DEA Proposes Regulatory Changes to Facilitate Marijuana Production and Distribution for Research

The Drug Enforcement Administration recently issued a Notice of Proposed Rulemaking (NPRM)—"Controls to Enhance the Cultivation of Marihuana for Research in the United States"—to amend its regulations governing the production of marijuana for research purposes. 85 FR 16292 (March 23, 2020). If finalized, the new rule would facilitate DEA's registration of additional bulk manufacturers of marijuana for research purposes and prescribe the processes for procuring and distributing that marijuana to DEA-registered researchers. Expanding the manufacturer registrant pool beyond the current reality, a single manufacturer for the entire US, could help meet the increased demand for research and provide registered researchers with access to new strains of marijuana that are currently available at state-licensed dispensaries but may not be through the single-source supplier.

Notably, as part of its proposal to register additional marijuana producers in compliance with the Controlled Substances Act (CSA) and consistent with provisions of the Single Convention of Narcotic Drugs, 1961 (Single Convention), DEA proposes to (1) purchase and take physical custody of the marijuana crops produced by DEA-registered manufacturers and (2) have the exclusive right of importing, exporting, wholesale trading, and maintaining stocks of marijuana other than those held by DEA-registered manufacturers and distributors of medicinal cannabis or cannabis preparations. DEA notes in the NPRM that it has a backlog of approximately 35 applications and will consider pending applications on the effective date of the final rule before considering any new applications. Comments on the NPRM are due May 22, 2020.

Context Leading to a New Rule

Currently, the University of Mississippi, through the National Institute on Drug Abuse (NIDA) program, is the only authorized producer of marijuana for research. This sole-source arrangement was instituted more than 50 years ago, at a time when federally authorized marijuana was used only for federal research purposes. Today's research has expanded to explore commercial uses of marijuana, resulting in an increased demand for both the quantity and variety of marijuana. The number of entities registered by DEA to conduct research with marijuana or its derivatives has also increased, more recently from 384 in 2017 to 542 in 2019. DEA Press Release, DEA Announces Steps Necessary to Improve Access to Marijuana Research (Aug. 26, 2019). Researchers are exploring potential medical and health uses for marijuana and its chemical constituents, such as the use of CBD to treat neurological disorders. Others want to study the effects of today's more potent strains for purposes of assessing risks to the population of users.

In response to the demand and the interest in new research, the DEA adopted a policy in 2016 to permit additional growers to become DEA-registered marijuana manufacturers to supply legitimate researchers in the United States and invited interested persons to apply. 81 FR 53846 (August 12, 2016). Since that time, DEA has not acted on any of the pending applications, despite reporting that it was making progress in doing so. Congress, as well as the Food and Drug Administration (FDA) and the National Institutes of Health (NIH), have been pushing DEA to act on the pending applications in order to expand the diversity of lawful marijuana for research and advance that research. See, e.g., Letter from Senators Merkley, Wyden, Warren, Harris, Gillibrand, Booker, Markey, and Rosen (Dec. 11, 2019); Letter from FDA and NIH to Sen. B. Schatz (Aug. 27, 2019). DEA's proposed rule signals progress in response, although DEA has still not approved any grower applications and the NPRM does not address a timetable for doing so.

The proposed new rule would implement certain changes to the 2016 policy, as suggested by the Department of Justice.

Key Provisions of the Proposed New Rule

Although the CSA classifies marijuana as a Schedule I controlled substance and prohibits its production, distribution and possession, 21 USC §§ 812 (Schedule I), 841(a), 844, the law permits DEA to "register an applicant to manufacture controlled substances in schedule I or II if [it] determines that such registration is consistent with the public interest and with United States obligations under international treaties, conventions, or protocols . . . ." Id. at § 823(a). The DEA is to consider the following factors in determining whether registration of an applicant is consistent with the public interest:

1. maintenance of effective controls against diversion . . . by limiting the importation and bulk manufacture of such controlled substances to a number of establishments which can produce an adequate and uninterrupted supply of these substances under adequately competitive conditions for legitimate medical, scientific, research, and industrial purposes;
2. compliance with applicable state and local law;
3. promotion of technical advances in the art of manufacturing these substances and the development of new substances;
4. prior conviction record of applicant under federal and state laws relating to the manufacture, distribution or dispensing of such substances;
5. past experience in the manufacture of controlled substances, and the existence in the establishment of effective control against diversion; and
6. such other factors as may be relevant to and consistent with the public health and safety.

Id.

With respect to consistency with international obligations, as noted in the NPRM, Article 23(2) of the Single Convention contains five requirements for the supervision, licensing and distribution of marijuana:

(a) Designate the areas in which, and the plots of land on which, cultivation of the cannabis plant for the purpose of producing cannabis or cannabis resin shall be permitted.

(b) Ensure that only cultivators licensed by the agency shall be authorized to engage in such cultivation.

(c) Ensure that each license shall specify the extent of the land on which the cultivation is permitted.

(d) Require all cultivators of the cannabis plant to deliver their total crops of cannabis and cannabis resin to the agency and ensure that the agency purchases and takes physical possession of such crops as soon as possible, but not later than four months after the end of the harvest.

(e) Have the exclusive right of importing, exporting, wholesale trading, and maintaining stocks of cannabis and cannabis resin, except that this exclusive right need not extend to medicinal cannabis, cannabis preparations, or the stocks of cannabis and cannabis resin held by manufacturers of such medicinal cannabis and cannabis preparations.

According to DEA, it already performs functions (a), (b) and (c) through the CSA registration system as applied to manufacturers of marijuana. However, in order to carry out functions (d) and (e) directly, DEA asserts that it must amend the regulations. See 85 FR 16294. The proposed rule would amend the regulations as follows:

• Within four months of crop cultivation, DEA shall purchase and take physical possession of the total crops from the registered manufacturer. DEA may accept delivery and maintain possession of such crops at the registered location of the registered manufacturer authorized to cultivate cannabis consistent with the maintenance of effective controls against diversion;
• In cases where the registered manufacturer is also registered to conduct research with marijuana, DEA would still purchase and take title to the crop and subsequently distribute back a quantity of marijuana that does not exceed that manufacturer's DEA-issued procurement quota.
• DEA shall have the exclusive right of importing, exporting, wholesale trading, and maintaining stocks other than those held by registered manufacturers and distributors of medicinal cannabis or cannabis preparations.
• DEA proposes to allow market forces to direct prices for marijuana grown by the manufacturer and purchased by DEA. However, DEA intends to add a variable administrative cost (per kilogram (kg)) that it will adjust annually which it intends to add onto the sales price of the marijuana it sells to end users for purposes of covering the costs of administering the program. (For purposes of the economic analysis, DEA estimated an administrative cost of $304 per kg.)
• In determining which applicants to select for registration consistent with the public interest factors, DEA will place particular emphasis on the following criteria:
  • whether the applicant has demonstrated prior compliance with the Act and this chapter;
  • the applicant's ability to consistently produce and supply cannabis of a high quality and defined chemical composition;
  • the extent to which any applicant is able to supply cannabis or its derivatives in quantities and varieties that will satisfy the anticipated demand of researchers and other registrants in the United States who wish to obtain cannabis to conduct activities permissible under the Act as demonstrated through a bona fide supply agreement with a registered researcher or manufacturer, and
  • if an applicant seeks registration to grow marijuana for its own research or product development, the applicant must hold a registration as a schedule I researcher with respect to marijuana. (In determining the number of qualified applicants necessary to produce an adequate and uninterrupted supply of cannabis under adequately competitive conditions, DEA will consider the holding of an approved marijuana research protocol by a registered schedule I researcher seeking to grow marijuana for its own research or product development as evidence of the necessity of the applicant's registration under this factor.)

Conclusion

DEA reported last year that it intended to propose new regulations to govern the growing program prior to deciding on these pending applications. DEA Press Release, DEA Announces Steps Necessary to Improve Access to Marijuana Research (Aug. 26, 2019). Approval of any registrations could, therefore, be months down the road. This could be an issue for comment, particularly as DEA may have the authority to grant applications and permit production prior to finalizing the rule. Further, DEA states in the NPRM that it will consider applications pending on the effective date of the final rule prior to considering any new applications. Potential growers will, therefore, want to submit applications prior to the publication of the final rule.

Commenters may also want to address two distribution issues. First, there may be alternative, more efficient systems of distribution that allow DEA to track crops and distribution without the need to physically take custody of the harvested marijuana. This could be an important factor in determining the fees DEA charges for registrations and for marijuana, as DEA will seek to recover the full costs of its program through these fees. See 85 FR at 16297. Second, DEA did not address the possibility of allowing DEA-registered researchers to purchase strains of marijuana available at state-authorized dispensaries. FDA and NIH support this avenue as a means to provide diversity of marijuana strains for research. See Letter from FDA and NIH to Sen. B. Schatz (Aug. 27, 2019).

Finally, DEA's economic impact analysis in the NPRM assumes a range of three to 15 new growers, which it deemed "a reasonable estimate." Commenters may want to consider whether DEA should register more than three new growers, including whether such a limited number of growers can obtain licensing rights to a wide-range of plant varieties, the need to have suppliers located across the US, and the ability of only a few growers to meet the increasing research demands in the US as well as provide marijuana for potential export and thereby establish the US as a leading provider of research-grade marijuana.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.