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Since acting Attorney General Todd Blanch announced that state-legal medical marijuana would move to Schedule III, the commentary has been relentless — hot takes, doomsayers, and self-proclaimed experts flooding LinkedIn with conflicting interpretations. Much of it is speculative, overstated, and uneducated. This piece cuts through the noise and responds to the questions I have fielded the most about state medical programs.
The DOJ order shifts state-legal medical marijuana from Schedule I to Schedule III and establishes an optional DEA registration framework through which state-licensed operators may seek to participate. The confusion, on whether registration is mandatory, stems from confusion over two federal provisions: (1) 21 USC 811(d)(1)— a provision that suddenly everyone claims to understand, but few actually do; and (2) 26 USC 280E.
Q: Why does 21 USC 811(d)(1) matter now?
It largely didn’t for industry, until now. The industry spent years chasing legislative solutions, whether full legalization, SAFE Banking, or uplisting. This provision sat ignored, despite a handful of us arguing its importance. Legal and policy wonks like me were talking about 811(d)(1) to any operators and industry associations who would listen. All of them brushed us aside. Ironically, many operators who ignored us then are unlikely to obtain the maximum benefits from it now.
21 USC 811(d)(1) allows the Attorney General to “issue an order controlling such drug” if doing so is required by U.S. obligations under the Single Convention. There is an important distinction between that language and what actually occurred: that is, DEA didn’t reschedule a “drug”; instead, it rescheduled a program. Further, under U.S. law, what constitutes a “drug” is a determination to be made by FDA under the Food, Drug, & Cosmetic Act. These are likely two of the main arguments Smart Approaches to Marijuana (SAM) will make in its forthcoming litigation.
Q: Does 280E apply to state licensed medical operators who don’t register with DEA?
No, it does not. Tax code 280E prohibits deduction and credits for any trade or business trafficking in Schedule I or II substances. The order includes the following: “as a consequence of this rule, state licensees will no longer be subject to the deduction disallowance imposed by Section 280E.” Further, “[t]he final rule places in schedule III . . . marijuana subject to a state medical marijuana license.”
IRC 280E says nothing about DEA registration. The only qualification for schedule III placement, is that marijuana is subject to a state medical marijuana reprogram. Therefore, whether a state license operators is DEA registered is not a factor in whether it is operating with a schedule III substance. Only its state legality and license matters. For more information on the tax implications of this final rule, please read Vince Sliwoski’s blog post last week.
Q: What is the likelihood of opponents’ litigation prevailing?
This question should be the first one operators ask , but surprisingly, it rarely is. If SAM, or anyone else challenging this rescheduling order prevails, all of this will be for naught. As noted above, there are substantial legal questions as to whether DEA exceeded its authority in issuing this order. I believe there is greater than a 50% chance that this order is stayed and ultimately overturned. It is not 100% certain, however, which is why I recently published a blog post calling DEA registration a “Calculated Risk.” If you already have a medical license and all that is required is $10,000–$15,000 to hire an attorney and apply for registration, you have much better odds than playing Powerball or going to Vegas.
Q: Do international treaty obligations apply to state-licensed operators?
This depends on who you ask. The U.S. has maintained for years that international drug treaty obligations do not apply to state-licensed programs. That position, vocalized by Patt Prugh at the 2024 CND (though the video has since been removed), has not been refuted under this administration. The U.S. position is that the international drug treaties “take a ‘highly respectful’ stance toward member states’ domestic policies,” and much of those obligations apply, subject to each member state’s constitutional limits.
Even with the recent rescheduling order, state-licensed medical operators without DEA registration remain federally illegal and fall outside treaty scope (though this is a heavily contested issue within the international treaty community). In the face of Canada and Uruguay legalizing recreational marijuana, the Netherlands’ coffee shop model, and the Dutch and Swiss scientific adult-use pilot programs, it is difficult to argue that applying the Single Convention’s constitutional limitation to state-legal, non-DEA-registered medical marijuana programs is inappropriate. Under the U.S.’ current position, only those operators that join the federal DEA registration apparatus would be required to comply with U.S. treaty obligations. Whether DEA will take this stance, however, is unknown. Under the rescheduling order’s wording, DEA could certainly apply those obligations to state-legal, but non-DEA-registered, operators. That said, enforcing these obligations would be a nightmare for DEA. Where will the funding and staffing come from?
Q: How does the order affect dual-license operators?
Unevenly. Medical-only states stand to benefit most. Dual-license states, those with both medical and adult-use programs, face a harder path. The DEA application asks directly: “Will your firm be handling or dispensing recreational marijuana?” It would make sense if an honest “yes” results in denial. A fraudulent “no” would likely lead to worse.
There is no way DEA has the staff to personally review all applications, let alone implement the program commenced in the order. As such, it is likely DEA will take two steps to aid in review: (1) launch an initial AI review of all applications; and (2) deny as many applications as possible. Denying an application because the applicant also handles recreational marijuana seems obvious. That said, if you are a dual licensee, I still think it’s worth applying, just in case I am wrong.
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