State-sanctioned medical cannabis businesses didn’t magically become federally compliant overnight following the Department of Justice’s (DOJ) Schedule III order, according to congressional researchers.
President Donald Trump’s acting attorney general, Todd Blanche, may have issued a final order on April 23 to “immediately” reclassify FDA-approved cannabis and state-licensed medical cannabis as a Schedule III drug, making it possible for “some entities handling medical marijuana” to come into compliance with the Controlled Substances Act (CSA), according to an April 30 legal sidebar from the nonpartisan Congress Research Service (CRS).
But CSA compliance isn’t automatic, and it doesn’t equate to overarching federal compliance.
“With respect to participants in the state-legal marijuana industry other than end users, the final order may make it possible for them to comply with the CSA but may not bring them into full compliance with federal law,” according to the CRS sidebar. “Under the FD&C Act, pharmaceutical drugs must be approved by the Food and Drug Administration (FDA), and it is unlawful to introduce an unapproved drug into interstate commerce. Although, as noted above, FDA has approved some drugs derived from or related to cannabis, marijuana itself is not an FDA-approved drug.”
Under a Schedule III listing, state-licensed medical cannabis is now considered to have “currently accepted” medical use; however, under the federal Food, Drug and Cosmetics Act (FD&C Act), Schedule III substances can only be sold to consumers as FDA-approved prescriptions through Drug Enforcement Administration (DEA)-registered entities.
In other words, Blanche’s final order provides a regulatory pathway for medical cannabis products to be sold by state-licensed operators under the CSA but not under the FD&C Act without FDA approval.
The CRS report also noted that by moving medical cannabis to Schedule III, Blanche’s order merely “opens the possibility” that state-licensed businesses of covered products “may be able to comply” with the CSA.
“All entities that handle covered marijuana products, other than end users, will need to register with DEA in order to do so lawfully,” according to the sidebar.
While multistate cannabis operators like Trulieve and Green Thumb Industries have already taken advantage of filing their applications for the DEA’s expedited registration pathway for Schedule III, some questions within the application have raised red flags for others, including:
- Has anyone who will be involved in the ownership or operation of the firm previously manufactured, distributed, and/or dispensed any controlled substance without a DEA registration authorizing such activity?
- Will your firm be handling or dispensing recreational marijuana?
The application window runs 60 days, with the DEA mandated to approve the early applicants within six months. But those who answer yes to these questions are admitting to federally illegal activities, the trafficking of a Schedule I controlled substance, to the federal government.
That said, Blanche indicated in his order that it wasn’t the Department of Justice’s intent to crack down on state-licensed businesses as a result of the DEA registration process.
“The attorney general has determined that incorporating state licensing systems into the federal registration framework represents the most effective and efficient means of achieving the CSA’s objectives with respect to medical marijuana while promoting the medical benefits of marijuana and causing the least disruption for patients and existing state systems,” according to the order.
While medical cannabis businesses operating under a Schedule I status have long received federal protections under a 12-year-old appropriations rider that prevents the DOJ from using funds to interfere with state-sanctioned programs, these protections remain dependent upon Congress annually renewing the rider.
“Rescheduling medical marijuana does not directly alter the medical marijuana appropriations rider but may render it redundant for state-legal medical marijuana businesses that register with DEA,” according to the CRS sidebar. “To the extent those businesses now comply with the CSA, they do not need the rider to shield them from prosecution.”
With or without the rider, Schedule I cannabis businesses remain cuffed by the punitive tax burdens of Section 280E of the Internal Revenue Code, which prevents them from deducting ordinary expenses.
As state-licensed medical cannabis businesses await further guidance from the Treasury Department and the Internal Revenue Service following Blanche’s Schedule III order, that guidance is expected to include a transition rule providing 280E tax relief starting in Q1 of 2026, with the possibility of retrospective relief for previous tax years.
The guidance could also clarify whether the 280E tax relief applies only to businesses that register with the DEA, specifically after the CRS sidebar suggested that state-licensed medical cannabis businesses “will need to register” to be Schedule III compliant.
Schedule III compliance and whether a medical cannabis company is subject to 280E are separate issues. According to Blanche's order, "as a consequence of this rule, holders of state medical marijuana licenses will no longer be subject to the deduction disallowance imposed by Section 280E of the Internal Revenue Code." The order provides no stipulation that businesses must register to qualify for the tax deductions.
The congressional report also pointed to a separate order Blanche signed for a “new expedited” administrative hearing process that’s scheduled for this summer to consider the merits of a Biden-era proposed rule to completely move all cannabis into Schedule III.
While the sidebar noted that “the order appears to authorize end users to possess marijuana for medical use without a CSA-compliant prescription” and “scientific research shall incur no civil or criminal liability” for obtaining cannabis from state-licensed businesses, the report also indicated the same could not be said for adult-use cannabis, even should the hearing’s outcome prove favorable for rescheduling proponents.
“With respect to the manufacture, distribution and possession of recreational marijuana, even if marijuana were completely moved to Schedule III, such activities would remain illegal under federal law and potentially subject to federal prosecution regardless of their status under state law,” according to the sidebar. “To the extent marijuana is moved to Schedule III, applicable penalties for some offenses would be reduced. However, CSA penalties that apply to marijuana specifically, such as the quantity-based mandatory minimum sentences discussed above, would not change as a result of rescheduling.”
In providing considerations for Congress, the CRS report reminded lawmakers in Washington that they still have the authority to change the legal status of cannabis, “before or after” the DOJ’s hearing process.
“If Congress moved marijuana to Schedule III by legislation, it could simultaneously consider whether to change any of the legal consequences of Schedule III status mentioned above,” according to the sidebar. “Congress could also legislate to move marijuana to another CSA schedule, which would subject it to controls more or less stringent than those that apply to Schedule III controlled substances.”
Congress could also consider amendments to the FD&C Act and other legal frameworks that could potentially open interstate commerce, global exports, banking, exchange listings and a host of other reforms to promote industry growth and economic opportunity.
