to preserve issues for judicial review — if you don't comment, you can't win on appeal because you didn't build the administrative record. When people comment, DEA has to consider and respond to every significant comment — meaning any comment that, if true, would require a change in the rule. That's the law. A recent telemedicine rule got over 39,000 comments, and you've probably never even heard of it. Something like this, I expect a deluge. People say they can respond to repeated comments en masse, which is true, but organizing and responding to tens of thousands of comments is still extremely difficult work — and that's not even counting the ALJ hearings. You can tell an ALJ to move quickly, but how fast can you really do an on-the-record hearing with witnesses and objections that must be resolved in writing and reviewed by the administrator? I know this is technical, but if people actually want it done quickly, they need to understand it's like asking me to run that marathon. Howard Sklamberg, who actually ran this process inside FDA the last time it happened — a partner at Arnold & Porter I respect a great deal — believes this will get done by the election. I'm skeptical, but I admit he's older, wiser, and closer to the process than I am. He hasn't run one of these DEA offices himself, but he knows the history better than most. I'm hopeful it gets done fast — I'm just worried. Bryan Fields: Those are all fair, and we can elaborate on some of those, but I want to stay with the ALJ — what are the two parties involved? Who puts up the witnesses? How does that work, and who are the resources behind these two opposing forces? Shane Pennington: There's not necessarily an "opposing force" in a formal sense, but it functions like a trial. Say there's a proposed rule stating cannabis has an abuse potential lower than most substances in schedule two — that has to be true for HHS to have recommended schedule three. If I'm Kevin Sabet and Smart Approaches to Marijuana, I'm going to gather all the evidence I can to say that's false, put on witnesses, and tell the ALJ, the fact-finder, that HHS's finding is wrong, misinterprets the standard, is inconsistent with precedent, and so on. Others could put on their own witnesses saying cannabis's abuse potential is even lower than schedule three, four, or five substances. Now the ALJ has mountains of evidence on top of a multi-hundred-page HHS analysis and probably 50 to 100 pages from DEA, and a whole slew of questions just on abuse potential — and that's just one prong. That's one person, with maybe a staff of a clerk or two, doing government work — not billing hours day and night like I do, nor should they. Bryan Fields: So who's on the other side of Kevin Sabet — would it be someone like your team, or DEA? Shane Pennington: I hope somebody's on the other side — I hope it's my team, but has anyone hired me to do that? No. That would have to be a collection of people in the cannabis industry coming together to defend and put on the other evidence, or Sabet's side will be unrebutted. And pardon me for being fired up about this — to everybody out there who's a reform advocate who wants rational cannabis policy, I'm probably largely on your side. This is why most of what I see on social media — people who are engaged and agree this should already have happened — are just waiting with their arms crossed for somebody else to do something. It's up to you. If you do not get engaged, put your resources — your time, your money, your knowledge, your network — behind this, it won't happen. Kevin Sabet and Smart Approaches to Marijuana are already mobilizing — we're on their email feed, we see what they're doing, they're already preparing for litigation. People act entitled to this happening and also act like it may not even be a good thing — but the very fact that Sabet's side is mobilizing all their resources to oppose it speaks volumes. If you're opposing this, you're on Kevin Sabet's side — think about that. Bryan Fields: To be super clear — are we talking about operators, MSOs, smaller states — does everyone need to collectively unify a single resource bucket ready to weaponize, or unify resources collectively in order to oppose? Is that how you'd see it? Shane Pennington: Yes. There's a comment period, and that comment period plus the ALJ hearings will create the administrative record — HHS's recommendation and evaluation, DEA's proposed rule, the comments people do or don't file, the ALJ record (transcripts, filings, accepted evidence), and DEA's final rule. That administrative record is the closed universe of everything a court can look at to decide whether the decision stands or falls. If you have great ideas, studies, or a big stake in this, and you sit on the sidelines while this administrative process goes through and don't get it into that record, you will never have another chance — it's over, and we're stuck with whatever's in that stack of documents. That's why it's critical — if you're an MSO, if you're invested in the cannabis space, if 280E is screwing up your life, you have skin in the game. If you think schedule three would be a good thing, you should be defending it. Even if you're not deep-pocketed or an expert yourself, you might know doctors and scientists who've done studies, or state-level lawmakers and regulators with experience — get them involved. Whether we file one big document or many is a strategic choice, and that's why you hire professionals. I'm not trying to build business for myself — hire somebody else if that's your concern, but for God's sake, get in the game. Bryan Fields: There are organizations like NORML and Americans for Safe Access — does donating to them move the needle? Is there a way to unify these organizations so they're opposing the other side in a cohesive manner? Shane Pennington: I hesitate to speak for those specific organizations since I haven't been in recent contact with them about this. But in general, I think we disagree about a lot less than it seems. We all know schedule one is a catastrophe. If 280E relief and removing the criminal penalties associated with it affect you — whether you're a small minority-owned cannabis company or a great big non-minority-owned MSO — the rain falls on everyone equally with 280E, and it's not just money, it's criminal penalties, meaning jail. We need to have conversations among all the stakeholders — we might disagree about certain policy priorities down the line, but we should unify around what we agree on and try to speak with a unified voice. That takes a lot of coordination and effort. If you wait until the proposed rule comes out — which might already be in our inboxes soon — it'll be too late, because you only have 60 days, and the HHS recommendation we got a redacted copy of is hundreds of pages long. That's why I feel urgency: everybody, stop fighting and get ready for this historic moment. Bryan Fields: Those points are extremely clear, and I appreciate you laying into them — I assumed we were already preparing for this, but it seems like everything we're doing to not be proactive and unify is playing into the opposing side's hands — distraction, separation, additional comments — because if we have a short time frame, we need to be unified to minimize distractions. Shane Pennington: Exactly right. Part of the issue is that after people hear this, they'll get worked up and ask, "well now what do I do?" Contact those organizations, contact me, contact anyone working on this — they'll put you in touch with the people you need. I especially like talking to organizations that disagree with me, because I think it's so important that we unify. I think if you talk to me, you'll find I respect you, understand where you're coming from, and that I'm persuasive. At the end of the day, I tell people: your bigger-picture goal is vital, but right now we have to decide what to do about this specific set of facts — a schedule three recommendation exists, a decision is coming, it's going to be one thing or another. Shut out the noise and focus on that together. You can reach out to organizations like NORML or Americans for Safe Access, or people like Matt Zorn, Andrew Kline, Howard Sklamberg — I know the people I know, but reach out and you'll get plugged in. Colorado and Washington have had recreational cannabis for almost a decade now, and a lot of the things people are divided on are moot at the federal level, because this is the first real movement on rescheduling — it's a rising-tide-raises-all-ships moment. There are objections coming from all directions that I think are misguided, and I'd love to take them up one at a time. Bryan Fields: Let's dive into one. Shane Pennington: Okay, let's talk about what schedule three would mean from an enforcement perspective — the "no-knock" fears and all that. Here's reality: there is minimal federal enforcement of cannabis right now, mostly state-level stuff. If the federal government wants to enforce, it can do everything today with cannabis in schedule one that it could do with cannabis in schedule three, and more. Schedule three does not remove the risk of enforcement, but people mistakenly think schedule one is a safety net for the industry — nothing could be further from the truth. Schedule one criminalizes everything, and as long as you're in schedule one, you've got 280E, which has everybody's circling the drain. Schedule three would relieve that. If you're worried schedule three creates enforcement risk because of prescription requirements and DEA registration for doctors, similar to how FDA regulates ketamine — yes, if they enforced schedule three requirements that would be problematic, but it would be more problematic to enforce schedule one requirements. No one needs schedule three to enforce and shut down the industry — they could do it in schedule one. To actually shut down a $40 billion industry, DEA would need resources it doesn't have; the administrative rescheduling process doesn't give anyone new appropriations to hire staff, and getting an act of Congress is incredibly difficult. States with medical or recreational programs also aren't going to take federal money to help shut down the industry driving their own tax revenue. It's practically impossible for that to happen overnight, though not impossible down the line if federal priorities changed dramatically — but again, they could do that under schedule one more easily than schedule three. Bryan Fields: What about 280E? I've read that people fear if 280E gets removed, another tax code issue is behind door number two that we don't know about. Shane Pennington: 280E applies to trafficking in schedule one or two substances — that's it. If cannabis moves to schedule three, businesses are still trafficking because they won't register with DEA, so 280E would no longer apply in that specific sense, but you'd still be violating federal law generally. DEA won't grant cannabis businesses registration because DEA doesn't give licenses to people who've violated state or federal law in the past — which everyone in this industry technically has. So there's not much practical change for people already operating; it doesn't change any of that, and it doesn't change the criminal penalties either — those penalties are agnostic to scheduling, as long as the substance is scheduled at all, even schedule five. One more myth to dispel: descheduling would not make cannabis or the industry federally legal, because the Federal Food, Drug, and Cosmetic Act requires FDA approval before any drug can be marketed in interstate commerce, and cannabis counts as a drug under that broad definition. Even intrastate commerce is nearly impossible to maintain given how broadly "interstate commerce" is interpreted — if any screw on any machine you use traveled across state lines, you're in interstate commerce. So descheduling alone doesn't solve federal illegality without FDA approval, which we don't have and won't have anytime soon. People who are "deschedule or bust" almost always don't fully understand what descheduling would and wouldn't mean. On criminal penalties specifically — Biden's pardon for federal possession didn't do much because almost nobody is in federal prison for that; people are in prison for violating state laws, and descheduling wouldn't change those state laws. Some state laws have triggering provisions tied to federal scheduling changes, but cannabis is often treated specifically in those statutes, so it's unclear those triggers would even apply automatically. If you're really concerned about criminal penalties, start reforming state laws in prohibitionist states — that requires legislation, and it's separate from this administrative process. Right now, the only thing in play is whether we get schedule three or not, and that's what we need to focus on. Bryan Fields: How do we get around the medical-use aspect? Lawmakers cite NIDA saying there isn't enough research demonstrating medical purposes, but NIDA's own director has said schedule one prohibits the kind of research needed. How do we get past that cat-and-mouse game? Shane Pennington: HHS has already said cannabis has a currently accepted medical use in treatment in the United States, which is why they recommended schedule three. NIDA can say whatever it wants, but is it really going to disagree with HHS? NIDA is part of HHS, and Secretary Xavier Becerra is above them. Even setting that aside — and with all due respect to Dr. Nora Volkow, who has said some genuinely progressive things, and I'm not a scientist myself — by statute, HHS is the authority on scientific and medical questions for the federal government. More importantly, under federalism, what is and isn't legitimate medical use is largely a state-determined matter, and that's likely part of what HHS based its decision on. Doctors across the country are recommending cannabis to patients under state law — either they're committing malpractice or worse, or it's the case that HHS is right and it actually is medical, which has already been determined. On research specifically — this is important — a lot of people believe schedule three or five would boost research, but unfortunately the research provisions amended through the Medical Marijuana and Cannabis Research Expansion Act in late 2022, which everyone celebrated, actually make cannabis research harder, not easier. I said so at the time on the "On Drugs" Substack that Matt Zorn and I write. When it passed, none other than Kevin Sabet and Smart Approaches to Marijuana took credit for having drafted and pushed it through. The biggest problem is that the bill's research restrictions are tied to cannabis itself, not to its schedule — so whether cannabis is in schedule one, three, or five, those restrictions still apply. Dr. Volkow wants those research restrictions removed, and so do I, but it's going to take real work to undo that. Bryan Fields: Does schedule three change international policy in terms of tariffs, export, and import? I know research still can't be done domestically the way we described, but does this help internationally — like with Israel and other countries with research capabilities? Shane Pennington: This dovetails into the treaty issue. Schedule one and two have extra import/export restrictions, quotas, and reporting requirements tied to compliance with the Single Convention on Narcotic Drugs. DEA has historically said a substance needs to be in schedule one or two if it's subject to control under that treaty — people will say I don't know what I'm talking about because of that. But historically, DEA hasn't always stuck to that. When the Clinton administration wanted to reschedule FDA-approved synthetic THC drugs, DEA moved them to schedule three and other schedules while imposing those import/export requirements through separate regulations to ensure treaty compliance. It did the same thing in 2018 with Epidiolex — another cannabis-derived drug subject to Single Convention control — moving it to schedule five while imposing those requirements separately. There's historical precedent for this, done more than once. Also, the State Department recently told the International Narcotics Control Board in Vienna that the Single Convention is about international trade, not policing domestic policy — a pretty bold, recent statement suggesting a shift in how the U.S. views the treaty. DEA could still decide to use the treaty card to keep cannabis in schedule one, and we have to hope it doesn't — but if it tries, I wrote a law review article explaining why letting the UN dictate U.S. domestic criminal law like this is unconstitutional, with Matt Zorn. We published the deepest possible rebuttal months before any of this started. Bryan Fields: Does the scheduling have anything to do with the Georgia pharmacies being threatened by DEA over dispensing medical marijuana under state law? Shane Pennington: No. Those pharmacies also sell Epidiolex, which is FDA-approved and can be dispensed via prescription — but you can't write a federal prescription for medical marijuana. Those pharmacies are putting their DEA practitioner registration at risk by saying they'll dispense medical marijuana on a doctor's recommendation, which violates federal law in a way DEA still regulates. I wasn't surprised DEA jumped on that. Bryan Fields: How do you see that ending? Shane Pennington: I think things stay the same as before — it doesn't get dispensed from pharmacies, only from dispensaries, until federal law changes more broadly. Notice that pharmacists are state-licensed and regulated, and we trust them to help keep us safe with other substances, while federal prohibition — which isn't being enforced any other way — is what's stopping those same safety mechanisms from applying to cannabis. DEA is allowed to make exceptions to federal law where doing so is consistent with public health and safety — how could it not be consistent with public health and safety to let the very channels we use to promote it, run with respect to cannabis? This is where HHS's recommendation of currently accepted medical use matters independent of scheduling — DEA can't easily argue against that because they're statutorily bound to defer to HHS on it. If I were a governor, I'd push DEA: since you can waive CSA requirements when consistent with public health and safety, and you're also barred under Rohrabacher-Farr from spending funds to interfere with state medical marijuana markets, wouldn't it be consistent with public health and safety to exempt the doctors, practitioners, and patients operating under those state markets? If DEA granted that waiver, those participants would no longer be "trafficking" in a schedule one substance and would be out from under 280E — regardless of federal rescheduling. That's low-hanging fruit that should be pushed immediately, and I'm saying it publicly because I want to help, not because I want to profit from keeping it secret. Bryan Fields: What about hemp-based and synthetically derived cannabinoids — do you see that being addressed in the Farm Bill, or minimizing what's going on in states like Minnesota? Or is DEA too busy with other things and this gets pushed down the road, especially given the economics where hemp could become the dominant crop for cannabinoids across form factors like beverages and edibles, bypassing the regulated THC industry entirely? Shane Pennington: I think it's wild and absurd, honestly — we're talking about the same substance. Eventually they'll be treated the same because they are the same. In the meantime, what happens with hemp has to account for the reality that something largely unregulated could become mainstream and block out the regulated product market. I know hemp companies say they're ready to be regulated and aren't avoiding it — fair enough — but we all know products sold in gas station bathrooms aren't being regulated the way state-licensed cannabis companies are. As a libertarian, I'd still say we need to think carefully about who we send out as our champion in this fight, because if you remove all restrictions and make it the Wild West, opponents of cannabis will have a field day with every incident involving a sick child, and they'll say the state markets failed — lumping regulated cannabis and unregulated hemp together, even though most of what Kevin Sabet's side criticizes to Congress is actually about unregulated products. We all get hurt by that. We need to think as a group about the best model to represent us as we move toward full legalization. Bryan Fields: That's well said, though complicated, given everyone's individual self-interest by state or industry segment — hemp versus cannabis. There needs to be more unified messaging, but it's difficult to figure out how. Shane Pennington: You're right it's complicated, but what you said actually simplifies it — you can generally predict what someone will argue based on what money they will or won't get from a given outcome, and that's something I fear could destroy us. I'm not Dr. Phil, I can't fix that, but I can tell you we all need to start thinking beyond next week and the ticker price on whatever investment we hold, if this is going to work. Some people are in this for short-term gain, and God bless them, no judgment — but those of us who want lasting, meaningful reform need to be less shortsighted. Bryan Fields: Perfectly said. Shane, obviously a lot needs to happen in the next 30, 60, 90 days — if you could lay out clear, quick bullet points as if you were leading the charge, what steps would you want people to understand as critical from an organizational standpoint? Shane Pennington: On rescheduling specifically — first, we know from the redacted documents that HHS focused mainly on studies from 2016 onward. We need medical and scientific experts to help identify those studies, compile a big list, and tell us what the good and bad ones say, so we're prepared to marshal that evidence effectively once we get a proposed rule. Second, as a community we need to organize — if you have access to experts, or connections to former or current state regulators who might sign onto or help draft comments, get those people lined up now. If you have money to dedicate to this work — which requires lawyers, doctors, and scientists — get it to the people who can actually do the work, because people can do a lot more, faster, when they're paid; that includes me. If you're in a business or organization with a stake in this, get in touch with someone already writing comments and ask to join and sign on. And last, all of us should try to quell the internal debate — take differing views seriously, but put the bigger disagreements on pause right now to unify around supporting schedule three, rather than fighting each other on social media. This all needs to be done yesterday. If people have questions, reach out to me or others — Jonathan Havens at Saul Ewing, Andrew Kline at Perkins Coie, Howard Sklamberg at Arnold & Porter, me, Matt Zorn — there are so many people, just find a competent expert and ask. I won't charge you for that. Bryan Fields: I think that's perfect, and I think we should leave it there because we've got a lot of work to do in the next period of time. Shane, for our listeners who want to get in touch and read On Drugs, where can they find you? Shane Pennington: On Drugs is at ondrugs.substack.com, and you can read most everything we put out without a paid subscription — some content is reserved for paid subscribers, and that money funds our FOIA lawsuits to get redacted documents and organize them, not, say, a Porsche for me, which would be sick, but that's a separate matter. As far as reaching me directly, my email is spennington@porterwright.com — you can find me on the firm's website — and I'm @AdminLawOn on X. I have a funny network because I come from a white-shoe, conservative law background with legal academics, and then I've got the cannabis movement crowd, and it's funny watching them collide on my feed. Bryan Fields: It's a beautiful Venn diagram. Shane Pennington: Thanks so much for having me, guys — I really enjoyed it. Bryan Fields: Thank you, we really appreciate your time.