[Federal Register Volume 85, Number 56 (Monday, March 23, 2020)]
[Proposed Rules]
[Pages 16292-16307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05796]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Parts 1301 and 1318

[Docket No. DEA-506]
RIN 1117-AB54


Controls To Enhance the Cultivation of Marihuana for Research in 
the United States

AGENCY: Drug Enforcement Administration, Department of Justice.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Drug Enforcement Administration is proposing to amend its 
regulations to comply with the requirements of the Controlled 
Substances Act, including consistency with treaty obligations, in order 
to facilitate the cultivation of marihuana for research purposes and 
other licit purposes. Specifically, this proposed rule would amend the 
provisions of the regulations governing applications by persons seeking 
to become registered with DEA to grow marihuana as bulk manufacturers 
and add provisions related to the purchase and sale of this marihuana 
by DEA.

DATES: Comments must be submitted electronically or postmarked on or 
before May 22, 2020.

ADDRESSES: To ensure proper handling of comments, please reference 
``[RIN 1117-AB54/Docket No. DEA-506]'' on all electronic and written 
correspondence, including any attachments.
     Electronic Comments: DEA encourages that all comments be 
submitted electronically through the Federal eRulemaking Portal, which 
provides the ability to type short comments directly into the comment 
field on the web page or attach a file for lengthier comments. Please 
go to http://www.regulations.gov and follow the

[[Page 16293]]

online instructions at that site for submitting comments. Upon 
completion of your submission, you will receive a Comment Tracking 
Number for your comment. Please be aware that submitted comments are 
not instantaneously available for public view on Regulations.gov. If 
you have received a Comment Tracking Number, your comment has been 
successfully submitted and there is no need to resubmit the same 
comment. Commenters should be aware that the electronic Federal Docket 
Management System will not accept any comments after 11:59 p.m. Eastern 
Time on the last day of the comment period.
     Paper Comments: Paper comments that duplicate electronic 
submissions are not necessary. Should you wish to mail a paper comment 
in lieu of an electronic comment, it should be sent via regular or 
express mail to: Drug Enforcement Administration, Attn: DEA Federal 
Register Representative/DPW, 8701 Morrissette Drive, Springfield, 
Virginia 22152-2639.
     Paperwork Reduction Act Comments: All comments concerning 
collections of information under the Paperwork Reduction Act must be 
submitted to the Office of Information and Regulatory Affairs, Office 
of Management and Budget, Attention: Desk Officer for DOJ, Washington, 
DC 20503. Please state that your comment refers to RIN 1117-AB54/Docket 
No. DEA-506.

FOR FURTHER INFORMATION CONTACT: Scott A. Brinks, Regulatory Drafting 
and Policy Support Section (DPW), Diversion Control Division, Drug 
Enforcement Administration; Mailing Address: 8701 Morrissette Drive, 
Springfield, Virginia 22152-2639; Telephone: (571) 362-3261.

SUPPLEMENTARY INFORMATION:

Posting of Public Comments

    Please note that all comments received in response to this docket 
are considered part of the public record. They will, unless reasonable 
cause is given, be made available by DEA for public inspection online 
at http://www.regulations.gov. Such information includes personal 
identifying information (such as your name, address, etc.) that you 
voluntarily submit. The Freedom of Information Act applies to all 
comments received. If you want to submit personal identifying 
information (such as your name, address, etc.) as part of your comment, 
but do not want it to be made publicly available, you must include the 
phrase ``PERSONAL IDENTIFYING INFORMATION'' in the first paragraph of 
your comment. You must also place all of the personal identifying 
information you do not want made publicly available in the first 
paragraph of your comment and identify what information you want 
redacted.
    If you want to submit confidential business information as part of 
your comment, but do not want it to be made publicly available, you 
must include the phrase ``CONFIDENTIAL BUSINESS INFORMATION'' in the 
first paragraph of your comment. You must also prominently identify the 
confidential business information to be redacted within the comment.
    Comments containing personal identifying information or 
confidential business information identified as directed above will be 
made publicly available in redacted form. If a comment has so much 
confidential business information that it cannot be effectively 
redacted, all or part of that comment may not be made publicly 
available. Comments posted to http://www.regulations.gov may include 
any personal identifying information (such as your name, address, etc.) 
included in the text of your electronic submission that is not 
identified as directed above as confidential.
    An electronic copy of this proposed rule is available at http://www.regulations.gov for ease of reference.

Background and Purpose of This Proposed Rule

    Under the Controlled Substances Act (CSA), all persons who seek to 
manufacture a controlled substance must apply for and obtain a DEA 
registration.\1\ 21 U.S.C. 822(a)(1). The CSA defines ``manufacture'' 
to include the ``production'' of a controlled substance, which 
includes, among other things, the planting, cultivation, growing, or 
harvesting of a controlled substance. 21 U.S.C. 802(15), (22). Thus, 
any person who seeks to plant, cultivate, grow, or harvest marihuana 
\2\ to supply researchers or for other uses permissible under the CSA 
(such as product development) must obtain a DEA manufacturing 
registration. Because marihuana is a schedule I controlled substance, 
applications by persons seeking to become registered to manufacture 
marihuana are governed by 21 U.S.C. 823(a). See generally 76 FR 51403 
(2011); 74 FR 2101 (2009), pet. for rev. denied, Craker v. DEA, 714 
F.3d 17 (1st Cir. 2013). Under section 823(a), for DEA to grant a 
registration, the DEA Administrator must determine that two conditions 
are satisfied: (1) The registration is consistent with the public 
interest (based on the enumerated criteria in section 823(a)), and (2) 
the registration is consistent with U.S. obligations under the Single 
Convention on Narcotic Drugs, 1961 (``Single Convention'' or 
``Treaty''), 18 U.S.T. 1407.\3\
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    \1\ All functions vested in the Attorney General by the CSA have 
been delegated to the Administrator of DEA. 28 CFR 0.100(b).
    \2\ This document uses both the CSA spelling ``marihuana'' and 
the modern spelling ``marijuana'' interchangeably.
    \3\ Section 823(a) provides that the registrations to 
manufacture controlled substances in schedule I or II must be 
``consistent with the public interest and with United States 
obligations under international treaties, conventions, or protocols 
in effect on May 1, 1971.'' The Single Convention entered into force 
for the United States on June 24, 1967. See Single Convention, 18 
U.S.T. 1407.
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    In 2016, DEA issued a policy statement aimed at expanding the 
number of manufacturers who could produce marihuana for research 
purposes. See Applications to Become Registered under the Controlled 
Substances Act to Manufacture Marijuana to Supply Researchers in the 
United States, 81 FR 53846 (Aug. 12, 2016). Subsequently, the 
Department of Justice (DOJ) undertook a review of the CSA, including 
the provisions requiring consistency with obligations under 
international treaties such as the Single Convention, and determined 
that certain changes to its 2016 policy were needed. The pertinent 
Treaty provisions are found in articles 23 and 28 of the Single 
Convention, which are summarized below. Additionally, DEA believes that 
these changes will enhance and improve research with marihuana and 
facilitate research that could result in the development of marihuana-
based medicines approved by the Food and Drug Administration (FDA).
    This proposed rule is being issued pursuant to the Administrator's 
authority under the CSA ``to promulgate rules and regulations and to 
charge reasonable fees relating to the registration and control of the 
manufacture, distribution, and dispensing of controlled substances,'' 
21 U.S.C. 821, and to ``promulgate and enforce any rules, regulations, 
and procedures which he may deem necessary and appropriate for the 
efficient execution of his functions under [the CSA],'' 21 U.S.C. 
871(b).

A. Relevant Provisions of the Single Convention

    Because the terminology used in the Single Convention is somewhat 
different from that in the CSA, a brief explanation is warranted. The 
Single Convention uses the terms ``cannabis,'' ``cannabis plant,'' and 
``cannabis

[[Page 16294]]

resin''--all of which are generally encompassed by the CSA definition 
of ``marihuana'' in 21 U.S.C. 802(16)).\4\ The Single Convention 
defines ``cannabis plant'' as ``any plant of the genus Cannabis.'' 
Single Convention art. 1(1)(c). The Single Convention defines 
``cannabis'' as the ``flowering or fruiting tops of the cannabis plant 
(excluding the seeds and leaves when not accompanied by the tops) from 
which the resin has not been extracted.'' Id. art. 1(1)(b). The Single 
Convention defines ``cannabis resin'' as the ``separated resin, whether 
crude or purified, obtained from the cannabis plant.'' Id. art. 
1(1)(d).
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    \4\ As discussed below, the Agriculture Improvement Act of 2018, 
Public Law 115-334, removed hemp from the CSA definition of 
marihuana. This proposed rule applies only to cannabis that is 
included in the CSA definition of marihuana.
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    Article 28 of the Single Convention states in paragraph 1: ``If a 
Party permits the cultivation of the cannabis plant for the production 
of cannabis or cannabis resin, it shall apply thereto the system of 
controls as provided in article 23 respecting the control of the opium 
poppy.'' Paragraph 2 of that article excludes from the Convention the 
cultivation of cannabis for industrial or horticultural purposes. 
Because the United States permits the cultivation of marihuana for the 
production of cannabis and cannabis resin currently only for research 
purposes, it is obligated under the Treaty to apply to the marihuana 
plant cultivated for these purposes the ``system of controls'' provided 
in article 23 respecting the control of the opium poppy.
    The Commentary to the Single Convention contains the following 
explanation of articles 23 and 28 within the overall framework of the 
Treaty:

    The system of control over all stages of the drug economy which 
the Single Convention provides has two basic features: Limitation of 
narcotic supplies of each country . . . to the quantities that it 
needs for medical and scientific purposes, and authorization of each 
form of participation in the drug economy, that is, licensing of 
producers, manufacturers and traders . . . . In the case of the 
production of opium, coca leaves, cannabis and cannabis resin, this 
r[eacute]gime is supplemented by the requirement of maintaining 
government monopolies for the wholesale and international trade in 
these drugs in countries which produce them . . . .

    Secretary-General of the United Nations, Commentary on the Single 
Convention on Narcotic Drugs, 1961, 263 (1973) (emphasis added) 
(footnotes omitted).\5\
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    \5\ The United Nations' Economic and Social Council requested 
that the Secretary-General prepare the Commentary ``in the light of 
the relevant conference proceedings and other material'' in order to 
aid governments in applying the Single Convention. The Commentary 
(1973) is not binding on Parties to the Convention. Economic and 
Social Council Resolution 1962/914(XXXIV) D (Aug. 3, 1962).
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    Article 23(2) of the Single Convention, made applicable to 
marijuana cultivation by Article 28, contains five requirements for the 
supervision, licensing, and distribution of marijuana.\6\
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    \6\ The Single Convention provides that the five functions of 
article 23, paragraph 2 ``shall be discharged by a single government 
agency if the constitution of the Party concerned permits it.'' 
Single Convention art. 23(3). Nothing in the Constitution would 
preclude the United States from discharging all of those controls 
through one government agency. The Commentary to the Single 
Convention notes that this is in order to facilitate national 
planning and coordinated management of the various tasks imposed 
upon a country by Article 23, and that in countries where more than 
one agency is needed on constitutional grounds, administrative 
arrangements should be made to ensure the required coordination.
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    (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.\7\
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    \7\ The meanings of the terms ``medicinal cannabis'' and 
``cannabis preparations'' are addressed later in this document. 
Article 23, paragraph 2(e) also refers to ``opium alkaloids.'' 
However, due to distinctions between the opiates derived from the 
opium poppy and the cannabinoids derived from the cannabis plant, 
the notion of ``cannabis alkaloids'' is inapplicable.
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    DEA already directly performs functions (a), (b), and (c) by virtue 
of the CSA registration system as applied to manufacturers of 
marihuana. In order to ensure that DEA complies with the CSA and grants 
registrations that are consistent with relevant treaty provisions, 
namely articles 23 and 28 of the Single Convention, DEA proposes to 
directly perform functions (d) and (e) as well. This proposed rule 
would amend DEA's regulations so that DEA directly carries out these 
remaining two functions.
    DEA also recognizes that the Department of Health and Human 
Services (HHS) has, for nearly 50 years, maintained an essential 
program aimed at ensuring that marihuana is available to meet the 
research and scientific needs of the United States. The regulations 
proposed here, if finalized, will require some changes to this program, 
but DEA is committed to ensuring that the National Institute on Drug 
Abuse (NIDA) program continues with minimal disruption and there is no 
impact on the availability of marihuana through the NIDA Drug Supply 
Program (DSP).
    After the publication of the 2016 policy statement, DOJ advised DEA 
that it must adjust its policies and practices to ensure compliance 
with the CSA, including the CSA's requirement that registrations be 
consistent with the Single Convention. Therefore, the regulations being 
proposed herein, if finalized, would ensure that DEA regulations comply 
with applicable law. Within that framework, DEA is proposing changes to 
support using marihuana (including extracts and substances derived 
therefrom) cultivated in the United States to perform research which, 
among other things, may lead to the approval of FDA-approved medicines. 
Thus, the proposed rule, if adopted, would supersede the 2016 policy 
statement.
    To address the foregoing considerations, the proposed rule would 
add regulations stating:
    (1) All registered manufacturers who cultivate cannabis shall 
deliver their total crops of cannabis to DEA. DEA shall purchase and 
take physical possession of such crops as soon as possible, but not 
later than four months after the end of the harvest. 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 such cases, DEA shall designate a secure storage 
mechanism at the registered location in which DEA may maintain 
possession of the cannabis, and DEA will control access to the stored 
cannabis. If DEA determines that no suitable location exists at the 
registered location of the registered manufacturer authorized to 
cultivate cannabis, then DEA shall designate a location for the

[[Page 16295]]

authorized grower to deliver the crop as soon as possible, but not 
later than four months after the end of the harvest. However, in all 
cases the registrant must comply with the security requirements 
specified in 21 CFR part 1301.
    (2) DEA shall, with respect to cannabis, 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. Such exclusive right shall 
not extend to medicinal cannabis or cannabis preparations. DEA may 
exercise its exclusive right by authorizing the performance of such 
activities by appropriately registered persons. DEA will require prior 
written notice of each proposed importation, exportation, or 
distribution of cannabis that specifies the quantity of cannabis to be 
imported, exported, or distributed and the name, address, and 
registration number of the registered manufacturer or researcher to 
receive the cannabis before authorizing the importation, exportation, 
or distribution. All importation and exportation shall be performed in 
compliance with 21 CFR part 1312, as applicable. Under no circumstance 
shall a registered manufacturer authorized to grow cannabis import, 
export, or distribute cannabis without the express written 
authorization of DEA.
    (3) A registered manufacturer authorized to grow cannabis shall 
notify DEA in writing of its proposed date of harvest at least fifteen 
days before the commencement of the harvest.
    It should be noted that the timing of when DEA would take physical 
possession of the crops, if delayed, would not only increase the risk 
of diversion, but would also adversely impact the quality of the crop. 
Whereas DEA is proposing to take physical possession not later than 
four months from the time of harvest, it is DEA's intent to take 
physical possession as soon as possible and to distribute marihuana as 
soon as is practical to those who are authorized to receive it.
    The exceptions made for ``medicinal cannabis or cannabis 
preparations'' also warrant explanation. In view of the text of the 
Single Convention, and taking into account the current wording of 
Federal law,\8\ the regulations being proposed would define these terms 
as follows:
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    \8\ Among other things, these definitions take into account the 
current CSA definition of marihuana (21 U.S.C. 802(16)), which was 
amended in 2018 to exclude ``hemp'' as defined in section 297A of 
the Agricultural Marketing Act of 1946 (7 U.S.C. 1639o(1)).
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     Medicinal cannabis means a drug product made from the 
cannabis plant, or derivatives thereof that can be legally marketed 
under the Federal Food, Drug, and Cosmetic Act. However, such term does 
not include any material, compound, mixture, or preparation that falls 
outside the CSA definition of marihuana.
     Cannabis preparation means cannabis that was delivered to 
DEA and subsequently converted by a registered manufacturer into a 
mixture (solid or liquid) containing cannabis, cannabis resin, or 
extracts of cannabis. However, such term does not include any material, 
compound, mixture, or preparation that falls outside the CSA definition 
of marihuana.
    Thus, under the proposed rule, DEA would have the exclusive right 
of importing, exporting, wholesale trading, and maintaining stocks of 
marihuana other than those held by DEA-registered manufacturers and 
distributors of medicinal cannabis or cannabis preparations. Further, 
this exclusive right would not apply to medicinal cannabis or cannabis 
preparations.
    To summarize those provisions of the proposed rule that are 
intended to ensure that registrations are granted in compliance with 
the CSA as the number of registered manufacturers increases, all 
marihuana grown by DEA-registered manufacturers in the United States 
would be delivered by such registrants to DEA no later than four months 
after the end of the harvest. Thereafter, DEA would authorize 
exportation, distribution, and maintenance of stocks of such marihuana 
with two important exceptions:
    (1) DEA-registered manufacturers of (a) an FDA-approved marihuana-
derived drug (i.e., ``medicinal cannabis''), and (b) ``cannabis 
preparations'' would be permitted to maintain stocks of cannabis 
materials obtained from DEA for the purpose of producing such drugs or 
preparations; \9\ and
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    \9\ As indicated above, the requirement that registered growers 
deliver all cannabis to DEA no later than four months after the end 
of the harvest applies in all situations--even where the cannabis 
will later be distributed by DEA back to the grower for further use. 
Thus, the above exception that allows DEA-registered manufacturers 
of medicinal cannabis and cannabis preparations to maintain stocks 
of cannabis materials for the purpose of producing such drugs or 
preparations only applies where the raw cannabis material was 
previously delivered to DEA.
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    (2) Once marihuana material that was previously purchased by DEA is 
subsequently converted by a DEA-registered manufacturer into (a) an 
FDA-approved drug (``medicinal cannabis'') or (b) a ``cannabis 
preparation,'' the material no longer would be subject to the foregoing 
exclusive right and could be further distributed or dispensed by a DEA 
registrant in any manner authorized under the CSA. DEA is committed to 
ensuring this new requirement is implemented in a manner that supports 
the policy goal of facilitating research involving marijuana and its 
chemical constituents.

B. Activities Performed by Bulk Manufacturers of Marihuana and the 
Application of These Proposed Regulations on Those Activities

    Based on approximately 35 pending applications resulting from 
publication of its 2016 policy statement, DEA anticipates that those 
bulk manufacturers who would obtain a registration from DEA to grow 
marihuana would be one (or more) of three different types. In this 
section, DEA describes each type and how the proposed regulations, if 
finalized as proposed, would impact those registrants with regard to 
functions (1) and (2) described in the previous section.
(1) A Bulk Manufacturer Who Grows Marihuana for Its Own Research or 
Drug Development Purposes
    A number of applicants seek to grow marihuana for their own 
research endeavors, including some who wish to develop an FDA-approved 
medicine from extracts or derivatives of the marihuana plant. Based on 
the accompanying information supplied by the applicant to DEA in 
connection with their application, these applicants would list 
themselves as a ``purchaser,'' meaning that once their crop was 
harvested, they would seek to use the marihuana for their internal 
research purposes. Applicants must obtain a separate schedule I 
research registration from DEA to perform research with marihuana in 
accordance with 21 CFR 1301.13 and 1301.32. However, bulk marihuana 
growers may manufacture marihuana for use by other researchers under a 
manufacturing registration (and pursuant to a quota granted to them by 
DEA for that purpose under 21 CFR 1303.21(a)).
    For applicants within this category, within four months of harvest, 
DEA would travel to the DEA-registered location, purchase, and take 
title to the crop by issuing the grower a DEA Form 222.\10\ Once DEA 
has taken title to the

[[Page 16296]]

crop, it would then distribute a quantity of marihuana that does not 
exceed the company's DEA-issued procurement quota back to that same 
manufacturer. In this way, DEA would take physical possession of the 
crop and control its distribution. Additionally, the material owned by 
the government will be maintained at the DEA-registered manufacturer's 
location and DEA would maintain its ability to access the storage 
location at which such crops are located as it deemed necessary.
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    \10\ DEA would take title to an amount up to the applicant's 
manufacturing quota. Growing marihuana in excess of a manufacturing 
quota is a violation of federal law. 21 U.S.C. 842(b). Thus, any 
marihuana grown in excess of a manufacturing quota would be subject 
to seizure and destruction. See id. 881(g).
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(2) A Bulk manufacturer Who Supplies Marihuana to Other DEA 
Registrants, Including National Institutes of Health Funded and Non-
National Institutes of Health Funded Researchers
    Some applicants are seeking to grow marihuana for use by other DEA 
registrants including ``non-bulk'' manufacturers and schedule I 
researchers, including National Institutes of Health (NIH) funded and 
non-NIH funded researchers. This sub-set of bulk manufacturers would be 
required to obtain from each customer a bona fide supply agreement, 
listing the name and address of the end user, the end user's DEA 
registration number, the quantity of marihuana to be supplied, and the 
price that the end user and grower have mutually agreed upon. DEA will 
consider this information, along with additional information, when 
establishing an individual manufacturing quota for the grower.
    For applicants that fall within this sub-set, within four months of 
harvest, DEA would travel to the DEA-registered location, purchase, and 
take title to the crop by issuing the grower a DEA Form 222.\11\ For 
this reason, each grower must provide written notice to DEA of its 
proposed date of harvest at least fifteen days prior to the 
commencement of the harvest. Once DEA has purchased and taken title to 
the crop, the material would be maintained, under seal, in DEA's 
possession in the manufacturer's schedule I vault until such time that 
a distribution is necessary. In this scenario, DEA may distribute (or 
export) the marihuana directly or may choose to authorize the grower to 
distribute marihuana on the government's behalf. Again, marihuana owned 
by the government is maintained at the DEA-registered manufacturer's 
site where DEA would maintain its ability to access the storage 
location at which such crops are located as it deemed necessary.
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    \11\ As in the first scenario, DEA only would take title to an 
amount up to the applicant's manufacturing quota. Any marihuana 
grown in excess of a manufacturing quota would be subject to seizure 
and destruction. See 21 U.S.C. 842(b), 881(g).
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(3) A Bulk Manufacturer Who Supplies Marihuana To Support NIDA's Drug 
Supply Program
    Over the last several decades, NIDA has administered a contract to 
produce high quality marihuana for use by researchers who have obtained 
federal funding (grants) for such research.\12\ This contract has been 
awarded to the National Center for Natural Products Research at the 
University of Mississippi (National Center). In accordance with that 
contract and DEA regulations, NIDA assesses the quantity of marihuana 
that is necessary to be grown for research purposes in a given year and 
communicates that information to both the National Center and DEA. The 
National Center applies for, and must first obtain, a manufacturing 
quota from DEA and is then authorized to grow marihuana up to the limit 
established by their DEA-issued quota. At the time of harvest, a 
portion of that material is held in inventory at the National Center 
while other portions are distributed to another DEA registrant, 
Research Triangle Institute (RTI). Currently, at the direction of NIDA, 
both RTI and the National Center may prepare marihuana in a manner 
which is suitable for research studies and ship it to researchers. In 
these instances, marihuana held in inventory at the National Center and 
RTI are the property of NIDA. The regulations proposed in this notice 
of proposed rulemaking (NPRM) are intended to enhance and improve upon 
existing DEA regulations that supported the NIDA DSP and will 
facilitate research that may lead to the development of FDA-approved 
medicines.
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    \12\ The Department of Health and Human Services maintains 
procedures for providing this same marihuana to non-NIH funded 
researchers as well.
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    This regulation, if finalized, would require changes to the current 
scheme described above. Although NIDA can, and would, continue to 
administer the contract in support of its DSP and the National Center 
(or other NIDA contract holder) could continue to grow and produce 
marihuana in support of research pursuant to that contract (for as long 
as that contract is renewed), within four months of harvest, DEA would 
travel to the National Center at the time of harvest and take title and 
possession to the crop by issuing the National Center a DEA Form 
222.\13\ Once DEA has taken title and possession of the crop, the 
material would be maintained, under seal, in DEA's possession in the 
National Center's schedule I vault until such time that a distribution 
to another DEA registrant is authorized. In this scenario, DEA may 
distribute (or export) the marijuana directly or may choose to 
authorize the National Center to distribute marihuana on the 
government's behalf. In both situations, DEA's distributions would be 
in accordance with NIDA's recommendation. And, as such, DEA does not 
envision a scenario in which it would deny or delay a distribution to a 
duly registered schedule I researcher authorized to handle marihuana. 
Marihuana owned by DEA would be maintained at the National Center, 
where DEA would maintain its ability to access the storage location at 
which its crops are located.
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    \13\ As above, DEA only would take title to an amount up to the 
National Center's manufacturing quota, with amount grown in excess 
of the manufacturing quota subject to seizure and destruction. See 
21 U.S.C. 842(b), 881(g).
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C. Application of the Public Interest Factors

    As indicated, in addition to the foregoing treaty considerations, 
DEA may grant a registration to manufacture a schedule I or II 
controlled substance only where the Administrator determines that the 
registration is consistent with the public interest, based on the 
criteria listed in 21 U.S.C. 823(a). The first of those criteria, set 
forth in subsection 823(a)(1), provides that, for the purpose of 
maintaining effective controls against diversion, the number of 
registered bulk manufacturers of a given schedule I or II controlled 
substance should be limited to that which can produce an adequate and 
uninterrupted supply of marihuana under adequately competitive 
conditions.\14\
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    \14\ For a detailed explanation of subsection 823(a) (1), see 74 
FR at 2127-33.
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    The proposed rule would explain how DEA will evaluate whether a 
particular application is consistent with the public interest factors 
of 21 U.S.C. 823(a), including factor 823(a)(1). As discussed above, a 
bona fide supply agreement between a grower and a duly registered 
schedule I researcher or manufacturer provides evidence that an 
applicant's registration is necessary to produce an adequate and 
uninterrupted supply of marihuana under adequately competitive 
conditions. An applicant proposing to grow marihuana to supply its own 
research may also be deemed to have satisfied the public interest 
factor of 823(a)(1) upon the presentation of evidence that it possesses 
a registration to conduct research with marihuana under 21 CFR 1301.32. 
Such a researcher will only be granted quota to

[[Page 16297]]

the extent authorized by its approved research protocol.
    The proposed rule further provides that the Administrator's 
determination of which applicants to select will be consistent with the 
public interest factors in section 823(a), with particular emphasis on 
the criteria discussed in the preceding paragraph as well as the 
following:
    (1) The applicant's ability to consistently produce and supply 
marihuana of a high quality and defined chemical composition; and
    (2) Whether the applicant has demonstrated prior compliance with 
the CSA and DEA regulations.
    The preceding criteria are designed to result in registration of 
those manufacturers of marihuana that can most efficiently supply the 
lawful needs of the U.S. market in terms of quantity and quality.\15\ 
These criteria are further aimed at selecting applicants that can be 
entrusted with the responsibility of a DEA registration and complying 
with the corresponding obligations under the CSA and DEA regulations.
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    \15\ The proposed rule provides that, in determining the 
legitimate demand for marihuana and its derivatives in the United 
States, the Administrator shall consult with the Department of 
Health and Human Services, including its components.
---------------------------------------------------------------------------

    As indicated above, following the publication of the 2016 policy 
statement, DEA received numerous applications by persons seeking to 
become registered as bulk manufacturers of marihuana. There are 
approximately 35 such applications currently pending. As explained 
above, the CSA requires DEA to limit the total number of registered 
bulk manufacturers of a given schedule I or II controlled substance to 
that necessary to produce an adequate and uninterrupted supply under 
adequately competitive conditions. In consultation with HHS, DEA wishes 
to avoid a situation in which the agency is in the midst of evaluating 
these applications and has to begin an evaluation anew each time it 
accepts a new marihuana grower application for filing. Thus, the 
proposed rule provides that, with a limited exception, applications 
accepted for filing after the date the final rule becomes effective 
will not be considered pending until all applications accepted for 
filing on or before the date the final rule becomes effective have been 
granted or denied by the Administrator.

D. Consideration of the Amendments to the CSA Made by the Hemp 
Provisions of the Agriculture Improvement Act of 2018

    The Agriculture Improvement Act of 2018 (AIA), Public Law 115-334, 
which became effective December 20, 2018, contained various provisions 
regarding the cultivation of hemp. The AIA definitions hemp as the 
plant Cannabis sativa L. and any part of that plant, including the 
seeds thereof and all derivatives, extracts, cannabinoids, isomers, 
acids, salts, and salts of isomers, whether growing or not, with a 
delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent 
on a dry weight basis. 7 U.S.C. 1639o(1). The AIA amended the CSA 
definition of marihuana to exclude hemp. Thus, anything that falls 
within the foregoing definition of hemp is no longer a controlled 
substance, and the CSA's requirements no longer apply to such 
substances. Accordingly, this proposed rule would apply only to persons 
seeking authorization under the CSA (i.e., seeking a DEA registration) 
to manufacture marihuana that involves the planting, cultivation, 
growing, or harvesting of marihuana as that term is currently defined 
in the CSA (21 U.S.C. 802(16)).\16\
---------------------------------------------------------------------------

    \16\ The United States Department of Agriculture has issued 
regulations and guidance to implement a program for the commercial 
production of industrial hemp in the United States under the 
framework of the AIA. See Establishment of a Domestic Hemp 
Production Program, 84 FR 58522 (Oct. 31, 2019).
---------------------------------------------------------------------------

E. Factors Affecting Prices for the Purchase and Sale of Marihuana by 
DEA

    As stated above, under articles 23 and 28 of the Single Convention, 
the government agency must--in addition to taking physical possession--
purchase all lawfully grown cannabis crops within four months of 
harvest. Thus, under the proposed rule, DEA will purchase marihuana 
grown by DEA-registered manufacturers and subsequently sell the 
marihuana to DEA registrants who seek to acquire it for research, 
product development, or other lawful purposes under the CSA.
    In purchasing such marihuana, DEA intends to use the Diversion 
Control Fee Account, as established in 21 U.S.C. 886a. Thus, DEA would, 
under the proposed rule, need to take into account its obligation under 
21 U.S.C. 886a(1)(C) to charge fees under its diversion control program 
``at a level that ensures the recovery of the full costs of operating 
the various aspects of that program.'' There are two potential 
categories of fees that could be used to recover the costs of carrying 
out the proposed new aspects of the diversion control program relating 
to cannabis: (1) Fees charged to persons who apply for, and seek to 
renew, a DEA registration to manufacture marihuana, and (2) fees 
charged for the sale of marihuana by DEA.
    DEA believes that economic forces will not only drive the types, 
varieties and strains of marihuana materials that will be produced by 
growers, but that such forces will also drive the fees that DEA-
registrants will be willing to pay for marihuana used for research 
purposes. Accordingly, DEA proposes to allow market forces to direct 
prices for marihuana grown by the manufacturer and purchased by DEA. As 
we have stated elsewhere in this proposal, DEA will establish limits on 
individual production based on bona fide supply agreements between the 
grower and the end user (a DEA registered manufacturer or a schedule I 
researcher). Accordingly, DEA will use these terms as the basis for 
purchasing marijuana from the grower and additionally, for the basis by 
which it will sell that same marihuana to an end user.
    In addition to that negotiated fee, DEA is proposing to add a 
variable administrative cost (per kilogram (kg)) which it intends to 
add onto the sales price of the marihuana it sells to end users. The 
purpose of this administrative fee is to ensure the full recovery by 
DEA of the costs of administering the program as required by 21 U.S.C. 
886a(1)(C). DEA will calculate this variable cost annually by taking 
the preceding fiscal year's cost to operate the program and dividing it 
by the quantity in kg of the manufacturing quota for marihuana issued 
during the current quota year. For example, based on the economic 
analysis provided below, DEA would calculate an administrative fee of 
$304 per kg for marihuana distributed to end users. The calculation 
below is illustrative:

Variable Administrative Fee = $607,644/2,000 kg = $304 per kg \17\
---------------------------------------------------------------------------

    \17\ Rounded to nearest whole dollar. The cost of $607,644 is 
explained below.

    DEA proposes to establish this fee no less than annually and 
proposes to publish this rate on its website by December 15th of the 
year preceding the year in which the administrative fee will be 
collected.

[[Page 16298]]

Regulatory Analyses

Executive Orders 12866 (Regulatory Planning and Review), 13563 
(Improving Regulation and Regulatory Review), and 13771 (Reducing 
Regulation and Controlling Regulatory Costs)

    This proposed rule was developed in accordance with the principles 
of Executive Orders 12866, 13563, and 13771. Executive Order 12866 
directs agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health, and safety, and other 
advantages; distributive impacts; and equity). Executive Order 13563 is 
supplemental to and reaffirms the principles, structures, and 
definitions governing regulatory review established in Executive Order 
12866. Section 3(f) of Executive Order 12866 classifies a ``significant 
regulatory action,'' requiring review by the Office of Management and 
Budget (OMB), as any regulatory action that is likely to result in a 
rule that may: (1) Have an annual effect on the economy of $100 million 
or more or adversely affect in a material way the economy, a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities; (2) create a serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) materially alter 
the budgetary impact of entitlements, grants, user fees, or loan 
programs or the rights and obligations of recipients thereof; or (4) 
raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in the Executive 
order.
    DEA has determined that, although this proposed rule is not 
economically significant, it is a significant regulatory action under 
section 3(f) of Executive Order 12866, thus subjecting it to review by 
OMB.
I. Need for the Rule
    This rule is needed to ensure that DEA complies with the CSA and 
grants registrations that are consistent with relevant treaty 
provisions as DEA seeks to increase the number of registered growers of 
marihuana. Specifically, this proposed rule would amend the provisions 
of the regulations governing applications by persons seeking to become 
registered with DEA to grow marihuana as bulk manufacturers and add 
provisions related to the purchase and sale of this marihuana by DEA. 
These amendments will ensure that DEA carries out all five functions 
under Article 23 and Article 28 of the Single Convention pertaining to 
marihuana, thus facilitating the planning and coordinated management of 
marihuana production necessary as the number of registered marihuana 
manufacturers increases.
II. Alternative Approaches
    This proposed rule would amend DEA regulations only to the extent 
necessary to comply with the CSA and to ensure DEA grants registrations 
that are consistent with the Single Convention as it pertains to 
marihuana. In areas where DEA has discretion, such as in setting a fee 
structure to recover the cost of this proposed rule, alternative 
approaches would be discussed. However, because DEA does not have 
sufficient information at this time to discuss alternatives for either 
the future registration fees or the fees for the sale of marihuana, the 
alternative approaches for such provisions are not included in this 
proposed rule. Consistent with past agency practice, any proposed 
changes to registration fees will be the subject of a separate 
rulemaking proceeding, including a discussion of alternative 
approaches.
III. Analysis of Benefits and Costs
    There are two key benefits associated with this proposed rule. 
First, DEA believes it is possible that the approval of new growers may 
increase the variety (quality, potency, etc.) of bulk marihuana for 
research, leading to more effective research and potentially resulting 
in the development of FDA-approved drug products. Second, this rule 
would ensure that DEA's regulations comply with the requirements of the 
CSA by granting registrations that are consistent with the Single 
Convention relating to marihuana. DEA is unable to quantify these 
benefits at this time.
    DEA analyzed the costs of this proposed rule and estimates an 
annual cost of $607,644. The details of the analysis are below.
    This proposed rule would amend the provisions of the regulations 
governing applications by persons seeking to become registered with DEA 
to grow marihuana as bulk manufacturers and add provisions related to 
the purchase and sale of this marihuana by DEA. If this proposed rule 
is promulgated, the following key changes are anticipated: More persons 
will be authorized to grow marihuana, DEA will purchase and take title 
to the crops of marihuana, and DEA will, with respect to marihuana, 
have the exclusive right of importing, exporting, wholesale trading, 
and maintaining stocks. These changes would mean that authorized 
purchasers of bulk marihuana to be used for research, product 
development, and other purposes permitted by the CSA may only purchase 
from DEA, except that DEA's exclusive rights would not extend to 
medicinal cannabis or cannabis preparations. The changes described 
above would affect three primary groups of entities: Growers and 
prospective growers, the authorizing agencies,\18\ and purchasers 
(generally medical and scientific researchers). To examine the impact 
of the proposed rule, DEA first reviewed the current system for growing 
and distributing bulk marihuana, then examined the impact on each of 
the three affected groups.
---------------------------------------------------------------------------

    \18\ The ``authorizing agency'' refers to federal government 
agencies, including NIDA and DEA.
---------------------------------------------------------------------------

Current System
    Under current regulations, DEA has authorized one grower, the 
National Center, to cultivate marihuana for research. NIDA contracts 
with the National Center to grow marihuana from seeds supplied 
initially by NIDA for use in research studies.\19\ The National Center 
has designated a secure plot of land or indoor grow facility where 
marihuana crops are grown every few years, based on current and 
expected demand. The marihuana is grown, harvested, stored, and made 
available as bulk marihuana or other purified elements of marihuana to 
use for research.\20\ NIDA obligated approximately $1.5 million in 
Fiscal Year 2015 under this contract.\21\ This amount included costs 
unrelated to growing and cultivating marihuana, such as extracting 
chemical components and producing marihuana cigarettes and other 
marihuana-related material. However, based on recent discussion with 
NIDA,\22\ DEA estimates NIDA's expenses under the contract with the 
National Center (and any related

[[Page 16299]]

subcontracts) for the bulk marihuana for 2019 are approximately $2.9 
million.\23\ The $2.9 million includes compensation for the cultivating 
and the 2019 manufacturing quota (MQ) of 2,000 kgs for NIDA (National 
Center) as well as all other duties required in the contract.\24\
---------------------------------------------------------------------------

    \19\ Production, Analysis, and Distribution of Cannabis and 
Related Materials, Federal Business Opportunities (Apr. 12, 2015), 
https://www.fbo.gov/spg/HHS/NIH/NIDA-01/N01DA-15-7793/listing.html.
    \20\ NIDA's Role in Providing Marijuana for Research, National 
Institute on Drug Abuse, https://www.drugabuse.gov/drugs-abuse/marijuana/nidas-role-in-providing-marijuana-research.
    \21\ Information on Marijuana Farm Contract, National Institute 
on Drug Abuse, https://www.drugabuse.gov/drugs-abuse/marijuana/nidas-role-in-providing-marijuana-research/information-marijuana-farm-contract.
    \22\ Conference call between DEA Regulatory Drafting and Policy 
Support section and members of NIDA's Marijuana Drug Supply Program, 
July 30, 2019.
    \23\ Anticipated spending for the marihuana DSP for 2019 is $3.3 
million to $3.4 million, of which 10%-15% meet the definition of 
``hemp'' under the provisions of the AIA. Using the midpoint of 
these ranges, the estimated spending is $2.9 million for marihuana, 
excluding hemp. The figures are based on a general discussion, and 
actual figures may differ.
    \24\ The 2019 Aggregate Production Quota for all marihuana is 
2,450 kgs. 2,000 of the 2,450 kgs are for the NIDA (National Center) 
cultivating and manufacturing quota of bulk marihuana. See 83 FR 
67348.
---------------------------------------------------------------------------

    Researchers may obtain marihuana for use in research through NIDA's 
DSP. Bulk marihuana plant material produced under the NIDA DSP is 
currently available at no cost to research investigators supported by a 
NIH grant. Marihuana is also available to research investigators who 
are funded through non-federal sources. Although NIDA considered 
charging for marihuana on a ``cost-reimbursement basis,'' \25\ the 
current policy is to provide the marihuana at no charge.\26\
---------------------------------------------------------------------------

    \25\ Marijuana Plant Material Available from the NIDA Drug 
Supply Program, National Institute on Drug Abuse, https://www.drugabuse.gov/research/research-data-measures-resources/nida-drug-supply-program/marijuana-plant-material-available-nida-drug-supply-program.
    \26\ See note 22.
---------------------------------------------------------------------------

Changes to Growers
    If this proposed rule is implemented, DEA anticipates approving 
more than one person to cultivate and harvest bulk marihuana. As 
explained earlier in this document, the CSA imposes limitations on the 
number of registrations that DEA may issue to bulk manufacturers of a 
given schedule I or II controlled substance. In addition, in deciding 
whether to grant an application for any such registration, the CSA 
requires DEA to consider the other public interest factors of 21 U.S.C. 
823(a), which must be evaluated on an applicant-by-applicant basis. 
Further, DEA cannot accurately predict in advance which particular 
applications will be granted, or how many. Accordingly, DEA is unable 
to accurately estimate the number of registered bulk marihuana growers. 
As a result, to allow for this analysis, DEA will estimate the economic 
impact of this proposed rule under two different hypothetical 
scenarios, the first in which the number of growers expands to three 
growers, and the second in which the number of growers expands to 15 
growers. It should be understood that this range of potential 
registrants is not necessarily reflective of the actual number of 
applications that DEA will grant.
    In 2016, DEA issued a policy statement regarding applications to 
become registered to manufacture marihuana to supply research.\27\ 
Since the publication of the 2016 policy statement, DEA has received 
approximately 35 pending applications for registration as bulk 
manufacturer of marihuana for research. As indicated above, the CSA 
requires DEA to limit the total number of registered bulk manufacturers 
of a given schedule I or II controlled substance to that necessary to 
produce an adequate and uninterrupted supply under adequately 
competitive conditions. Therefore, DEA believes a range of 3 to 15 
growers is a reasonable estimate for purposes of this economic 
analysis, with the understanding that the actual number could vary 
considerably.
---------------------------------------------------------------------------

    \27\ Applications to Become Registered Under the Controlled 
Substances Act to Manufacture Marijuana to Supply Researchers in the 
United States, 81 FR 53846 (Aug. 12, 2016). This proposed rule, if 
adopted, would supersede the 2016 policy statement.
---------------------------------------------------------------------------

    The Aggregate Production Quota (APQ), which includes the MQ, 
represents the annual quantity of marihuana that is necessary for the 
estimated medical, scientific, research and industrial needs of the 
United States, for lawful export requirements, and for the 
establishment and maintenance of reserve stocks.\28\ Therefore, given a 
constant MQ, if more growers are approved to produce bulk marihuana, 
the quantities of bulk marihuana produced and the cost of production 
(and the reimbursement of production cost through sales) is transferred 
from the single incumbent grower to new growers. This means that there 
is only a transfer of economic activity rather than any new cost. The 
estimated economic activity of $2.9 million is transferred from the 
existing single grower to multiple growers.\29\
---------------------------------------------------------------------------

    \28\ 21 CFR 1303.11(a).
    \29\ The phrase ``multiple growers'' includes the possibility 
that the current grower is one of ``multiple growers.''
---------------------------------------------------------------------------

    Transitioning from one large grower to multiple growers may 
introduce inefficiencies, driving up production or facility costs. Some 
growers may introduce more costly growing techniques to produce certain 
traits. Alternatively, some growers may introduce more efficient 
growing methods, driving down costs. Additionally, having more growers 
may spur more demand in bulk marihuana for research, pushing up the MQ. 
In particular, one of the goals of this new rule is to enhance 
marijuana availability for product development, which may have the 
effect of increasing the MQ. However, DEA does not have a basis to 
estimate the impact of these possibilities. Therefore, for the purposes 
of this analysis, DEA estimates that an increase in the number of 
approved growers does not impact the MQ. In summary, there is no new 
cost to growers.
Changes to Authorizing Agencies--Cost to DEA
    DEA anticipates that there will be a transfer of economic activity 
from NIDA to DEA as well as several new costs as a result of this rule. 
This analysis should in no way be construed as a proposal to modify 
agency funding or funding sources.
    As discussed above, assuming a constant MQ for bulk marihuana of 
2,000 kgs, DEA estimates the cost of all the activities the National 
Center performs under its contract with NIDA and the purchase of the 
entire aggregate crop, regardless of the number of growers, is $2.9 
million. This $2.9 million is not a new cost; it is a transfer. Rather 
than NIDA paying the current single grower, DEA would pay the multiple 
new growers. In practice, DEA anticipates crops from multiple growers 
will be purchased at different times of the year, allowing funds from 
sales of earlier purchases to pay for subsequent purchases. Therefore, 
to purchase and distribute $2.9 million in bulk marihuana, a working 
capital of a lesser amount is likely needed. However, due to many 
unknowns and to be conservative, for the purposes of this analysis, the 
estimated transfer and working capital requirement is $2.9 million.
    DEA anticipates incurring new costs associated with the following 
activities: Taking title to the crops and employing personnel to 
administer the program. The growers, purchasers, and DEA would already 
understand prior to growing and harvesting, the quantities of marihuana 
to be distributed and to whom the distribution would be made because 
the bona fide supply agreements presented during the registration 
application process would provide such information. In most instances, 
DEA is expected to purchase and take title to the crop, then sell and 
distribute the crop to the purchaser on the same day at the grower's 
registered location. For the purposes of this analysis, DEA assumes the 
following process:
    1. After marihuana is harvested and prepared for delivery to DEA, 
the registered manufacturer will contact

[[Page 16300]]

DEA to inform it that the marihuana is ready for collection.
    2. Within a reasonable timeframe, but in no event later than four 
months after the harvest, DEA will purchase and take title to the 
marihuana. Two DEA Special Agents (or Deputized Task Force Officers) 
from the nearest local DEA field office will drive an estimated 100 
miles (200 miles roundtrip) to the registered manufacturer to take 
title. Any marihuana that is not immediately distributed is stored in a 
designated secure storage mechanism at the grower's registered location 
for later distribution. The number of trips by the two DEA Special 
Agents equals the number of harvests.
    3. For marihuana distributed from storage at the grower's 
registered location, the grower distributes marihuana on DEA's behalf. 
If DEA deems it necessary to be present at such distribution, the 
distribution is scheduled to coincide with DEA's visit to take title to 
the next crop, requiring no additional trips by DEA to the grower.
    4. Each grower has three harvests, requiring DEA to collect three 
times per year per grower.
    For each collection, DEA estimates $2,071 of labor cost \30\ and 
$116 of vehicle cost \31\ for a total of $2,187 per collection. DEA 
understands that some growers, employing certain growing methods, may 
have more harvests per year. However, DEA does not have a basis to 
estimate these growers' methods or the number of harvests per year. 
Therefore, DEA believes three harvests per year is a reasonable 
estimate. Assuming three collections per year per grower, there would 
be nine collections with three approved growers and 45 collections with 
15 approved growers. Applying the estimated cost of $2,187 per 
collection, DEA estimates a transport cost of $19,683 and $98,415 for 
scenarios with three and 15 growers, respectively.
---------------------------------------------------------------------------

    \30\ DEA's loaded hourly rate of a Special Agent is $103.54. 
Assuming 10 hours each (full work-day) for two agents, the total 
labor cost associated with collection from a registered manufacturer 
is $2,071. ``Loaded hourly rate'' includes wages, benefits, and 
``loading'' of ``non-productive'' hours, i.e., leave, training, 
travel, etc.
    \31\ $116 is based on IRS standard mileage rates for 2019 of 
$0.58 per mile multiplied by the estimated 200 miles driven, 
roundtrip.
---------------------------------------------------------------------------

    Additionally, DEA anticipates it would need additional personnel 
resources to operate this program. There are many unknowns and no 
decisions have been made on hiring. However, for the purposes of this 
analysis, DEA estimates three full-time-equivalent (FTE) professional 
staff in the Diversion Control Division would be needed, consisting of 
one FTE diversion investigator (DI), and two FTE professional/
administrative (PA) resources.
    Applying the fully loaded annual cost of $211,981 per DI and 
$168,307 per PA, the estimated total cost of the three FTE employees is 
$548,595. For the purposes of this analysis, this cost does not vary 
with the number of growers. Table 1 below summarizes the costs 
associated with increased staffing.

                                      Table 1--Cost of Personnel Resources
----------------------------------------------------------------------------------------------------------------
                                                                   Modular cost/
              Position                       Job category         unit cost  ($)  Number of FTEs     Cost  ($)
----------------------------------------------------------------------------------------------------------------
Staff Coordinator...................  DI........................         211,981               1         211,981
Program Analyst.....................  PA........................         168,307               2         336,614
                                     ---------------------------------------------------------------------------
    Total...........................  N/A.......................             N/A               3         548,595
----------------------------------------------------------------------------------------------------------------

    In summary the estimated cost to DEA is:
     $19,683 or $98,415 per year to purchase and take title to 
the bulk marihuana for scenarios with 3 or 15 authorized growers, 
respectively;
     $548,595 per year for three DEA FTE employees;
     The estimated total annual cost is $568,278 with three 
growers and $647,010 with 15 growers and no offsetting cost savings at 
NIDA. Using the average of the two values, the estimated cost to DEA is 
$607,644. Table 2 summarizes the costs.

                                            Table 2--DEA Cost Summary
----------------------------------------------------------------------------------------------------------------
                                                                     Low  ($)        High  ($)     Average  ($)
----------------------------------------------------------------------------------------------------------------
Transport Cost..................................................          19,683          98,415             N/A
Personnel Cost..................................................         548,596         548,595             N/A
                                                                 -----------------------------------------------
    Total Cost..................................................         568,278         647,010         607,644
----------------------------------------------------------------------------------------------------------------

Changes Affecting Researchers
    DEA anticipates minimal procedural change for authorized 
researchers who plan to acquire bulk marihuana for research. The only 
anticipated procedural change is that some researchers would acquire 
the bulk marihuana from DEA, rather than from NIDA. As discussed 
earlier, the only new cost associated with this proposed regulation is 
the cost to DEA of $607,644, an average of high and low scenarios, 
which would be recovered by adding an administrative fee of $304 per 
kg. As discussed earlier, the administrative fee would be adjusted 
annually.
    While the purchaser would purchase marihuana from DEA, this rule 
does not in any way affect the purchaser's source of funds to purchase 
from DEA. If marihuana for research is funded by a third party, the 
researcher may not experience any cost increase. In particular, NIH has 
long served as a third-party funder for research through grants, 
including grants to researchers studying marihuana. Nothing in this 
rule prohibits NIH from continuing to fund such research by continuing 
to cover the cost of marihuana materials

[[Page 16301]]

used in research, via grants to researchers.
Cost Summary
    DEA estimates the cost of producing the 2019 MQ for bulk marihuana 
of 2,000 kgs and operating NIDA's marihuana DSP is $2.9 million per 
year. Under the proposed rule, DEA anticipates more bulk marihuana 
producers would be approved. DEA estimates the $2.9 million in economic 
activity would be transferred across multiple growers, without 
introducing new costs.
    DEA's purchase of bulk marihuana is not a new cost (to the 
economy); it is a transfer from NIDA to DEA. However, $568,278 to 
$647,010 in operating costs would be incurred by DEA. DEA will recover 
the costs of carrying out the proposed new aspects of the diversion 
control program relating to marihuana by selling the marihuana to the 
buyer at the negotiated sale price, between the grower and the buyer, 
plus the administrative fee assessed on a per kg basis.
    The net present values (NPVs) of the low cost estimate of $568,278 
per year over 10 years are $4.8 million and $4.0 million at a three 
percent discount rate and 7 percent discount rate, respectively. The 
NPVs of the high cost estimate of $647,010 over 10 years are $5.5 
million and $4.5 million at a three percent discount rate and seven 
percent discount rate, respectively. The average of the estimated low 
and high costs is $607,644. The NPVs of the average of $607,644 over 10 
years are $5.2 million and $4.3 million at three percent and seven 
percent discount rates, respectively. Table 3 summarizes the estimated 
annual effect and NPVs calculation for each of the transfers and the 
three scenarios.

                                   Table 3--Summary of Annual Effect and NPVs
----------------------------------------------------------------------------------------------------------------
                                                                   Annual effect    NPVs at 3%      NPVs at 7%
                                                                        ($)            ($M)            ($M)
----------------------------------------------------------------------------------------------------------------
Cost (Low)......................................................         568,278             4.8             4.0
Cost (Average)..................................................         607,644             5.2             4.3
Cost (High).....................................................         647,010             5.5             4.5
----------------------------------------------------------------------------------------------------------------

Executive Order 13771 (Reducing Regulation and Controlling Regulatory 
Costs)

    This proposed rule is expected to be a deregulatory action for the 
purposes of Executive Order 13771. The rule is an enabling rule which, 
coincidentally with other provisions, expands the number of authorized 
bulk marihuana growers.

Executive Order 12988 (Civil Justice Reform)

    This proposed rule meets the applicable standards set forth in 
sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice 
Reform, to eliminate ambiguity, minimize litigation, establish clear 
legal standards, and reduce burdens on regulated parties and the court 
system.

Executive Order 13132 (Federalism)

    This proposed rule does not have federalism implications warranting 
the application of Executive Order 13132. The proposed rule does not 
have substantial direct effects on the States, on the relationship 
between the National Government and the States, or on the distribution 
of power and responsibilities among the various levels of government.

Executive Order 13175 (Consultation and Coordination With Indian Tribal 
Governments)

    This proposed rule does not have tribal implications warranting the 
application of Executive Order 13175. It does not have substantial 
direct effects on one or more Indian tribes, on the relationship 
between the Federal Government and Indian tribes, or on the 
distribution of power and responsibilities between the Federal 
Government and Indian tribes.

Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act (RFA), DEA 
evaluated the impact of this rule on small entities. DEA's evaluation 
of economic impact by size category indicates that the proposed rule 
will not, if promulgated, have a significant economic impact on a 
substantial number of these small entities.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities unless the agency can certify that the rule will not 
have a significant impact on a substantial number of small entities. 
For purposes of the RFA, small entities include small businesses, 
nonprofit organizations, and small governmental jurisdictions. DEA 
evaluated the impact of this rule on small entities and a discussion of 
its findings is below.
    As discussed in the section of this proposed rulemaking relating to 
Executive Orders 12866, 13565, and 13771, this proposed rule would 
amend the provisions of the regulations governing applications by 
persons seeking to become registered with DEA to grow marihuana as bulk 
manufacturers, and add provisions related to the purchase and sale of 
this marihuana by DEA. If this proposed rule is promulgated, the 
following key changes are anticipated: More persons will be authorized 
to grow marihuana; DEA will purchase and take physical possession of 
crops; and DEA will, with respect to marihuana, have the exclusive 
right of importing, exporting, wholesale trading, and maintaining 
stocks. These changes, as explained above, would mean that authorized 
purchasers of bulk marihuana may only purchase from DEA, except that 
DEA's exclusive right would not extend to medicinal cannabis or 
cannabis preparations as these terms are defined in paragraphs (b) and 
(c), respectively, of proposed Sec.  1318.02 of this proposed rule.
    The changes described above would affect three primary groups of 
entities: Growers and prospective growers, the authorizing agencies 
(including NIDA and DEA), and purchasers (generally researchers). 
Because any economic impact on federal agencies is outside the scope of 
the RFA, the transfer of economic activity between the agencies is 
excluded from this discussion. To examine the impact of the proposed 
rule, DEA first reviewed the current system for growing and 
distributing bulk marihuana, then examined the impact on each of the 
two affected non-federal groups: Growers (bulk manufacturers of 
marihuana) and researchers.
Current System
    Under current regulations, DEA has authorized one grower, the 
National Center, to cultivate marihuana for research. NIDA contracts 
with the National Center to grow marihuana for

[[Page 16302]]

use in research studies.\32\ The National Center designates a secure 
plot of land where marihuana crops are grown every few years, based on 
current and expected demand. The marihuana is grown, harvested, stored, 
and made available as bulk marihuana or other purified elements of 
marihuana to use for research.\33\ As explained previously, DEA 
estimates NIDA's expenses under the contract with the National Center 
(and any related subcontracts) for the bulk marihuana for 2019 are 
approximately $2.9 million.\34\ The $2.9 million includes compensation 
for the cultivating and the 2019 MQ of 2,000 kgs for NIDA as well as 
all other duties required in the contract.\35\
---------------------------------------------------------------------------

    \32\ Production, Analysis, and Distribution of Cannabis and 
Related Materials, Federal Business Opportunities (Apr. 12, 2015), 
https://www.fbo.gov/spg/HHS/NIH/NIDA-01/N01DA-15-7793/listing.html.
    \33\ NIDA's Role in Providing Marijuana for Research, National 
Institute on Drug Abuse, https://www.drugabuse.gov/drugs-abuse/marijuana/nidas-role-in-providing-marijuana-research.
    \34\ Anticipated spending for the marihuana DSP for 2019 is $3.3 
million to $3.4 million, of which 10 percent to 15 percent meet the 
definition of ``hemp'' under the provisions of the AIA. Using the 
midpoint of these ranges, the estimated spending is $2.9 million. 
The figures are based on a general discussion, and actual figures 
may differ.
    \35\ The 2019 APQ for all manufacturers of marihuana is 2,450 
kgs. 2,000 kgs are for cultivating and manufacturing of bulk 
marihuana. See 83 FR 67348.
---------------------------------------------------------------------------

    Researchers may obtain marihuana for use in research through NIDA's 
DSP. Bulk marihuana plant material produced under the NIDA DSP is 
available at no cost to research investigators who are supported by an 
NIH grant. Marihuana is also available to research investigators who 
are funded through non-federal sources. Although NIDA considered 
charging for marihuana on a ``cost-reimbursement basis,'' \36\ the 
current policy is to provide the marihuana at no charge.\37\
---------------------------------------------------------------------------

    \36\ Marijuana Plant Material Available from the NIDA Drug 
Supply Program, National Institute on Drug Abuse, https://www.drugabuse.gov/research/research-data-measures-resources/nida-drug-supply-program/marijuana-plant-material-available-nida-drug-supply-program.
    \37\ See note 22.
---------------------------------------------------------------------------

Impact on Growers
    If this proposed rule is implemented, DEA anticipates approving 
more than one person to cultivate and harvest bulk marihuana. In 2016, 
DEA issued a policy statement regarding applications to become 
registered to manufacture marihuana to supply research.\38\ Since the 
publication of the 2016 policy statement, there are approximately 35 
pending applications for registration as bulk manufacturer of marihuana 
for research. Additionally, some applicants may not meet the statutory 
and regulatory criteria for holding a registration as a bulk 
manufacture and will be denied. Therefore, for the purposes of this 
analysis, DEA will estimate the economic impact of this proposed rule 
at three and 15 growers with the understanding that the actual number 
could vary considerably.
---------------------------------------------------------------------------

    \38\ Applications to Become Registered under the Controlled 
Substances Act to Manufacture Marijuana to Supply Researchers in the 
United States, 81 FR 53846 (2016). This proposed rule, if adopted, 
would superseded the 2016 policy statement.
---------------------------------------------------------------------------

    The APQ, which includes the MQ, represents the annual quantity of 
marihuana that is necessary for the estimated medical, scientific, 
research and industrial needs of the United States, for lawful export 
requirements, and for the establishment and maintenance of reserve 
stocks.\39\ Therefore, given a constant MQ, if more growers are 
approved to produce bulk marihuana, the quantities of bulk marihuana 
produced and the cost of production (and reimbursement of their 
production cost through sales) is transferred from the incumbent grower 
to new growers. This means that there is no new cost; instead, there is 
only a transfer of economic activity. The estimated economic activity 
of $2.9 million is transferred from the existing single grower to 
multiple growers.\40\
---------------------------------------------------------------------------

    \39\ 21 U.S.C. 826(a).
    \40\ The phrase ``multiple growers'' includes the possibility 
that the current grower is one of the ``multiple growers.''
---------------------------------------------------------------------------

    Transitioning from one large grower to multiple smaller growers may 
reduce production efficiency, driving up cost. Some growers may 
introduce more costly growing techniques in order to produce certain 
traits. Alternatively, some growers may introduce more efficient 
growing methods, driving down cost. Additionally, having more growers 
may spur more demand in bulk marihuana for research, pushing up the MQ. 
However, DEA does not have a basis to estimate the impact of these 
possibilities.
Impact on Researchers
    DEA anticipates minimal procedural change for authorized 
researchers who plan to acquire bulk marihuana for research. The only 
anticipated procedural change is that the researcher would acquire the 
bulk marihuana from DEA, rather than from NIDA or the National Center. 
As discussed earlier, the only new cost associated with this proposed 
regulation is the cost to DEA of $607,644, which would be recovered by 
adding an administrative fee of $304 per kg. As discussed earlier, the 
administrative fee would be adjusted annually. While purchasers would 
purchase marihuana from DEA, this rule does not in any way affect the 
purchasers' source of funds to purchase from DEA. If marihuana for 
research is funded by a third party, the researcher may not experience 
any cost increase.
Affected Number of Small Entities
    This proposed rule affects the current and prospective bulk 
manufacturers of marihuana for research and researchers. Based on the 
discussion above, DEA anticipates up to 15 bulk manufacturers are 
affected by this proposed rule. Additionally, based on a discussion 
with NIDA,\41\ DEA estimates 40 researchers are affected by this 
proposed rule. The 40 researchers represent the approximate number of 
researchers that receive marihuana from NIDA's marihuana DSP.
---------------------------------------------------------------------------

    \41\ See note 22.
---------------------------------------------------------------------------

    Based on a review of representative North American Industry 
Classification System (NAICS) codes for bulk manufacturers and 
researchers, the following number of firms may be affected: \42\
---------------------------------------------------------------------------

    \42\ For the purposes of this analysis, the term ``firms'' is 
synonymous with ``entities.''

 421 firms related to `Medicinal and Botanical Manufacturing' 
(325411) \43\
---------------------------------------------------------------------------

    \43\ 2015 SUSB Annual Datasets by Establishment Industry, U.S. & 
States, NAICS, Detailed Employment Sizes (U.S., 6-digit and States, 
NAICS Sectors), United States Census Bureau, https://www.census.gov/data/datasets/2015/econ/susb/2015-susb.html.
---------------------------------------------------------------------------

 9,634 firms related to `Research and Development in the 
Physical, Engineering, and Life Sciences (except Biotechnology)' 
(541712) \44\
---------------------------------------------------------------------------

    \44\ Ibid.

    The United States Small Business Administration (SBA) sets size 
standards that determine how large an entity can be and still qualify 
as a small business for federal government programs. For the most part, 
size standards are based on the average annual receipts or the average 
number of employees of a firm. The SBA size standard for both 
industries identified by the NAICS codes above is 1,000 employees.\45\
---------------------------------------------------------------------------

    \45\ Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes, United States Small 
Business Association (Oct. 1, 2017). The NAICS code was updated for 
`Research and Development in the Physical, Engineering, and Life 
Sciences (except Biotechnology)' from 541712 to 541715. The 2015 
SUSB data uses 541712 and the 2017 SBA size standard uses 541715 for 
the same industry.
---------------------------------------------------------------------------

    Comparing the SBA size standards to the U.S. Census Bureau, 
Statistics of U.S. Businesses (SUSB) detailed data on establishment 
size by NAICS code for each affected industry, DEA estimates

[[Page 16303]]

the following number of small entities and percent of firms that are 
---------------------------------------------------------------------------
small entities by industry:

 392 (93.1 percent of total) firms in the area of `Medicinal 
and Botanical Manufacturing' (325411)
 9,090 (94.4 percent of total) firms in the area of `Research 
and Development in the Physical, Engineering, and Life Sciences (except 
Biotechnology)' (541712)

    Table 4 details the calculation for the number of small entities by 
industry.

                                                      Table 4--Number of Small Entities by Industry
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Firm size by average                         SBA size                         % Small
                     NAICS description                                employees                Firms         standard     Small entities     entities
--------------------------------------------------------------------------------------------------------------------------------------------------------
325411--Medicinal and Botanical Manufacturing.............                          <500             384           1,000             384             100
                                                                                 500-749               3  ..............               3             100
                                                                                 750-999               5  ..............               5             100
                                                                             1,000-1,499               6  ..............  ..............               0
                                                                             1,500-1,999               2  ..............  ..............               0
                                                                             2,000-2,499               1  ..............  ..............               0
                                                                             2,500-4,999               7  ..............  ..............               0
                                                                                  5,000+              13  ..............  ..............               0
                                                           ---------------------------------------------------------------------------------------------
    Total.................................................  ............................             421  ..............             392            93.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
541712--Research and Development in the Physical,                                   <500           8,972           1,000           8,972             100
 Engineering, and Life Sciences (except Biotechnology)....
                                                                                 500-749              68  ..............              68             100
                                                                                 750-999              50  ..............              50             100
                                                                             1,000-1,499              70  ..............  ..............               0
                                                                             1,500-1,999              40  ..............  ..............               0
                                                                             2,000-2,499              35  ..............  ..............               0
                                                                             2,500-4,999             132  ..............  ..............               0
                                                                                  5,000+             267  ..............  ..............               0
                                                           ---------------------------------------------------------------------------------------------
    Total.................................................  ............................           9,634  ..............           9,090            94.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Applying the calculated respective percentage for small entities to 
the number of affected bulk manufacturers and researchers, DEA 
estimates 14 (15 x 93.1 percent) bulk manufacturers and 38 (40 x 94.4 
percent) researchers, for a total of 52 small entities, will be 
affected by this proposed rule. The 14 affected small entity bulk 
manufacturers represent four percent of the estimated 392 small 
entities in the `Medicinal and Botanical Manufacturing' (325412) 
industry, and the 38 affected small entity researchers represent 0.4 
percent of the estimated 9,090 small entities in the `Research and 
Development in the Physical, Engineering, and Life Sciences (except 
Biotechnology)' (541712) industry. Table 5 summarizes the calculations 
for the percentage of small entities that are affected by the proposed 
rule.

                                                 Table 5--Percent of Small Entities Affected by Industry
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Estimated
                                                                                             SBA size        Estimated       number of     Percentage of
                     NAICS description                             Number of firms           standard        number of       affected     small entities
                                                                                                          small entities  small entities     affected
--------------------------------------------------------------------------------------------------------------------------------------------------------
325411--Medicinal and Botanical Manufacturing.............                           421           1,000             392              14               4
541712--Research and Development in the Physical,                                  9,634           1,000           9,090              38             0.4
 Engineering, and Life Sciences (except Biotechnology)....
                                                           ---------------------------------------------------------------------------------------------
    Total.................................................                        10,055             N/A           9,482              52             N/A
--------------------------------------------------------------------------------------------------------------------------------------------------------

    DEA generally uses a threshold of 30 percent as a ``substantial'' 
number of affected small entities. Thus, the above analysis reveals 
that a non-substantial amount of small bulk manufacturer entities (4 
percent) and of small researcher entities (0.4 percent) will be 
affected by this proposed rule.
    DEA generally considers impacts that are greater than three percent 
of annual revenue to be a ``significant economic impact'' on an entity. 
As discussed earlier, DEA estimates that there will be a new cost to 
DEA of $568,278 to $647,010 per year, or the average of the high and 
low estimates of $607,644 per year. DEA will recover the costs of 
carrying out the proposed new aspects of the diversion control program 
relating to marihuana by selling the marihuana to the buyer at the 
negotiated sale price, between the grower and the buyer, plus the 
administrative fee assessed on a per kg basis. Based on the average of 
the high and low estimates of $607,644 and MQ of 2,000 kgs, the 
administrative fee is $304 per kg, adjusted annually.
    Furthermore, NIH-funded or other third-party funded researchers are 
likely to request and receive enough funding

[[Page 16304]]

for the full price of marihuana, including the administrative fee. 
There would be no impact to these researchers. However, DEA does not 
have sufficient information to estimate the number of small entity 
researchers that would fall under this category. Although DEA is unable 
to quantify the economic impact for the estimated 14 small entity bulk 
manufacturers and 38 small entity researchers, the number of affected 
small entity manufacturers and researchers is not a substantial number 
of small entities in their respective industries.
    Based on the analysis above, and because of these facts, DEA 
believes this proposed rule, if promulgated, will not have a 
significant economic impact on a substantial number of small entities.

Unfunded Mandates Reform Act of 1995

    In accordance with the Unfunded Mandates Reform Act of 1995 (UMRA), 
2 U.S.C. 1501 et seq., DEA has determined that this action would not 
result in any Federal mandate that may result ``in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100,000,000 or more (adjusted annually for 
inflation) in any 1 year.'' See 2 U.S.C. 1532(a). Therefore, neither a 
Small Government Agency Plan nor any other action is required under the 
UMRA.

Paperwork Reduction Act of 1995

    Pursuant to the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 
3501 et seq., DEA has identified the following collections of 
information related to this proposed rule. A person is not required to 
respond to a collection of information unless it displays a valid OMB 
control number. Copies of existing information collections approved by 
OMB may be obtained at https://www.reginfo.gov/.
A. Collections of Information Associated With the Proposed Rule
    Title: Application for Registration (DEA Form 225); Renewal 
Application for Registration (DEA Form 225A); Affidavit for Chain 
Renewal (DEA Form 225B).
    OMB control number: 1117-0012.
    Form numbers: DEA-225, DEA-225A, DEA-225B.
    Type of information collection: Revision of a currently approved 
collection.
    Applicable component of the department sponsoring the collection: 
Department of Justice/Drug Enforcement Administration, Diversion 
Control Division.
    Affected public who will be asked or required to respond: Business 
or other for-profit.
    Abstract: The Controlled Substances Act requires all businesses and 
individuals who manufacture, distribute, import, export, or conduct 
research and laboratory analysis with controlled substances to register 
with DEA. 21 U.S.C. 822; 21 CFR 1301.11, 1301.13. Registration is a 
necessary control measure that helps to detect and prevent diversion by 
ensuring that the closed system of distribution of controlled 
substances can be monitored by DEA, and that the businesses and 
individuals handling controlled substances are accountable.
    If adopted, this proposed rule would amend the regulations 
governing applications by persons seeking to become registered with DEA 
to grow marihuana as bulk manufacturers and add provisions related to 
the purchase and sale of this marihuana by DEA. Persons seeking to 
become registered with DEA to grow marihuana as bulk manufacturers 
would still apply for registration using the same DEA Form 225 as other 
bulk manufacturers, but DEA would use a new supplemental questionnaire 
unique to marihuana manufacturers in order to gather additional 
information about applicants. There would also be new questionnaires 
used for importer applicants and non-marihuana bulk manufacturer 
applicants. Forms 225, 225A, and 225B would all receive minor revisions 
to improve clarity and usability for registrants.
    DEA estimates the following number of respondents and burden 
associated with this collection of information:
     Number of respondents: 15,919.
     Frequency of response: 1 per respondent per year.
     Number of responses: 15,919.
     Burden per response: 0.1304 hours.
     Total annual burden in hours: 2,076.
B. Request for Comments Regarding the Proposed Collections of 
Information
    Written comments and suggestions from the public and affected 
entities concerning the proposed collections of information are 
encouraged. Under the PRA, DEA is required to provide a notice 
regarding the proposed collections of information in the Federal 
Register with the notice of proposed rulemaking and solicit public 
comment. Pursuant to section 3506(c)(2) of the PRA (44 U.S.C. 
3506(c)(2)), DEA solicits comment on the following issues:
     Whether the proposed collection of information is 
necessary for the proper performance of the functions of DEA, including 
whether the information shall have practical utility.
     The accuracy of DEA's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used.
     Recommendations to enhance the quality, utility, and 
clarity of the information to be collected.
     Recommendations to minimize the burden of the collection 
of information on those who are to respond, including through the use 
of automated collection techniques or other forms of information 
technology.
    Please send written comments to the Office of Information and 
Regulatory Affairs, OMB, Attention: Desk Officer for DOJ, Washington, 
DC 20503. Please state that your comments refer to RIN 1117-AB54/Docket 
No. DEA-506. All comments must be submitted to OMB on or before May 22, 
2020. The final rule will respond to any OMB or public comments on the 
information collection requirements contained in this proposed rule.
    If you need a copy of the proposed information collection 
instrument(s) with instructions or additional information, please 
contact the Regulatory Drafting and Policy Support Section (DPW), 
Diversion Control Division, Drug Enforcement Administration; Mailing 
Address: 8701 Morrissette Drive, Springfield, Virginia 22152-2639; 
Telephone: (571) 362-3261.

List of Subjects

21 CFR Part 1301

    Administrative practice and procedure, Drug traffic control, 
Security measures.

21 CFR Part 1318

    Administrative practice and procedure, Drug traffic control.

    For the reasons stated in the preamble, DEA proposes to amend 21 
CFR chapter II as follows:

PART 1301--REGISTRATION OF MANUFACTURERS, DISTRIBUTORS, AND 
DISPENSERS OF CONTROLLED SUBSTANCES

0
1. The authority citation for part 1301 continues to read as follows:

    Authority: 21 U.S.C. 821, 822, 823, 824, 831, 871(b), 875, 877, 
886a, 951, 952, 956, 957, 958, 965 unless otherwise noted.

0
2. In Sec.  1301.33, revise paragraph (c) and add paragraph (d) to read 
as follows:


Sec.  1301.33   Application for bulk manufacture of Schedule I and II 
substances.

* * * * *

[[Page 16305]]

    (c) Except as provided in paragraph (d) of this section, this 
section shall not apply to the manufacture of basic classes of 
controlled substances listed in Schedule I or II as an incident to 
research or chemical analysis as authorized in Sec.  1301.13(e)(1).
    (d) An application for registration to manufacture marihuana that 
involves the planting, cultivating, growing, or harvesting of marihuana 
shall be subject to the requirements of this section and the additional 
requirements set forth in part 1318 of this chapter.
0
3. Add part 1318 to read as follows:

PART 1318--CONTROLS TO SATISFY THE REQUIREMENTS OF THE ACT 
APPLICABLE TO THE MANUFACTURING OF MARIHUANA

Sec.
1318.01 Scope of this part.
1318.02 Definitions.
1318.03 Implementation of statutory requirements.
1318.04 Specific control measures applicable to the bulk manufacture 
of marihuana.
1318.05 Application of the public interest factors.
1318.06 Factors affecting prices for the purchase and sale by the 
Administration of cannabis.
1318.07 Non-liability of the Drug Enforcement Administration.

    Authority: 21 U.S.C. 801(7), 821, 822(a)(1), (b), 823(a), 
871(b), 886a.


Sec.  1318.01   Scope of this part.

    Procedures governing the registration of manufacturers seeking to 
plant, grow, cultivate, or harvest marihuana are set forth by this 
part.


Sec.  1318.02   Definitions.

    (a) Except as provided in paragraph (e) of this section, the term 
cannabis means any plant of the genus Cannabis.
    (b) Except as provided in paragraph (e) of this section, the term 
medicinal cannabis means a drug product made from the cannabis plant, 
or derivatives thereof, that can be legally marketed under the Federal 
Food, Drug, and Cosmetic Act.
    (c) Except as provided in paragraph (e) of this section, the term 
cannabis preparation means cannabis that was delivered to the 
Administration and subsequently converted by a registered manufacturer 
into a mixture (solid or liquid) containing cannabis, cannabis resin, 
or extracts of cannabis.
    (d) Except as provided in paragraph (e) of this section, the term 
cannabis resin means the separated resin, whether crude or purified, 
obtained from the cannabis plant.
    (e) As used in this part, the terms cannabis, medicinal cannabis, 
and cannabis preparation do not include any material, compound, 
mixture, or preparation that falls outside the definition of marihuana 
in section 102(16) of the Controlled Substances Act (the Act) (21 
U.S.C. 802(16)).
    (f) The term Single Convention means the Single Convention on 
Narcotic Drugs, 1961 (18 U.S.T. 1407).
    (g) The term bona fide supply agreement means a letter of intent, 
purchase order or contract between an applicant and a researcher or 
manufacturer registered under the Act.
    (h) The term registered researcher or manufacturer means a person 
registered under the Act to perform research or manufacture of 
marihuana in Schedule I.


Sec.  1318.03   Implementation of statutory requirements.

    (a) As provided in section 303(a) of the Act (21 U.S.C. 823(a)), 
the Administrator may grant an application for a registration to 
manufacture marihuana, including the cultivation of cannabis, only if 
he determines that such registration is consistent with the public 
interest and with United States obligations under the Single 
Convention.
    (b) In accordance with section 303(a) of the Act and Sec.  
1301.44(a) of this chapter, the burden shall be on the applicant to 
demonstrate that the requirements for such registration have been 
satisfied.


Sec.  1318.04   Specific control measures applicable to the bulk 
manufacture of marihuana.

    For a registration to manufacture marihuana that involves the 
cultivation of cannabis, the following provisions must be satisfied:
    (a) All registered manufacturers who cultivate cannabis shall 
deliver their total crops of cannabis to the Administration. The 
Administration shall purchase and take physical possession of such 
crops as soon as possible, but not later than four months after the end 
of the harvest. The Administration 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 such cases, the 
Administration shall designate a secure storage mechanism at the 
registered location in which the Administration may maintain possession 
of the cannabis, and the Administration will control access to the 
stored cannabis. If the Administration determines that no suitable 
location exists at the registered location of the registered 
manufacturer authorized to cultivate cannabis, then the Administration 
shall designate a location for the authorized grower to deliver the 
crop as soon as possible, but not later than four months after the end 
of the harvest. However, in all cases the registrant must comply with 
the security requirements specified in part 1301 of this chapter.
    (b) The Administration shall, with respect to cannabis, 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. Such 
exclusive right shall not extend to medicinal cannabis or cannabis 
preparations. The Administration may exercise its exclusive right by 
authorizing the performance of such activities by appropriately 
registered persons. The Administration shall require prior written 
notice of each proposed importation, exportation, or distribution of 
cannabis that specifies the quantity of cannabis to be imported, 
exported, or distributed and the name, address, and registration number 
of the registered manufacturer or researcher to receive the cannabis 
before authorizing the importation, exportation, or distribution. All 
importation and exportation shall be performed in compliance with part 
1312 of this chapter, as applicable. Under no circumstance shall a 
registered manufacturer authorized to grow cannabis import, export, or 
distribute cannabis without the express written authorization of the 
Administration.
    (c) A registered manufacturer authorized to grow cannabis shall 
notify in writing the Administration of its proposed date of harvest at 
least 15 days before the commencement of the harvest.


Sec.  1318.05   Application of the public interest factors.

    (a) In accordance with section 303(a) of the Act (21 U.S.C. 
823(a)), the Administrator shall consider the public interest factors 
set forth in paragraphs (a)(1) through (6) of this section:
    (1) Maintenance of effective controls against diversion of 
particular controlled substances and any controlled substance in 
schedule I or II compounded therefrom into other than legitimate 
medical, scientific, research, or industrial channels, 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

[[Page 16306]]

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.
    (b) The Administrator's determination of which applicants to select 
will be consistent with the public interest factors set forth in 
section 303(a), with particular emphasis on the following criteria:
    (1) Whether the applicant has demonstrated prior compliance with 
the Act and this chapter;
    (2) The applicant's ability to consistently produce and supply 
cannabis of a high quality and defined chemical composition; and
    (3)(i) In determining under section 303(a)(1) of the Act (21 U.S.C. 
823(a)(1)) the number of qualified applicants necessary to produce an 
adequate and uninterrupted supply of cannabis under adequately 
competitive conditions, the Administrator shall place particular 
emphasis on 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 as defined in 
this subpart.
    (ii) If an applicant seeks registration to grow cannabis for its 
own research or product development, the applicant must possess 
registration as a schedule I researcher with respect to marihuana under 
Sec.  1301.32 of this chapter. As specified in Sec.  1301.13 of this 
chapter, chemical analysis and preclinical research (including quality 
control analysis) are not coincident activities of a manufacturing 
registration for schedule I substances, including cannabis. In 
determining under section 303(a)(1) of the Act (21 U.S.C. 823(a)(1)) 
the number of qualified applicants necessary to produce an adequate and 
uninterrupted supply of cannabis under adequately competitive 
conditions, the Administrator shall consider the holding of an approved 
marihuana research protocol by a registered schedule I researcher 
seeking to grow cannabis for its own research or product development as 
evidence of the necessity of the applicant's registration under this 
factor.
    (c) Applications accepted for filing after [EFFECTIVE DATE OF FINAL 
RULE] will not be considered pending for purposes of paragraph (a) of 
this section until all applications accepted for filing on or before 
[EFFECTIVE DATE OF FINAL RULE] have been granted or denied by the 
Administrator. Where an application is subject to section 303(i) of the 
Act (21 U.S.C. 823(i)), that section shall apply in lieu of this 
paragraph (c).
    (d) In determining the legitimate demand for cannabis and its 
derivatives in the United States, the Administrator shall consult with 
the U.S. Department of Health and Human Services, including its 
components.


Sec.  1318.06   Factors affecting prices for the purchase and sale by 
the Administration of cannabis.

    (a) In accordance with section 111(b)(3) of Public Law 102-395 (21 
U.S.C. 886a(1)(C)), seeking to recover the full costs of operating the 
aspects of the diversion control program that are related to issuing 
registrations that comply with the Controlled Substances Act (CSA), the 
Administration shall assess an administrative fee. To set the 
administrative fee, the Administration shall annually determine the 
preceding fiscal year's cost of operating the program to cultivate 
cannabis and shall divide the prior fiscal year's cost by the number of 
kgs of cannabis authorized to be manufactured in the current year's 
quota to arrive at the administrative fee per kg. The administrative 
fee per kg shall be added to the sale price of cannabis purchased from 
the Administration. The administrative fee shall be paid to the 
Diversion Control Fee Account.
    (b) As set forth in Sec.  1318.04, the Administration shall have 
the exclusive right of, among other things, wholesale trading in 
cannabis that it purchases from registered manufacturers. The 
Administration will, therefore, buy from such manufacturer, sell 
cannabis to registered researchers and manufacturers, and establish 
prices for such purchase and sale. The Administration will set such 
prices in the following manner:
    (1) Bulk growers of cannabis shall negotiate directly with 
registered researchers and manufacturers authorized to handle cannabis 
to determine a sale price for their cannabis. Upon entering into a 
contract for the provision of bulk cannabis and prior to the exchange 
of cannabis, the parties shall pay to the Administration an 
administrative fee assessed based on the number of kgs to be supplied. 
The administrative fee shall not be recoverable in the event that 
delivery is rejected by the buyer.
    (2) The Administration shall sell the cannabis to the buyer at the 
negotiated sale price plus the administrative fee assessed on a per kg 
basis. Prior to the purchase of the cannabis by the Administration, the 
buyer shall pay the negotiated purchase price and administrative fee to 
the Administration. The Administration shall hold funds equal to the 
purchase price in escrow until the delivery of the cannabis by the 
grower to the Administration. The administrative fee shall not be 
recoverable in the event that delivery is rejected by the buyer.
    (3) After receiving the purchase price and administrative fee from 
the buyer, the Administration shall purchase the cannabis from the 
grower, on behalf of the buyer, at the negotiated sale price. The 
Administration shall retain the administrative fee. In the event the 
buyer fails to pay the purchase price and the administrative fee, the 
Administration shall have no obligation to purchase the crop and may 
order the grower to destroy the crop if the grower cannot find an 
alternative buyer within four months of harvest.
    (4) In instances where the grower of the cannabis is the same 
entity as the buyer of the cannabis, or a related or subsidiary entity, 
the entity may establish a nominal price for the purchase of the 
cannabis. The Administration shall then purchase the entity's cannabis 
at that price and sell the cannabis back to the entity, or a related or 
subsidiary entity, at the same price with the addition of the 
administrative fee.
    (c) Administrative fees set in accordance with this part will be 
made available, on an updated basis, on the Administration's website, 
no later than December 15th of the year preceding the year in which the 
administrative fee will be collected.
    (d) Nothing in this section shall prohibit the U.S. Department of 
Health and Human Services from continuing to fund the acquisition of 
cannabis for use in research by paying, directly or indirectly, the 
purchase cost and administrative fee to the Administration.

[[Page 16307]]

Sec.  1318.07   Non-liability of Drug Enforcement Administration.

    The Administration shall have no liability with respect to the 
performance of any contractual terms agreed to by a grower and buyer of 
bulk cannabis, including but not limited to the quality of any cannabis 
delivered to a buyer. In the event that a buyer deems the delivered 
cannabis to be defective, the buyer's sole remedy for damages shall be 
against the grower and not the Administration.

    Dated: March 16, 2020.
Uttam Dhillon,
Acting Administrator.
[FR Doc. 2020-05796 Filed 3-20-20; 8:45 am]
BILLING CODE 4410-09-P