Rescheduling: The 30,000-Foot View
Cannabis has been classified as a Schedule I drug since the creation of the modern scheduling system with the passage of the Controlled Substances Act of 1970 (CSA). Scheduling categorizes controlled substances into classifications depending on their medical use and likelihood for abuse. Schedule I is the most restrictive, reserved for those substances determined to have a high potential for abuse and that possess no currently accepted medical use. Cannabis has been federally illegal since then.
However, as states began to legalize cannabis for both medical and recreational use, there has been a push to reexamine cannabis’s classification as a Schedule I drug. In October 2022, President Biden directed the Secretary of Health and Human Services (HHS) and the Attorney General to begin the administrative process to review the scheduling of cannabis, and following its review, Health and Human Services recommended moving cannabis from Schedule I to the less restrictive Schedule III. The Department of Justice (DOJ) issued a proposed rule in May 2024 to reschedule cannabis to Schedule III; however, no further action was taken until December 2025. At that time, President Trump signed an Executive Order instructing the Attorney General to “take all necessary steps to complete the rulemaking process related to rescheduling marijuana to Schedule III of the CSA in the most expeditious manner in accordance with Federal law.”
On April 26, 2026, the Department of Justice then issued a final order that immediately moved some cannabis to Schedule III: drug products that contain cannabis that have been approved by the Food and Drug Administration or products that are regulated by state-run medical cannabis programs. Recreational cannabis programs in the states were not included in this order, and the order does not legalize cannabis.
Rescheduling: In the Weeds
While the DOJ order rescheduling medical cannabis is an important milestone in cannabis policy, there are still many issues that need to be considered in the wake of this action.
Increased Federal Oversight
One of the most significant consequences of moving medical cannabis to Schedule III is federal registration. For years, state cannabis businesses have operated in a legal gray zone: state licenses allowed them to cultivate, process, or dispense cannabis under state law, while federal law continued to treat those same activities as unlawful. The result was that cannabis businesses have often been financially constrained and unable to take the same basic tax deductions (such as payroll, rent, or marketing) that other businesses could, since Section 280E of the federal government tax code prohibits businesses that sell Schedule I or II controlled substances from deducting standard business expenses from their income. Further guidance from the US Treasury on the federal tax consequences of rescheduling, and specifically how that change impacts 280E, is expected to be forthcoming.
Cannabis businesses have also often had difficulty accessing services from financial institutions that were fearful of running afoul of federal law. The Schedule III shift begins to change that framework for qualifying medical cannabis businesses. Any potential increased financial benefits that are associated with Schedule III also means potential increased oversight of their business by the federal government.
Under the federal Controlled Substances Act, entities that manufacture, distribute, dispense, or conduct research involving Schedule III substances generally must register with the federal government. The DOJ has created a portal for medical cannabis dispensaries to register; businesses that register by June 26 will be eligible for an expedited review that is supposed to be completed within six months. In addition to answering questions about liability, activity, and business operations, applicants must pay an annual non-refundable fee of $794. Registration for cannabis businesses in the manufacturing, distribution, and testing sector will be rolling out soon.
Schedule III status carries detailed federal compliance obligations, including security requirements, inventory controls, record retention rules, reporting obligations, and the possibility of federal inspections. Businesses that have spent years complying with state seed-to-sale systems may now have to determine how those state tracking requirements interact with federal recordkeeping rules. In some cases, they may overlap. In others, they may conflict or create duplicative administrative burdens. At this point in time, specific details about federal control measures are minimal, though the DOJ’s final order did mention the federal government’s authority to potentially limit the growing of cannabis plants to what is required for legitimate scientific and medical needs.
Recreational cannabis programs in the states were not included in [the DOJ] order, and the order does not legalize cannabis.
For smaller operators, this could become especially challenging. Large multistate operators are more likely to have in-house compliance departments, counsel, and capital reserves to absorb new administrative costs. Independent dispensaries and smaller medical cultivators may not. Application fees, compliance upgrades, legal review, and ongoing reporting costs could become meaningful barriers to entry or barriers to staying in the federally recognized medical market.
The federal government has yet to weigh in on the consequences, if any, for cannabis businesses that do not register. States could, however, also implement policies that would require federal registration. Oklahoma recently sent a letter to medical cannabis businesses licensed in the state encouraging registration and threatening sanctions, including possible revocation of their state license, for failure to comply. Other states could enact similar policies, which would limit the options for cannabis businesses.
While federal registration could provide significant financial advantages for businesses, it also means stepping into a much more formal federal compliance relationship, one with clearer rules, but also clearer enforcement authority. Cannabis businesses may weigh their options to see what makes the most sense for them.
The Fate of Medical and Recreational Hybrid Businesses
The rescheduling of medical cannabis is potentially more complex in states where both medical and recreational cannabis have been legalized. Many dispensaries in these states are licensed to sell both forms of cannabis; in states like Arizona, New Jersey, and Rhode Island, medical cannabis dispensaries were the first to enter the recreational cannabis market. Cultivators and manufacturers often sell to both medical and recreational markets. However, recreational cannabis is not included in the rescheduling order and remains a Schedule I drug. This creates a dichotomy for businesses that are in both the medical and recreational cannabis markets, where one part of their business has access to federal tax benefits that the other side does not. That means the practical challenge is no longer simply running one cannabis business; it is proving, through careful accounting and internal controls, which revenues, expenses, and inventory belong to the medical side, and which belong to the recreational side.
The licensing overlap also creates broader compliance complications. Businesses that cultivate, process, or sell products into both medical and recreational markets may need to rethink supply chains, recordkeeping, packaging, and inventory tracking so that cannabis designated for medical sale can be clearly distinguished from cannabis sold in the recreational market. Dual-license businesses may find themselves operating under two federal risk profiles inside the same company: one business line potentially benefiting from a more favorable federal posture, and another still exposed to the legal and financial burdens that have long defined the cannabis industry. That tension is likely to make business operations more complicated in the near term.
This creates a dichotomy for businesses that are in both the medical and recreational cannabis markets, where one part of their business has access to federal tax benefits that the other side does not.
Declining Medical Cannabis Enrollment in Some States
One of the federal government’s stated factors behind the decision to reschedule cannabis is to “serve the Americans who report health benefits from the medical use of marijuana to ease chronic pain and other various medically recognized ailments.” However, this may not help as many patients as expected. While enrollment in medical cannabis programs has increased overall, as more states have legalized medical cannabis, enrollment in state-approved medical cannabis programs in those states where both medical and recreational cannabis have been legalized has been decreasing over time.
While there are advantages to enrolling in a state’s medical cannabis program for patients—such as exemption from or lower excise taxes when purchasing products, higher potency and purchasing limits for medical cannabis patients, and additional anti-discrimination protections for employment, housing, and parental rights—there are also administrative hurdles associated with enrollment. To obtain a medical cannabis card, patients must go through their state’s enrollment process, which often includes obtaining certification from a doctor attesting to a qualifying medical condition and filling out state application forms. Some states also require fees to obtain a medical cannabis card that can run up to $150. Medical cannabis cards must also be renewed every few years, creating recurring costs and paperwork obligations. Some people who would qualify for a medical cannabis card may also have privacy concerns or potential employment restrictions that would make formally registering with the state unattractive. For some consumers, the administrative and financial burdens associated with medical cannabis programs may therefore outweigh the potential benefits of becoming a registered patient when recreational cannabis is still available, depressing medical cannabis enrollment in some states.
The more direct impacts of rescheduling on medical cannabis patients appear somewhat limited, pending any significant changes in federal and/or state regulations post-rescheduling. However, if rescheduling resulted in health insurance coverage for medical cannabis or dispensaries passed along savings from reduced federal tax burdens in the form of lower prices, that may be enough to lure more people into state medical cannabis programs in states where the recreational market is also an option. Increased clinical research resulting from rescheduling could also improve physician oversight and patient confidence in medical cannabis treatment, potentially attracting patients seeking more structured healthcare-based use than the recreational market provides.
Challenges to Rescheduling
The organizations Smart Approaches to Marijuana (SAM) and National Drug and the Alcohol Screening Association (NDASA) have filed a lawsuit challenging the DOJ’s rescheduling of medical cannabis, arguing that the final order “violates the rulemaking requirements of the Administrative Procedure Act, 5 U.S.C. §§ 551 to 559, and section 201 of the CSA, 21 U.S.C. § 811, exceeds the statutory authority of the Attorney General under the CSA, and is otherwise arbitrary and capricious and not in accordance with law.” If successful, the lawsuit could reverse the rescheduling order, returning medical cannabis to Schedule I.
Additionally, the US House of Representatives Subcommittee on Commerce, Justice, Science and Related Agencies advanced a federal fiscal year 2027 spending bill that would block the DOJ from using its funds to reschedule cannabis or deschedule it (i.e., remove it from the controlled substances list altogether). The language was subsequently approved by the full House Appropriations Committee and will now proceed to the full House floor for debate, amendment, and a final vote. Similar language was included by the committee in the federal fiscal year 2026 funding bill, but it was ultimately removed before final passage.
What about Recreational Cannabis?
Though recreational cannabis is not included in the current DOJ final order, the effort to reschedule all cannabis has not been abandoned. The Drug Enforcement Administration (DEA) will hold a hearing on June 29, 2026, on the proposed rescheduling of cannabis (not just medical cannabis) to Schedule III. The stated purpose of the hearing is to “receive factual evidence and expert opinion” on moving cannabis to Schedule III. Interested parties, defined as “any person adversely affected or aggrieved by rule or proposed rule issuable,” can submit written notice of the desire to participate in the hearings, which will be reviewed by the DEA to determine who will be selected to provide testimony in the hearing.
This is not the first time that this process has been initiated to consider cannabis rescheduling; in 2024, the DEA similarly announced a hearing and invited interested parties to submit their desire to testify. However, that hearing was ultimately withdrawn after complaints were made about who was (and was not) selected by the DEA in the hearing, with allegations of bias, resulting in a lawsuit. The 2026 hearing essentially restarts the process, terminating the rulemaking process that commenced in 2024. A new hearing is expected to wrap up no later than July 15, 2026.
Depending on the outcome of the hearing and the final decision-making of the DEA and DOJ, cannabis could be fully rescheduled without any distinction between cannabis for medical or recreational purposes. As part of the rescheduling process, however, how to address the fact that Schedule III drugs normally require a prescription would need to be resolved. When rescheduling medical cannabis, state-issued medical cannabis cards were used as a replacement for prescriptions, as they are issued after consultation with a medical professional. Recreational cannabis does not currently have that same proxy for prescriptions, which would need to be resolved. Full rescheduling could alleviate some of the tensions discussed above for states that have legalized both medical and recreational cannabis, though moving all cannabis to Schedule 3 would still not legalize cannabis at the federal level. Rescheduling of all cannabis would not end policy discussions but would reframe the parameters of those conversations.
Conclusion
The recent rescheduling order issued by the Department of Justice is an important landmark in cannabis policy, but it creates a new set of policy considerations. The policy discussion is more complicated in states that have legalized both recreational and medical cannabis, as a greater divide has been created, perhaps temporarily, regarding federal status within the industry. The move to Schedule III may open the door to greater legitimacy and benefits for medical cannabis businesses, but increased federal oversight may be the price of entry. Policymakers and cannabis entrepreneurs will have to adjust to the changing regulatory landscape. The Rockefeller Institute will continue to monitor these developments.
ABOUT THE AUTHOR(S)
Heather Trela is director of operations and fellow at the Rockefeller Institute of Government