Given the following dataframe:
df_test = pd.DataFrame(
[[1, "BURGLARY"], [2, "PETIT LARCENY"], [3, "DANGEROUS DRUGS"], [4, "LOITERING FOR DRUG PURPOSES"], [5, "DANGEROUS WEAPONS"]],
columns = ['id','ofns_desc']
)

I want to add a new column that simplifies the description in the ofns_desc column. I did the following:
THEFT = ["BURGLARY", "PETIT LARCENY"]
df_test.loc[df_test.ofns_desc.isin(THEFT), 'category'] = "THEFT"
DRUGS = ["DANGEROUS DRUGS", "LOITERING FOR DRUG PURPOSES"]
df_test.loc[df_test.ofns_desc.isin(DRUGS), 'category'] = "DRUGS"
Up to this point, the code above works:

But when I try to create an "OTHER" value for the category column, every value in the category column gets overwritten:
ALL_CAT = [THEFT, DRUGS]
df_test.loc[~df_test.ofns_desc.isin(ALL_CAT), 'category'] = "OTHER"

What am I doing wrong?
Problem is you test nested lists, so all values failed, you need join lists by + instead pass to [] like change:
ALL_CAT = [THEFT, DRUGS]
to:
ALL_CAT = THEFT + DRUGS
Another idea is create dictionaries and Series.map, last replace missing values by Series.fillna:
THEFT = ["BURGLARY", "PETIT LARCENY"]
DRUGS = ["DANGEROUS DRUGS", "LOITERING FOR DRUG PURPOSES"]
d = {"THEFT":THEFT, 'DRUGS':DRUGS}
#swap key values in dict
#http://stackoverflow.com/a/31674731/2901002
d1 = {k: oldk for oldk, oldv in d.items() for k in oldv}
print (d1)
{'BURGLARY': 'THEFT', 'PETIT LARCENY': 'THEFT',
'DANGEROUS DRUGS': 'DRUGS', 'LOITERING FOR DRUG PURPOSES': 'DRUGS'}
df_test['category'] = df_test['ofns_desc'].map(d1).fillna("OTHER")
print (df_test)
id ofns_desc category
0 1 BURGLARY THEFT
1 2 PETIT LARCENY THEFT
2 3 DANGEROUS DRUGS DRUGS
3 4 LOITERING FOR DRUG PURPOSES DRUGS
4 5 DANGEROUS WEAPONS OTHER
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