Petitioners Dr. Lyle Craker and Scottsdale Research Institute (SRI) challenge a Drug Enforcement Administration (DEA) rule concerning the registration process for entities seeking to manufacture and cultivate cannabis for research purposes. The court, led by Circuit Judge Kayatta, outlines the legal framework governing this registration under the Controlled Substances Act (CSA). The CSA mandates that anyone manufacturing controlled substances, including cannabis classified as a Schedule I substance, must first register with the federal government (21 U.S.C. 822(a)(1)). The Attorney General is empowered to grant registrations and establish relevant regulations, a power delegated to the DEA Administrator.
The DEA's registration process aims to align with public interest and international treaty obligations, particularly the Single Convention on Narcotic Drugs, which permits cannabis production only for medical and scientific research. The CSA specifies six factors for determining public interest in registration, including control against substance diversion and compliance with state laws. However, the statute lacks specific guidance on assessing consistency with international treaty obligations. The court ultimately denies the petitions for review, supporting the DEA's authority and regulatory framework established for cannabis cultivation and manufacturing.
Signatory nations must have a designated government agency, such as the DEA, outline permitted cultivation areas, authorize only licensed cultivators, define the land extent for cultivation, take possession of crops, and maintain exclusive rights for importing, exporting, and wholesale trading cannabis products. The DEA had only licensed one grower, the National Center for Natural Products Research, prior to the current petitions, which operates under a contract with the National Institute on Drug Abuse. In 2016, the DEA initiated a new policy to increase the number of federally registered cannabis growers, allowing them to operate independently with DEA approval for distribution. However, the DEA did not act on applications submitted under this program. The Department of Justice's Office of Legal Counsel evaluated the legality of the DEA's practices and, in June 2018, advised that the DEA must revise its licensing framework to comply with the Single Convention on Narcotic Drugs, requiring the agency to take possession of all crops post-harvest and monopolize related trade activities. Following this, in March 2020, the DEA proposed new rules to replace the 2016 program, aiming to align its practices with the Single Convention's requirements, although the proposal did not publicly incorporate the OLC's opinion.
Public comments were invited on the proposed rulemaking until May 22, 2020. Following the DOJ's advice mentioned in the notice, SRI sued the DEA and DOJ under the Freedom of Information Act, leading to the DOJ publishing the OLC's Marijuana Cultivation Opinion on April 29, 2020. The DEA subsequently issued a final rule on December 18, 2020, adopting the proposed rule with a minor modification. This final rule addressed public comments regarding the DEA's responsibilities under federal law and the Single Convention, and defined "medicinal cannabis" as a drug product derived from the cannabis plant that is legally marketed under the FDCA. The rule aims to increase the number of cannabis cultivators for research purposes, and SRI's application to manufacture cannabis was approved.
Petitioners challenged the rule on grounds of procedural deficiencies, exceeding the DEA's authority, and being arbitrary and capricious. Craker also argued that the rule is retroactive concerning his pending application. Under the APA, agency actions can be invalidated if deemed arbitrary or not in accordance with the law. The petitioners claimed the DEA's notice failed to provide a meaningful opportunity for public engagement by not disclosing its legal rationale and mischaracterizing its obligation to follow the OLC opinion. The summary evaluates the DEA's compliance with APA procedural requirements, particularly its duty to explain the legal basis for the proposed rule. The petitioners contend that the DEA's notice did not adequately disclose this legal basis.
The petitioners challenge the DEA's reliance on an unpublished opinion from the Office of Legal Counsel (OLC) regarding marijuana cultivation, claiming it limited public participation in the rulemaking process. They argue that the DEA's reference to this opinion without full disclosure deprived the public of meaningful input. However, the petitioners' application of section 553(b)(2) is deemed incorrect. This section is intended to ensure that an agency confirms its authority to propose a rule and allows public comment on that issue, as established in United States v. Whitlow. The DEA's notice of proposed rulemaking effectively communicated its legal authority under the Controlled Substances Act (CSA), detailing the statutes that empower the agency to regulate controlled substances and set registration fees. The notice also clarified the registration requirements and conditions outlined in the CSA, which the petitioners did not dispute. Although the petitioners assert that section 553(b)(2) necessitates public access to the data used in rule development, this is more aligned with section 553(b)(3), which pertains to disclosing the technical basis for a proposed rule. The DEA's notice did provide legal reasoning, referencing the Single Convention requirements for marijuana regulation and explaining the need for amendments to ensure compliance with both the CSA and the Convention. Overall, the notice sufficiently informed the public that the Proposed Rule aimed to address deficiencies in the DEA's current marijuana registration process.
The petitioners argue that the DEA failed to disclose the OLC's Marijuana Cultivation Opinion in its notice of proposed rulemaking, which they claim violates the APA. However, the court finds no evidence of prejudice from this lack of detail, as the OLC's opinion was made public during the comment period, allowing stakeholders to address it. The petitioners did not articulate how earlier disclosure would have changed their commentary. Additionally, the petitioners claim the DEA improperly relied on the OLC's interpretation without providing its own rationale. The court counters that agencies can rely on OLC guidance, which is intended to inform executive branch actions. The DEA's Final Rule indicates agreement with the OLC's interpretation of the CSA, undermining the petitioners' argument.
Furthermore, the petitioners contest the DEA's authority, asserting that the Final Rule deviates from the CSA by imposing different requirements than the specified public interest factors in 21 U.S.C. 823(a), improperly limiting the DEA's power to waive registration requirements under 21 U.S.C. 822(d), and adopting a narrow definition of "medicinal cannabis" that ties it to legal marketability under the FDCA. They argue that the definition of "medicinal" should encompass a broader interpretation. The court notes that the Final Rule explicitly references the six public interest factors outlined in 823(a) and identifies additional considerations for assessing public interest, as detailed in 21 C.F.R. 1318.05(b) and the Final Rule publication.
The applicant's compliance history with the Controlled Substances Act (CSA) and DEA regulations is a critical consideration in the registration process. Petitioners argue that the Final Rule violates section 823(a) by permitting the DEA to evaluate factors not explicitly listed, such as an applicant's past compliance with state and local laws and their compliance with federal law, rather than solely focusing on their current compliance and prior conviction records. They assert that section 823(a)(2) only mentions compliance with state and local laws without reference to past compliance, contrasting this with the explicit mention of prior conviction records in section 823(a)(4). However, the CSA grants the DEA broad authority to assess whether an applicant's registration aligns with public interest, including considering additional relevant factors under section 823(a)(6). The DEA's interpretation that past compliance is pertinent to assessing an applicant's experience and ability to uphold public health and safety is supported by the statute, which acknowledges the significant negative impact of illegal substance distribution on public welfare. Additionally, the petitioners argue the Final Rule misinterprets section 823(a)(1) regarding effective controls against diversion, claiming it improperly restricts the number of manufacturers to those capable of producing an adequate cannabis supply under competitive conditions.
The petitioners contend that the DEA's interpretation of a provision mandates an upper limit on the number of registrants, which they argue conflicts with both the Controlled Substances Act (CSA) and the DEA's previous interpretations. However, the Final Rule does not impose a specific cap but restates the statutory language verbatim. The DEA clarifies that it must analyze each application to determine the necessity of additional registrants for the adequate supply of marihuana for research. This interpretation aligns with previous DEA actions, which acknowledged that while the CSA does not explicitly set an absolute limit on registered manufacturers, it implies that the DEA must consider a practical upper boundary for manufacturers to ensure adequate supply under competitive conditions.
Additionally, the petitioners argue that the Final Rule restricts the DEA's authority to waive registration requirements for certain manufacturers under CSA section 822(d). The DEA received comments urging it to waive registration for cannabis growers supplying researchers but ultimately chose not to exercise this authority. The petitioners assert that the DEA failed to consider this possibility, but the agency did consider it and decided against it. They also challenge the sufficiency of the DEA's justification for not waiving the registration requirement, particularly regarding compliance with the Single Convention. Nonetheless, the petitioners do not demonstrate how section 822(d) mandates the DEA to grant such waivers in this case.
The DEA's decision to deny a waiver of registration that would conflict with U.S. treaty obligations was deemed reasonable, as the agency's discretionary authority was not improperly exercised. The petitioners challenged the DEA's definition of "medicinal cannabis" in the Final Rule, which characterizes it as a cannabis-derived drug product legally marketable under the Federal Food, Drug, and Cosmetic Act. They argued this definition conflicts with the plain meaning of "medicinal" and the framework of the Single Convention and federal law. The DEA noted that the Single Convention lacks a specific definition for "medicinal cannabis," but acknowledged that the definition for "medicinal opium" could inform the understanding of "medicinal cannabis." Instead of adopting a broad definition from the Single Convention verbatim, the DEA tailored it to align with federal law, specifically the FDCA and CSA. The agency's authority to define "medicinal cannabis" is supported by the CSA, which allows the DEA to regulate cannabis in accordance with public interest and international treaty obligations. The petitioners failed to show that the DEA's definition was arbitrary, capricious, or inconsistent with the CSA or U.S. treaty obligations, noting that the CSA does not define "medicinal cannabis" and classifies cannabis as a schedule I drug.
The DEA is required to consider effective controls against the diversion of cannabis when registering cultivators under 21 U.S.C. 823(a)(1). The DEA's definition of "medicinal cannabis" allows it to maintain exclusive control over cannabis produced by registered growers until it can be legally marketed, which aligns with the Single Convention's definitions and does not conflict with the United States' treaty obligations. The Single Convention permits the U.S. to choose not to assert exclusive control over "medicinal cannabis," yet does not mandate relinquishing control over any cannabis stock.
The petitioners argue that the DEA's definition contradicts the Grinspoon v. DEA decision, which emphasized that a substance might have accepted medical use without FDA marketing approval. However, the current case does not involve defining a statutory term but rather registering cultivators based on public interest and treaty compliance. The DEA's actions are within its statutory authority and do not violate treaty obligations.
Additionally, the petitioners claim that the DEA's definition conflicts with FDA regulations, suggesting that the FDA acknowledges the medicinal potential of substances lacking FDA approval. Nonetheless, the DEA is not obligated to align with the FDA’s interpretations. Ultimately, the petitioners' challenges to the DEA's Final Rule lack merit and are denied.
The registration of prospective cannabis growers is governed by the Controlled Substances Act (CSA), which mandates that anyone manufacturing a controlled substance, including marijuana (classified as a schedule I substance), must first register with the federal government. The Attorney General has the authority to register these manufacturers and to create rules and regulations for their registration and control, powers that have been delegated to the DEA. The DEA can register applicants if it determines that such registration aligns with public interest and U.S. international treaty obligations, particularly those outlined in the Single Convention on Narcotic Drugs. This convention requires signatories to prohibit the production and trade of cannabis except for medical and scientific purposes, stipulating that designated government agencies must control cultivation, licensing, and trade processes. The DEA had only licensed one grower, the National Center for Natural Products Research at the University of Mississippi, before the current petitions for review were initiated.
The National Center operates as a cannabis grower under a contract with the National Institute on Drug Abuse. In 2016, the DEA introduced a policy to increase federally registered cannabis growers, allowing them to operate independently with prior written DEA approval for distribution. However, the DEA did not act on applications submitted under this policy. The Department of Justice's Office of Legal Counsel (OLC) reviewed the legality of the DEA's marijuana licensing practices and, in June 2018, issued a legal opinion stating that the DEA must reform its practices to comply with the Single Convention on Narcotic Drugs. This included a requirement for the DEA to purchase and control the entire marijuana crop from each licensed grower and to monopolize certain aspects of the marijuana trade. The OLC's opinion was initially kept confidential. In March 2020, the DEA announced proposed rulemaking to replace the 2016 program, aligning its regulations with the law as advised by the DOJ, although the OLC's opinion was not included in the notice. The proposed rule aimed to fulfill obligations under the Single Convention and invited public comments until May 22, 2020. In pursuit of transparency regarding the DOJ's advice, SRI filed a lawsuit under the Freedom of Information Act, which resulted in the publication of the OLC's opinion on April 29, 2020, shortly before the comment period ended.
The DEA issued a final rule regarding the cultivation of cannabis for research, adopting the Proposed Rule with a minor, non-relevant modification. The rule, published in the Federal Register, addressed public comments on the DEA's regulatory obligations under federal law and the Single Convention, while defining "medicinal cannabis" as a drug product from the cannabis plant legally marketed under the FDCA. The Final Rule allows for the registration of more cannabis cultivators to diversify the supply for researchers and has already approved SRI's application to manufacture cannabis. However, petitioners challenge the rule, claiming it is procedurally deficient, exceeds the DEA's authority, and is arbitrary and capricious, with one petitioner alleging it is retroactive regarding his pending application. Under the Administrative Procedure Act (APA), agency actions can be invalidated if found arbitrary or if procedural requirements are not met. Petitioners argue that the DEA failed to provide a meaningful opportunity for public engagement by not disclosing the legal basis for the Proposed Rule and did not adequately explain the rationale behind it, instead claiming to follow the Office of Legal Counsel’s directives. The summary includes references to specific sections of the APA and related legal precedents, emphasizing the procedural obligations the DEA was expected to fulfill.
The petitioners challenge the DEA's reference to an unpublished Marijuana Cultivation Opinion from the OLC, arguing that its lack of disclosure hindered public participation in the rulemaking process. They claim reliance on section 553(b)(2), which is intended to ensure that an agency confirms its authority to propose a rule and allows for public comment on that authority. However, the document explains that the DEA's notice of proposed rulemaking adequately cited its authority under the Controlled Substances Act (CSA) and detailed the registration requirements. The petitioners did not dispute the DEA's legal authority to enact the proposed rules. They further assert that section 553(b)(2) mandates public access to data used in rule development, but the document indicates that this requirement aligns more closely with section 553(b)(3), which addresses the need to disclose the terms or substance of the proposed rule and its technical basis. Ultimately, the DEA's notice provided sufficient legal reasoning for the proposed rule, including references to the requirements outlined in the Single Convention regarding marijuana.
The DEA proposes to amend its regulations to directly perform two additional functions to ensure compliance with the Controlled Substances Act (CSA) and the Single Convention on Narcotic Drugs, as the current marijuana registration scheme does not fully align with these requirements. The notice for the Proposed Rule adequately informed the public, including petitioners, of this motivation. Even if the petitioners argued that the Administrative Procedure Act (APA) necessitated disclosure of the Office of Legal Counsel's (OLC) Marijuana Cultivation Opinion during the proposed rulemaking process, they failed to demonstrate any resulting prejudice, as the opinion was disclosed during the comment period, allowing for public feedback.
The petitioners also contended that the DEA improperly relied on the OLC’s interpretation instead of providing its own rationale for the rule. However, there is no legal basis preventing an agency from adopting the OLC's guidance, which is designed to assist executive agencies. The DEA's Final Rule aligns with the OLC's interpretation of the CSA, and the agency acknowledged its legal obligations in the final document.
Additionally, the petitioners claimed that the Final Rule exceeded the DEA's rulemaking authority by imposing requirements inconsistent with the six "public interest" factors outlined in 21 U.S.C. § 823(a), limiting the DEA's statutory authority to waive registration requirements under § 822(d), and by defining "medicinal cannabis" too narrowly to require legal marketability under the Food, Drug, and Cosmetic Act (FDCA). The petitioners argued that "medicinal" should encompass a broader definition. The DEA's adherence to the public interest factors remains a key point of consideration in evaluating these claims.
Importation and bulk manufacture of controlled substances are restricted to a select group of establishments capable of maintaining a stable supply for legitimate medical, scientific, research, and industrial needs. Six factors must be evaluated by the DEA under section 823(a) for applicants seeking registration: 1) the ability to produce an adequate supply under competitive conditions; 2) compliance with applicable state and local laws; 3) promotion of manufacturing technical advances and new substance development; 4) the applicant's prior conviction record related to controlled substances; 5) past experience in manufacturing controlled substances and effective diversion controls; and 6) other relevant factors supporting public health and safety.
The Final Rule echoes these six factors and includes additional considerations to assess public interest, notably the applicant's prior compliance with the Controlled Substances Act (CSA). Petitioners argue that the Final Rule violates section 823(a) by allowing the DEA to consider factors not explicitly stated, such as past compliance with state and local laws and federal law compliance, contrasting this with the specific mention of an applicant's prior conviction record. They assert that the CSA's language suggests Congress intended to limit the DEA's considerations.
However, the text of the CSA grants the DEA the authority to assess applicants based on public interest, including the listed factors and the discretion to evaluate "other relevant factors." The DEA interprets this to encompass past compliance with state and local laws and adherence to federal law, which is supported by the statute's provisions. Thus, the DEA's interpretation aligns with the CSA's intent to prioritize public health and safety in its evaluations.
Possession and improper use of controlled substances negatively impact public health and welfare. Petitioners acknowledge the relevance of past compliance with laws to public health and safety. The Final Rule clarifies that prior compliance is pertinent to assessing an applicant's experience with manufacturing schedule I substances, preventing diversion, and ensuring public health and safety. The DEA's interpretation aligns with statutory requirements, particularly regarding the need for effective controls against diversion of cannabis.
Petitioners argue that the DEA misinterprets section 823(a)(1) by reading it to require limiting manufacturers to those capable of producing an adequate supply under competitive conditions. They contend this creates a cap on registrants that conflicts with the Controlled Substances Act (CSA) and prior DEA interpretations. However, the Final Rule does not impose a specific limit on the number of registrants but restates the statutory language. The DEA maintains it must analyze each application to determine if additional manufacturers are necessary to meet research needs. A previous DEA footnote acknowledged that while the CSA does not explicitly set a ceiling, it implies the DEA should consider an upper limit based on the ability to provide a sufficient supply under competitive conditions. The Final Rule reflects this interpretation and adheres to the language of section 823(a)(1).
The Final Rule has incorporated certain provisions verbatim, which do not conflict with the Controlled Substances Act (CSA) or the Drug Enforcement Administration's (DEA) interpretive precedent. Petitioners claim the Final Rule improperly limits the DEA's authority under the CSA to waive registration requirements for specific manufacturers, distributors, or dispensers when it aligns with public health and safety, as permitted under 21 U.S.C. § 822(d). During the public comment period, there were requests for the DEA to waive these requirements for cannabis growers providing to researchers. The DEA declined this request, providing explanations in the Final Rule, which the petitioners argue were inadequate. However, the DEA did consider the issue, ultimately choosing not to grant waivers, a decision that the petitioners erroneously characterize as a failure to even consider the possibility. The petitioners assert that the DEA's justification for not waiving registration, citing potential conflicts with U.S. treaty obligations, is insufficient. However, the DEA is not mandated by § 822(d) to grant waivers and its decision, based on maintaining treaty compliance, was within its discretion.
Additionally, petitioners contest the DEA’s definition of "medicinal cannabis" as a drug product from the cannabis plant legally marketed under the Federal Food, Drug, and Cosmetic Act. They argue this definition contradicts the plain meaning of "medicinal" and is inconsistent with the Single Convention and federal law. The DEA clarified that the Single Convention does not define "medicinal cannabis," although it acknowledged that its understanding of "medicinal cannabis" may be influenced by the definition of "medicinal opium" in the Convention, which refers to opium modified for medicinal use.
Support exists for the petitioners' argument that the Single Convention defines "medicinal cannabis" more broadly than the definition established by the DEA. However, instead of adopting the Single Convention's definition directly, the DEA chose to modify it to align with federal law, including the Federal Food, Drug, and Cosmetic Act (FDCA) and the Controlled Substances Act (CSA). The core issue is whether this adaptation by the DEA, which limits the definition of "medicinal cannabis" to products approved under the FDCA, constitutes a reasonable exercise of its rulemaking authority.
The DEA is authorized to create its own definition of "medicinal cannabis" within the federal registration framework, as the CSA empowers the agency to regulate the manufacture, distribution, and dispensing of cannabis. The CSA requires the DEA to register manufacturers of cannabis only if such registration aligns with public interest and U.S. international treaty obligations, including those under the Single Convention.
The petitioners have not provided evidence that the DEA's interpretation of "medicinal cannabis" conflicts with the CSA or the Single Convention. The CSA does not define "medicinal cannabis" and categorizes cannabis as a Schedule I drug, mandating the DEA to maintain effective controls against diversion. Therefore, it is not arbitrary or capricious for the DEA to define "medicinal cannabis" in a manner that ensures the regulated control of cannabis until it can be legally marketed.
Additionally, all parties agree that the DEA's definition does not exceed that of the Single Convention. The convention permits the U.S. to limit its exclusive control over "medicinal cannabis," but it does not require that such control be waived entirely. Thus, the DEA's definition remains consistent with U.S. obligations under the Single Convention.
The DEA's retention of exclusive rights over a broader stock of cannabis than mandated by the Single Convention is justified to comply with the Controlled Substances Act (CSA) and is not deemed arbitrary or capricious. Petitioners argue that the DEA's definition of "medicinal cannabis" contradicts the 1987 Grinspoon v. DEA decision, which assessed the CSA's criteria for classifying substances as Schedule I, specifically the lack of accepted medical use in the U.S. The DEA had interpreted "accepted medical use" to mean FDA approval for interstate marketing. However, the court found that a substance could have accepted medical use without such approval, which the DEA's limiting interpretation did not account for.
In the current context, the DEA is not defining a statutory term but is instead registering cannabis cultivators based on public interest and treaty compliance, as outlined in 21 U.S.C. §§ 823(a) and 821. The agency's definition of "medicinal cannabis" does not exceed its statutory authority nor breach treaty obligations. While petitioners claim the definition conflicts with FDA regulations that endorse research on unapproved substances as "medicinal," the court clarifies that differing definitions between the DEA and FDA do not imply the DEA's actions are unreasonable. Ultimately, the DEA's crafted definition of "medicinal cannabis" aligns with the Single Convention and does not violate federal law, leading to the rejection of the petitioners' challenge.
The petitioners incorrectly assert that the DEA's definition of "medicinal cannabis" improperly regulates medical practice, as it solely pertains to which cannabis subset must be controlled by the DEA under the CSA and the Single Convention. This does not extend to defining permissible medical practices, indicating the agency remains within its authorized scope.
The petitioners further claim that the DEA's new registration framework is arbitrary and capricious, arguing that the agency failed to consider relevant alternatives. However, while agencies must evaluate alternatives within existing policy, they are not obligated to consider all possible options. The petitioners provide insufficient detail to demonstrate that the DEA overlooked any critical aspect of the issue, merely referencing two documents without explaining their relevance. As a result, this argument is deemed waived due to lack of developed argumentation.
Additionally, the petitioners argue that the Final Rule discriminates arbitrarily between cannabis from the National Center, the only federally registered grower, and cannabis from state-authorized sources. They claim that this distinction is unjustified because it allows researchers to access cannabis from the National Center but not from state dispensaries. However, the DEA clarifies that the National Center is federally registered under the CSA, while state dispensaries are not, justifying the differential treatment based on federal law requirements.
Every manufacturer or distributor of cannabis must obtain an annual registration from the DEA, as per 21 U.S.C. § 822(a)(1). The DEA's decision to permit federally registered growers to supply cannabis while denying the same to non-federally registered growers is deemed reasonable, not arbitrary. Petitioners argue that the National Center’s historical growing activities violated federal law, but they fail to justify that the National Center is comparable to the proposed state dispensaries or demonstrate that its activities would remain unlawful post-implementation of the Final Rule. Craker contends that the Final Rule’s application to pending applications is retroactive and unfair, as he submitted his application based on prior regulations. However, it is acknowledged that the retroactive application of agency rules is generally disfavored, yet merely filing an application does not guarantee stability of the laws at the time of filing. This change in the standards for application does not typically raise fair notice or retroactivity issues, which Craker has not sufficiently argued. Craker also claims that the new rule altered the status of his application to "incomplete" due to a new form requirement. However, this change does not constitute impermissible retroactivity, as changing an application’s status does not equate to a denial without evidence of rejection. Craker has not demonstrated any prejudice beyond the need to submit a new form. As a result, the petitions for review are denied.
