Cannabis Just Got Rescheduled. Sort Of.

Yesterday, the Department of Justice issued an order that will be described everywhere as federal cannabis “rescheduling”. It is, and it is not. Acting Attorney General Todd Blanche signed an order removing two narrow categories of marijuana from the highly-regulated Schedule I classification of controlled substances (e.g., heroin) and reassigning them to the less-regulated Schedule III classification of the Controlled Substances Act, effective April 22, 2026. These “rescheduled” controlled substances are: (1) FDA-approved drug products containing marijuana (e.g., Epidiolex), and (2) marijuana and marijuana products subject to a qualifying state-issued medical marijuana license. The order applies to marijuana as defined in the CSA, marijuana extracts, and delta-9-tetrahydrocannabinol and other compounds derived from the marijuana plant (other than mature stalks and seeds) that fall outside the definition of “hemp”.  Everything else marijuana remains Schedule I – recreational or adult-use sales, cultivation, possession, and use of marijuana are still federal crimes.

The order invokes the Attorney General’s treaty authority under 21 U.S.C. § 811(d)(1), which permits scheduling (and, apparently, rescheduling) by order. This is a novel application of 811(d)(1), which has historically been invoked to impose scheduling controls required by treaty, not to partially down-schedule a substance already at Schedule I. The authority question will likely be a central issue in any litigation challenging the order. Separately, DEA withdrew the Biden-era notice of hearing and opportunity for public comment set for late 2024 (of the Administrative Procedures Act), claiming its requirements are not applicable to the order, and set a new expedited administrative hearing to begin on June 29, 2026, to “evaluate broader changes to marijuana’s status under federal law ” – meaning what?  Legalization?

Implications of the Order to Medical Marijuana Businesses

Going forward (and maybe for some prior tax years), state-licensed medical operators can deduct ordinary general and administrative costs and expenses (e.g., office rentals, executive compensation, marketing service fees) because IRC § 280E applies only to trafficking in Schedule I and II substances – this is a material tax shift for medical operators that have been paying federal tax on gross profit. Cannabis research using state-available medical products becomes easier. However, the order will require federal registration with the DEA  of state-licensed manufacturers, distributors, and dispensers. Schedule III dispensing of medical marijuana will now run through the federal prescription system under 21 U.S.C. § 829(b), which requires a written prescription from a medical practitioner to be filled by a DEA-registered pharmacist, calling into question the need for state medical marijuana dispensaries that are not registered pharmacies. Even at this early stage of analysis on the order, it appears that the prescription-dispensing FDA/DEA framework does not map cleanly onto existing state-licensed operations.

Implications of the Order on Recreational Marijuana

Adult-use cannabis remains an illegal Schedule I controlled substance under federal law. The order will not empty any prison cells, will not open the NYSE or Nasdaq to plant-touching operators, will not fix banking, will not permit interstate commerce, and will not cure firearms, immigration, or federal-employment consequences.

For attorneys advising plant-touching clients, the real work starts now.

Janet Jackim, Chair of the Cannabis Business Industry Group, is a well-seasoned cannabis and business attorney whose practice focuses on cannabis transactions, litigation, commercial real estate, mergers and acquisitions, and litigation involving the foregoing. She can be reached at jjackim@fennemorelaw.com.

Robert Kamensky is a director in Fennemore’s Business & Finance group, where he helps companies navigate mergers and acquisitions, supply chains, software and technology agreements, as well as all manner of other day-to-day matters. He works with businesses of all sizes, from fast-growing startups to global manufacturers, and has guided transactions worth tens of billions of dollars. He can be reached at rkamensky@fennemorelaw.com.

Questions? Please contact us for more information about our Cannabis Law practice and legal advice tailored to your specific situation. This content is for general educational purposes only and does not constitute legal advice. If legal advice is needed, please consult with an attorney.