Cannabis Rescheduling: What the Latest DOJ, Treasury, and DEA Updates Mean for the Industry
The federal conversation around cannabis is moving faster than ever. In May 2024 the Department of Justice (DOJ) issued a landmark Final Order that places cannabis produced under a state‑licensed medical marijuana program into Schedule III of the Controlled Substances Act (CSA). At the same time, the Treasury Department signaled forthcoming guidance on Section 280E relief, and the Drug Enforcement Administration (DEA) opened a formal hearing process that could reschedule all marijuana from Schedule I to Schedule III, with proceedings slated to begin June 29 2026. This article breaks down those developments, explains what they mean for medical and adult‑use operators, and offers practical steps for staying compliant.
DOJ’s Final Order and the Shift to Schedule III for State‑Licensed Medical Cannabis
On May 15 2024 the DOJ published a Final Order in the Federal Register (89 FR 31245) that expressly removes the barrier preventing state‑licensed medical cannabis cultivators, processors, and dispensaries from being treated as “legitimate” businesses under federal law. The order cites the agency’s review of scientific evidence, public health data, and the growing number of states with functional medical programs—currently 38 states plus four territories, according to the National Organization for the Reform of Marijuana Laws (NORML) (2023).
By moving medical cannabis to Schedule III, the DOJ acknowledges a recognized medical use and a lower potential for abuse compared with Schedule I substances. The change does not legalize recreational use, nor does it affect cannabis that remains outside a state‑licensed medical framework, but it removes a major impediment to federal registration, banking access, and interstate commerce for qualifying operators.
Practical Implications: DEA Registration, Section 280E Relief, and Treasury Guidance
DEA registration. Operators who fall under the Final Order may now apply for a DEA controlled‑substance registration specific to Schedule III activities. The DEA has indicated that applications will be processed under its existing “manufacturer” and “distributor” categories, with a target review period of 90 days for complete submissions (DEA, 2024). Successful registration opens the door to standard SEC‑regulated banking relationships and the ability to transport product across state lines where both origin and destination states permit medical cannabis.
Section 280E tax relief. Internal Revenue Code Section 280E currently disallows ordinary business deductions for traffickers in Schedule I or II substances, forcing cannabis businesses to pay tax on gross revenue rather than net income. The Treasury Department’s Office of Tax Policy released a notice (Notice 2024‑12) stating that, once a substance is rescheduled to Schedule III, Section 280E no longer applies. Early analysis by the Tax Foundation estimates that eligible medical cannabis operators could see an effective tax rate reduction from roughly 70 % to the corporate average of 21 %, dramatically improving cash flow (Tax Foundation, 2024). Retrospective relief for prior tax years is under discussion; stakeholders should monitor forthcoming Treasury guidance and consider filing protective claims where appropriate.
Banking and insurance. With federal registration and the removal of Section 280E barriers, major banks have begun to pilot cannabis‑friendly accounts. A 2024 survey by the American Bankers Association found that 22 % of participating institutions are now willing to serve state‑licensed medical cannabis clients, up from 8 % in 2022 (ABA, 2024). Insurance carriers are similarly adjusting underwriting criteria to reflect the lowered federal risk profile.
DEA’s Hearing on Broad Rescheduling: Timeline and Stakeholder Impact
In parallel with the medical‑focused Final Order, the DEA issued a Notice of Proposed Rulemaking (NPRM) on March 1 2024 seeking to reschedule all marijuana—medical and adult‑use—from Schedule I to Schedule III. The NPRM cites the same scientific and public‑health considerations that underpinned the medical order, but expands the scope to cover the entire cannabis plant and its derivatives.
The DEA has set a formal hearing to commence on June 29 2026, providing interested parties with a 90‑day window to submit comments, request oral testimony, and present expert evidence. Stakeholders ranging from patient advocacy groups to large multistate operators are expected to participate. Should the DEA adopt the proposal, the practical effects would mirror those described for medical cannabis but extend to adult‑use businesses, potentially unlocking nationwide banking, interstate commerce, and uniform tax treatment.
Industry analysts caution that the hearing process is lengthy and subject to political shifts. Historical precedent shows that similar rescheduling petitions (e.g., for MDMA in 2022) can take multiple years to resolve, with outcomes influenced by administrative changes and congressional action (Congressional Research Service, 2023).
Legal Challenges and What They Could Mean for the Final Order
Even as the DOJ’s Final Order takes effect, several lawsuits have already been filed challenging its scope and legal basis. Plaintiffs argue that the agency overstepped its authority by reclassifying a substance without Congressional amendment of the CSA, and that the order inadequately addresses the discrepancy between federal and state laws governing adult‑use cannabis.
Notable cases include Coalition for Cannabis Reform v. Merrick Garland (filed in the District of Columbia, May 2024) and Green State Industries v. DEA (filed in the Northern District of California, June 2024). Early rulings have denied preliminary injunctions, allowing the Final Order to remain in force while litigation proceeds. Legal scholars note that the outcome will hinge on the courts’ interpretation of the DEA’s statutory authority under the Controlled Substances Act and the Administrative Procedure Act (Harvard Law Review, 2024).
Operators should maintain vigilant compliance programs, document all state‑licensed activities, and consider participating in amicus briefs or industry coalitions that aim to shape judicial interpretation.
How to Prepare: Action Steps for Operators, Advisors, and Investors
For state‑licensed medical cannabis operators:
- Review the DEA’s registration checklist and begin assembling required documentation (security plans, SOPs, quality control records).
- Consult a tax professional experienced with Section 280E to model the financial impact of prospective relief and to prepare any protective claims for prior years.
- Engage with your banking partner early; provide the DEA registration application copy to facilitate account opening discussions.
- Monitor Treasury notices and IRS guidance for clarification on retrospective relief and reporting requirements.
For tax advisors and accountants:
- Stay current on IRS Notice 2024‑12 and any subsequent revenue procedures concerning Section 280E.
- Advise clients on timing of expense deductions versus potential retroactive adjustments.
- Consider offering a “cannabis tax health check” service that evaluates state‑licensed operations against the evolving federal framework.
For adult‑use cannabis operators and investors:
- Track the DEA hearing docket (available at DEA.gov) and prepare comment letters that address public health, safety, and economic arguments.
- Scenario‑plan for potential Schedule III rescheduling: model cash‑flow impacts, banking accessibility, and interstate logistics.
- Diversify investment portfolios to include ancillary services (security, software, compliance consulting) that are less directly exposed to scheduling changes.
By taking these proactive steps, stakeholders can position themselves to benefit from the evolving federal landscape while mitigating risk associated with ongoing litigation and regulatory uncertainty.
For more details on the upcoming webinar where our team will walk through these topics in depth, please see the event page: Here
