EXECUTIVE SUMMARY
On April 22, 2026, Acting Attorney General Todd Blanche signed a final order transferring U.S. Food and Drug Administration (FDA)-approved marijuana products and marijuana subject to state-licensed medical marijuana programs from Schedule I to Schedule III of the Controlled Substances Act (CSA) effective immediately. The Department of Justice (DOJ) and the Drug Enforcement Administration (DEA) issued the order pursuant to President Trump's December 18, 2025, Executive Order, "Increasing Medical Marijuana and Cannabidiol Research." This is the most consequential change to federal marijuana law in more than 50 years.
For qualifying medical marijuana licensees, the practical impact is substantial: Federal Schedule III status, elimination of the Section 280E tax deduction disallowance going forward, and an expedited DEA registration pathway. Adult-use (i.e., recreational) marijuana remains Schedule I. Separately, the DOJ has announced a new administrative hearing beginning June 29, 2026, to consider broader rescheduling of all marijuana to Schedule III.
Key action items for stakeholders:
- Apply for DEA registration within 60 days to preserve the right to operate during agency review.
- File protective Internal Revenue Service (IRS) refund claims for prior years subject to 280E disallowance – time limits apply.
- Dual-license operators should separate medical and adult-use activities in operations and recordkeeping.
- Interstate commerce and adult-use legalization still require congressional action.
- Monitor litigation – a successful legal challenge could reinstate Schedule I obligations.
What This Order Does – Effective Today
The DEA's final order, issued under 21 U.S.C. § 811(d)(1) pursuant to President Trump's December 18, 2025 Executive Order moves state-regulated medical marijuana into Schedule III to satisfy U.S. obligations under the 1961 Single Convention on Narcotic Drugs. Critically, the order does not reschedule all marijuana – it creates a two-tier federal framework:
- Schedule III (effective April 22, 2026): FDA-approved marijuana products and marijuana subject to a qualifying state medical marijuana license.
- Schedule I (unchanged): All other marijuana – including unlicensed adult-use marijuana, bulk marijuana not yet incorporated into an approved product, and synthetic THC – remains Schedule I.
The order also amends DEA regulations to require import/export permits for Schedule III marijuana products (mirroring the existing requirement for Schedule I and II substances), consistent with Single Convention Article 31.
Tax Relief (Section 280E): Because Section 280E of the Internal Revenue Code disallows business deductions for trafficking in Schedule I or II substances, state-licensed medical marijuana operators will no longer be subject to the 280E disallowance going forward. The order also encourages the Treasury Department to consider retrospective 280E relief. Licensees should immediately consult tax counsel and consider filing protective refund claims.
The DEA Buy/Sell Mechanism: According to a 2018 Office of Legal Counsel opinion referenced in the order, the DEA is required by the Single Convention to nominally purchase marijuana crops from registered manufacturers and resell them back to eligible purchasers, with growers paying a small administrative fee for the transaction. This mechanism exists solely to satisfy the treaty's requirement that a government agency serve as the exclusive purchaser of cannabis production – it is not intended to disrupt commercial operations. For state-licensed medical marijuana operators, the order implements this through a nominal-price purchase-and-resale structure: manufacturers set a nominal price, the DEA "purchases" the crop at that price and immediately resells it back at the same price plus the administrative fee, and crops must be stored in a facility to which the DEA maintains access until the transaction is complete. Practically speaking, licensees should be aware this mechanism exists, ensure their registered facilities accommodate DEA access rights, and budget for the administrative fee – but it should not materially affect day-to-day business operations.
What Is NOT Resolved – The June 29, 2026 Hearing and Beyond
Today's order is explicitly framed as a first step. Simultaneously with issuing the final order, the DOJ announced a new administrative hearing beginning June 29, 2026 to consider broader marijuana rescheduling – including adult-use marijuana – from Schedule I to Schedule III. Notably, the DEA has withdrawn the Biden Administration's prior notice of hearing (published August 29, 2024) and terminated those proceedings, replacing them with new proceedings under firm deadlines designed to accelerate resolution. The following significant issues remain open:
- Adult-Use Marijuana: Today's order expressly covers only medical marijuana. Purely adult-use marijuana – including state-licensed adult-use dispensaries selling to customers without a medical certification – is NOT rescheduled and remains Schedule I. However, the June 29 hearing is the vehicle through which the DEA will start to evaluate whether to extend Schedule III status to all marijuana. Adult-use operators should monitor and consider participating in that proceeding.
- Quota Allocations: The Single Convention requires production quotas. The DEA will need to establish quota frameworks for state-licensed manufacturers. This process will involve separate rulemaking and International Narcotics Control Board (INCB) reporting obligations.
- Interstate Commerce: Federal law still prohibits interstate transfer of controlled substances outside DEA-registered channels. The order does not authorize state-to-state shipments of marijuana or marijuana products. Congressional action is required to permit commercial interstate cannabis trade.
- Detailed Regulatory Guidance: The DEA has indicated it will issue additional guidance on recordkeeping, order forms, security standards (to the extent state law is insufficient), and labeling requirements specific to state-licensed operators.
Medical Only or Adult-Use Too? A Critical Distinction
The order's scope is explicitly limited to:
- FDA-approved marijuana products, and
- Marijuana subject to a state medical marijuana license – defined as a license authorizing manufacture, distribution, and/or dispensing of marijuana for medical purposes.
Adult-use licensees operating under state programs that do not require a medical purpose are not covered by this order and remain Schedule I operators under federal law. This distinction has profound consequences:
- Adult-use licensees continue to be exposed to federal enforcement risk and remain subject to 280E.
- Dual-licensed operators – those holding both a medical and an adult-use license in the same state – face the most complex compliance environment. See below.
- States with combined adult-use and medical programs should review whether their medical licenses separately qualify for the expedited DEA registration pathway.
Looking Ahead: The June 29, 2026 administrative hearing is the vehicle for broader rescheduling that could extend Schedule III status to all marijuana, including adult use. But that outcome is not guaranteed, and a final rule could take several months or longer after the hearing concludes. Until then, adult-use activities remain Schedule I – with all associated federal exposure.
The Dual-License Problem
Perhaps the most immediate and underappreciated challenge created by this order falls on operators that hold both a medical marijuana license and an adult-use license in the same state – a common structure in many states. These operators now find themselves simultaneously subject to two different federal regimes within the same business:
- Medical activities: Rescheduled to Schedule III. Subject to DEA registration, Schedule III recordkeeping, and 280E relief going forward.
- Adult-use activities: Remain Schedule I. Subject to full Schedule I enforcement, controls, and 280E disallowance.
This bifurcation creates real operational risk. Regulators could scrutinize whether inventory, personnel, facilities, and financial flows are adequately separated between medical and adult-use operations. Commingling – even inadvertently – could jeopardize Schedule III status for medical activities or, worse, expose the entire operation to Schedule I liability. Dual-license operators should treat this as an urgent compliance priority:
- Conduct a prompt operational audit to identify all points of overlap between medical and adult-use activities.
- Implement physical, financial, and recordkeeping separation between the two license streams to the extent practicable.
- Engage counsel to assess whether existing state license structures support a defensible separation under federal law.
- Monitor the June 29th hearing closely – and consider whether to participate – as the outcome will directly determine whether adult-use operations eventually receive Schedule III parity.
What Licensees Should Do Now
The order creates immediate action items for cannabis industry stakeholders:
A. Prepare for and Apply for DEA Registration
State-licensed medical marijuana operators must obtain DEA registration to lawfully handle Schedule III marijuana. The order establishes an expedited pathway:
- Applicants submit proof of a valid state medical marijuana license as conclusive evidence of state authorization.
- Applications submitted within 60 days of publication of the order in the Federal Register may continue operating compliantly during the review period.
- The DEA is directed to process applications within six months.
- Registration is effectively mandatory – operating without DEA registration while handling Schedule III-controlled substances is a federal violation.
B. File Protective IRS Refund Claims
Because the 280E disallowance no longer applies to Schedule III operators going forward, and because the order encourages Treasury to consider retroactive relief:
- Marijuana operators should immediately file protective refund claims with the IRS for prior tax years in which 280E disallowance was applied.
- The statute of limitations for refund claims is generally three years from the date of filing or two years from payment – earlier tax years may be time-barred.
- Consult tax counsel promptly. The order does not constitute a final determination of tax liability.
C. Additional Immediate Steps
- Review Operations: Assess which activities fall under state medical versus adult-use licenses and implement appropriate recordkeeping separation.
- Compliance Audit: Evaluate whether current state-level security, labeling, disposal, and recordkeeping practices satisfy federal Schedule III requirements (state-law compliance generally suffices under the order's cooperative federalism framework).
- Banking & Finance: Notify financial institutions and investors of the rescheduling. While not a complete banking fix (which requires SAFE Banking Act passage), Schedule III status may improve the risk assessment of medical operators.
- Investor Disclosure: Public companies and regulated entities should assess disclosure obligations triggered by the rescheduling.
- Research: Researchers obtaining marijuana from state licensees are provided a safe harbor under the order, provided both parties hold valid DEA registrations.
Interstate Commerce – Congressional Action Still Required
Rescheduling to Schedule III does not resolve the interstate commerce problem. The CSA continues to prohibit the transfer of controlled substances across state lines outside DEA-registered channels. This means:
- State-licensed operators cannot ship marijuana or marijuana products to licensees in other states, even if both states have legal medical programs.
- Each state market remains a closed, intrastate system.
- Multistate operators (MSOs) cannot legally consolidate inventory or conduct intercompany transfers between state subsidiaries.
Unlocking interstate commerce will require Congress to act – most likely through comprehensive cannabis reform legislation or a targeted amendment to the CSA. The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, Cannabis Administration and Opportunity Act (CAOA), and other pending bills remain the legislative vehicles most likely to address this. Rescheduling may, however, reduce political friction and create new momentum for congressional action in the near term.
Potential Legal Challenges
Despite the administration's reliance on the treaty-obligation authority of § 811(d)(1), this order faces a meaningful litigation risk landscape:
- APA Challenge – Procedural: Opponents may argue the DEA was required to follow notice-and-comment rulemaking under the Administrative Procedure Act. The order takes the position that § 811(d)(1) exempts treaty-driven scheduling actions from APA procedures. A 1977 D.C. Circuit case (NORML v. DEA) created some ambiguity here, though the DEA argues the plain statutory text controls.
- Scope Challenge – "Medical Only": Advocacy groups and adult-use operators may challenge the limitation of rescheduling to medical marijuana, arguing the DEA's authority under § 811(d)(1) does not permit a bifurcated schedule based on end-use.
- Single Convention Compliance: Some stakeholders may argue that Schedule III is not sufficient to satisfy Single Convention obligations for cannabis, or conversely, that the Convention does not actually require Schedule I treatment given the 2020 U.N. Commission on Narcotic Drugs decision removing cannabis from Schedule IV of the Convention.
- Congressional Review Act (CRA): The DEA has submitted reports to Congress under the CRA. While the DEA characterizes this as not a "major rule," Congress could potentially invoke CRA disapproval procedures.
- States' Rights / Commerce Clause: Challenges from operators excluded from the medical carve-out may raise constitutional arguments, though these face an uphill battle given CSA preemption.
Stakeholders should monitor litigation developments closely. An injunction staying this order – even temporarily – could re-expose operators to Schedule I obligations and 280E. Consult counsel regarding contractual and compliance contingency planning.
Questions? Contact Us.
If you have questions about this alert or how the DEA's final order may affect your business, please reach out to Jonathan Havens, Adam Fayne, or Zack Kobrin, or the Saul Ewing attorney with whom you regularly work. We are monitoring these developments closely and are available to assist clients in navigating the registration process, evaluating tax refund opportunities, assessing compliance obligations, and addressing any other questions arising from this historic change in the federal treatment of marijuana.
