Bifurcated (Re)Scheduling
And Why I'm Down on "Psilocybin Service" Centers
Increasingly, I’ve been getting more questions about something called bifurcated scheduling/rescheduling under the CSA. I’ve discussed the topic elsewhere with a light touch. For example, in the recent GHB essay. Or in this Lucid News piece.
Rather than point to these other topics, I’m going to write a short post explaining bifurcated (re)scheduling and in the future, point you here.
Background
Succinctly stated, bifurcated scheduling is when a drug product is placed in a schedule different from the active ingredient. The classic example is GHB/Xyrem. Through statute, Congress made GHB a Schedule I drug, except when GHB is in an FDA approved drug product such as Xyrem. In an FDA approved formulation, GHB is a Schedule III drug (and subject to a REMS).
Syndros is another example. Synthetic THC is a Schedule I drug. (So is Delta 81.) Syndros is an oral solution containing 5 mg of dronabinol, i.e., synthetic THC. Once FDA approved Syndros, DEA had to reschedule dronabinol under 21 U.S.C. § 811(j), a section Congress enacted in 2015 to speed up rescheduling of new approved drugs. As DEA noted in the interim final rule rescheduling “FDA-approved dronabinol oral solutions”:
[T]he purpose of subsection (j) is to speed the process by which DEA schedules newly approved drugs that are currently either in schedule I or not controlled (but which have sufficient abuse potential to warrant control) so that such drugs may be marketed without undue delay following FDA approval.
These days, folks take bifurcated rescheduling like this as a given. Everyone assumes that this is the way it has always been. Don’t believe the hype. In January 1987, for example, FDA approved a NDA for alfentanil. In rescheduling alfentanil, DEA stated:
This action follows final approval by the Food and Drug Administration (FDA) of a new drug application for alfentanil. Alfentanil is being moved into Schedule II because it has been approved by FDA as being safe and effective for indicated uses in medicine. As a result of this rule, the regulatory controls and criminal sanctions of a Schedule II narcotic substance under the CSA will be applicable to the manufacture, distribution, importation and exportation of alfentanil.
DEA did not reschedule “FDA-approved alfentanil products.” It rescheduled alftenanil. Today, if you go to Schedule II, you’ll see alftenanil—all of it—under drug code 9737. And if you scroll further down, you’ll see “Dronabinol [(-)-delta-9-trans tetrahydrocannabinol] in an oral solution in a drug product approved for marketing by the U.S. Food and Drug Administration” under drug code 7365.
But here’s another data point to consider. Over the years DEA has placed mixtures in schedules different from the underlying substances. Return to synthetic THC. Marinol, a mixture of dronabinol and sesame oil, currently resides in Schedule III. Other examples abound. Difenoxin-atropine sulfate combination products are in Schedules IV and V while Difenoxin itself is in Schedule I.
Now let’s dig deeper in the time vault: etrorphine hydrochloride. Etrorphine hydrochloride is a synthetic opioid with 10,000-30,000 times the potency of morphine. To give you a frame of reference, fentanyl is only 100 times more potent than morphine. Or, for those who are fond of analogies:
More than a decade before alfentanil, DEA made a similar move with etrorphine hydrochloride. Etrorphine is legally available for vet use only. And not just any animals. Big, wild ones. Etrorphine is “by far the best available choice for rhino immobilization today.” It is also used with hippos:
The FDA approved etrorphine as a new animal drug application (NADA) in 1974. And again, worth emphasizing: only for use in taming large, wild animals. So, DEA not only rescheduled the drug but
[A]s a condition to the initiation of distribution of etorphine hydrochloride the Drug Enforcement Administration, in concert with the Food and Drug Administration, the Special Action Office of Drug Abuse Prevention, the American Cyanamid Company (the holder of the New Animal Drug Application) and the D-M Pharmaceuticals, Inc. (the firm marketing the product under the NADA), have promulgated and agreed to the following procedures:
The distribution of the drug is restricted to licensed veterinarians engaged in zoo and exotic animal practice, wild life management programs, and/or research.
All initial customers will be checked by the Drug Enforcement Administration to insure that they are properly authorized to handle the substances and are prepared to adhere to the special safeguards set forth.
DEA order forms for etorphine hydrochloride (and Diprenorphine, its antidote) will contain only these substances. D-M Pharmaceuticals, Inc. will maintain these separately from its other order forms and will forward the government copy of these order forms on a weekly basis to DEA.
All registrants desiring to handle etorphine hydrochloride will be required to use a safe or steel cabinet equivalent to a U.S. Government Class V security container.
All authorized registrants handling etorphine hydrochloride will be required to maintain complete and accurate records to insure complete accountability of the substance.
Quantities ordered and shipped should be limited to reasonable amounts as needed to avoid storage of large quantities and increased vulnerability of theft.
The shipment of etorphine hydrochloride should be under secure conditions using substantial packaging material with no markings on the outside of the package which would indicate the content. Shipment should be by the most secure means of transport available.
Nifty. Kind of like an interagency proto-REMS led by DEA. Interestingly, the American Pharmaceutical Association objected to the arrangement stating that DEA “does not have the authority to deny any registrant the right to distribute controlled substances in schedules for which he is registered,” to which, DEA responded that under 21 U.S.C. § 871(b), the agency “clearly has the authority to proscribe regulations restricting the distribution of etorphine hydrochloride.”
On top of all that, DEA stated:
all isomers, esters, ethers, salts of etorphine, and salts of such isomers, esters, and ethers (whenever the existence of such isomers, esters, ethers, and salts is possible within the specific chemical designation) remain in Schedule I. The peculiar characteristics, of this substance necessitate the transfer to Schedule II of the hydrochloride salt only.
And yet, despite all of these additional restrictions above and beyond the ordinary Schedule II, notice what DEA didn’t do with etorphine hydrochloride: bifurcated rescheduling.
Breakdown
So, let’s kill the canard that bifurcated scheduling has always existed as a consistent practice or somehow is mandated under the CSA. It’s not. There are no consistent practices when one looks beyond a couple data points in the 21st century.
Next question: does the CSA allow bifurcated rescheduling?
This is a far more involved question teeming with legalese. In brief, when one looks at the statutory scheme as a whole, I believe the best answer is “no.” If Congress had intended for bifurcated scheduling to be a thing, the initial schedules would have been bifurcated. They would have differentiated between FDA approved formulations of drugs (say an Adderall) and drug substances themselves (continuing the example, amphetamine salts). In other words, Congress would have put all drugs of abuse in Schedule I from the outset and then sprinkled the lower schedules with the FDA approved formulations of those drugs where applicable. But Congress did not do this, pouring water over the bifurcated rescheduling practice. The best reading of the text shows an intent for drug classes to be treated as drug classes, not gerrymandered to allow the rescheduling of FDA-approved drugs only.2
A more detailed analysis best saved for another day. Instead, let me skip ahead to why this matters.
FDA approval of MDMA for assisted therapy, they say, is around the corner. When approved, MDMA will be promptly be rescheduled under § 811(j). But what will be rescheduled? The answer, if the trendy but ahistorical bifurcated rescheduling practice holds, is that only FDA-approved medicinal MDMA will be rescheduled. MDMA will remain a Schedule I drug.
Some have pointed out one consequence of this: criminal penalties for recreational MDMA will remain. This is true, but of course, is true even without bifurcated rescheduling. After all, the federal statute that criminalizes possession for personal use, 21 U.S.C. § 844, is schedule blind. It applies whether a drug is in Schedule I, Schedule III, or bifurcated in I and III. When one digs into the details, there are some differences between Schedule I/II and Schedule III-V penalties for trafficking and other offenses. But these aren’t so significant that they are worth making a fuss over.
In my view, two bigger issues with bifurcated rescheduling loom large.
First, research. Assuming there is bifurcated rescheduling, MDMA would remain a Schedule I substance. Saying research gets easier with MDMA once it is approved is a tad misleading. In a world of bifurcated rescheduling, research gets easier with the proprietary FDA approved formulation that is rescheduled, not the drugs themselves. Of course, that carries a bag of worms, since a product manufacturer has control over the approved drug product. The same would be true with psilocybin.
Second, 280E. Section 280E of the Internal Revenue Code forbids “trafficking” in Schedule I or II substances, from deducting ordinary business expenses from gross income.
For those who don’t know, Section 280E is the bane of the marijuana industry. Despite 280E, the medical and recreational marijuana industry plods along—but barely.
In my view, Section 280E will hit the psilocybin service industry even harder because of what they are and how they must operate versus the marijuana industry. “Psilocybin services” are not only the raison d’être of “psilocybin service” centers, but “psilocybin services” will necessarily predominate the revenue. And as a result, they will be fully exposed to 280E. It is impossible for me to see how a “psilocybin service” center can shelter any significant portion of income from 280E. Many in the marijuana industry sell apparel and other items. Will that be the same with psilocybin services?
Indeed, the more I noodle, the more I find the whole US “psilocybin service” construct to be somewhat loony because of 280E—perhaps better characterized as a thought experiment done on the taxpayer dime from folks who enjoy building Rube Goldberg projects in their attic and ignore tax regs.
Seriously. You’d have to be nuts or on heroic doses of store product to want to open up a “psilocybin service” center. Watch this video courtesy of Healing Advocacy Fund. Good resource. Here is the main takeaway for me. Want to work in the "psilocybin services" industry? You’re flying completely and totally blind.3 That, and you might end up running a Yoga studio next to your service center.
Of course, prognosticating the psychedelic future is a fool’s endeavor. And, I have steadfastly and confidently maintained (for example, in this Business Trip podcast I did a while ago) that state-regulated cannabis regimes and state-regulated psilocybin regimes are and must be seen as fundamentally different. Nonetheless, I predict 280E will cause as much if not more headaches for “psilocybin services” compared to “marijuana dispensaries.” Wait. Maybe that’s the business plan!
But in a world without bifurcated rescheduling, the approval of synthetic psilocybin (e.g., COMP360) and a Schedule III rescheduling could potentially rescue an illicit natural "psilocybin services" industry from 280E. Not so in a bifurcated world.4 Unless, of course, you buy this crazy theory…
Shameless Plug #122
A few weeks ago, I went to Miami to assist Matt Johnson of JHU with his Keynote. In case you could not attend, you can watch the video below. Highly recommended. 2 Matts for the price of one.
On May 2 and 4, I attended the DEA Supply Chain Conference here in Houston, TX. I will be writing up a trip report this weekend.
It was a fantastic event for DEA registrants in the supply chain, rich with information about the CSA and agency perspectives—and straight from the horses mouth. I learned a ton.
For example, bad news D8 bros: better start paying your 280-E taxes. D8 is no more legal under federal law than good ‘ol fashioned weed. According to Terrence Boos, the guy who penned the Pennington DEA Seed Letter and the Kight THC-O letter, “if it is synthetic and it contains a Tetrahycannabinol, for example delta-9 THC which is going to be produced through any chemical synthesis, it’s still defined as a controlled substance under the CSA.” Thus, D8 that is chemically synthesized from CBD is a synthetic. Any tetrahydrocannabinol made through a chemical synthesis is synthetic THC and in Schedule I. Nearly all marketed D8 is synthetic. Only D8 that is extracted is hemp. BTW, DEA is right.
Nonetheless, one could probably persuasively argued that DEA gets administrative deference in interpreting the statute it administers under a case called Chevron. But come 2024, that may change.
The fact that lawyers discuss CHAMP—a 2007 case that is practically the only tax court win for any cannabis business ever—is a big tell. Structuring a “psilocybin service” center along the lines of the CHAMP is a rigmarole, and in any event, as the lawyer explains, the vast majority of attempts to replicate the model of CHAMP in cannabis have failed.
I should mention that psilocybin mushrooms also contain psilocin, which is itself found in psilocybin mushrooms and scheduled. Rescheduling psilocybin would not reschedule psilocin. Nonetheless, if psilocybin were moved to Schedule III in a non-bifurcated manner, a pure psilocybin product would be in Schedule III and outside the ambit of 280E.