Understanding the Process Ahead and the Benefits for Industry, Research, and Patients
The United States Department of Justice (DOJ) and the Drug Enforcement Administration (DEA) announced a landmark order on April 23, 2026 immediately placing both FDA-approved products containing marijuana and marijuana products regulated by a qualifying state medical marijuana license into Schedule III of the Controlled Substances Act.[1] This action, carried out pursuant to President Trump’s December 18, 2025 Executive Order on Increasing Medical Marijuana and Cannabidiol Research,[2] represents the most significant federal policy shift on cannabis since Congress placed it in Schedule I in 1970.[3] While this announcement is momentous, it is critical that stakeholders understand both the regulatory process that lies ahead and the tangible benefits this reclassification will deliver to patients, researchers, and the cannabis industry.[4]
From Schedule I to Schedule III: A Long Road
For over five decades, marijuana occupied the most restrictive tier of the Controlled Substances Act alongside heroin and LSD, substances deemed to have no accepted medical use and a high potential for abuse.[5] This classification persisted despite growing scientific evidence of therapeutic value and the legalization of medical cannabis in most states. The journey toward rescheduling gained formal momentum in October 2022, when President Biden directed the Department of Health and Human Services (HHS) and the DEA to review marijuana’s scheduling. In August 2023, HHS concluded its scientific review and recommended rescheduling to Schedule III.[6] The DEA followed with a proposed rule in May 2024, but the rulemaking process stalled amid extensive public comment that included more than 42,000 submissions and administrative hearings that were ultimately postponed.[7]
President Trump’s December 2025 Executive Order broke the logjam, directing the Attorney General to expedite and complete the rescheduling process.[8] This new announcement delivers on that mandate in two significant ways: an immediate order reclassifying state-regulated medical marijuana and FDA-approved cannabis products to Schedule III, and the initiation of an expedited administrative hearing to consider the broader, permanent rescheduling of all marijuana.[9]
The Regulatory Process Ahead
This new order is not the final chapter. To achieve permanent, comprehensive rescheduling, the federal government must complete a formal rulemaking process under the Administrative Procedure Act. The DOJ has withdrawn the prior administration’s notice of hearing and terminated those proceedings in favor of a more streamlined approach.[10] A new administrative hearing is set to begin on June 29, 2026, during which the DEA will evaluate testimony and evidence regarding the broader transfer of marijuana from Schedule I to Schedule III.[11]
Following the hearing, the Administrative Law Judge will issue recommended findings of fact and conclusions of law. The DEA Administrator will then issue a final rule, which must be published in the Federal Register. As the Congressional Research Service has noted, the agency could finalize the May 2024 proposed rule or issue new rulemaking based on the hearing record.[12] Interested parties may seek judicial review of any final rule in the federal courts of appeals, which means that legal challenges could extend the timeline. Throughout this process, stakeholders should monitor the Federal Register closely for procedural updates and deadlines for participation.
It is equally important to understand what this rescheduling does not accomplish. Moving marijuana to Schedule III does not legalize recreational use at the federal level, does not release individuals currently incarcerated on federal marijuana charges, and does not preempt state laws governing medical or adult-use cannabis.[13] Prescription drugs under Schedule III must still receive FDA approval, and marijuana itself has not yet been approved by the FDA as a drug, meaning that existing state medical marijuana programs will continue to operate under their own regulatory frameworks pending further federal action.
The Benefits of Schedule III Classification
Tax Relief Under Section 280E. Perhaps the most immediate and consequential benefit for the cannabis industry is the elimination of Internal Revenue Code Section 280E’s punitive tax treatment. Section 280E prohibits businesses “trafficking” in Schedule I or II controlled substances from deducting ordinary and necessary business expenses, forcing cannabis operators to pay taxes on gross income rather than net income, often resulting in effective tax rates of 70 percent or higher.[14] Once marijuana moves to Schedule III, this prohibition falls away, enabling cannabis businesses to deduct payroll, rent, marketing, and other standard operating expenses for the first time.[15] This shift is expected to dramatically improve cash flow and profitability across the sector.[16] Businesses will also gain access to research-and-development tax credits and other deductions previously unavailable to them.[17]
Expanded Medical Research. Schedule I classification has long imposed severe barriers on researchers seeking to study cannabis’s therapeutic potential. Scientists faced restrictive DEA registration requirements, limited supply access, and cumbersome approval processes. Schedule III status significantly reduces these regulatory hurdles, allowing for broader clinical trials and improved access to research funding.[18] This is particularly significant for research into cannabis-based treatments for chronic pain, PTSD, epilepsy, and cancer-related symptoms—conditions for which preliminary evidence has shown promise, but where rigorous, large-scale studies have been difficult to conduct.[19]
Financial Services Access. The Schedule I classification has historically deterred banks, payment processors, and insurers from serving the cannabis industry. While rescheduling alone does not fully resolve all banking complications, the reclassification to Schedule III is expected to substantially increase the willingness of financial institutions to engage with cannabis businesses. This shift is expected to remove longstanding regulatory and legislative restrictions that have long blocked cannabis businesses from accessing basic financial tools, kept institutional capital on the sidelines, and left operators exposed to the inefficiencies and dangers of a predominantly cash-based industry. Improved banking access translates to safer business operations and greater opportunities for institutional investment.[20]
Industry Stability and Growth. Beyond tax and banking benefits, Schedule III classification provides a foundation for long-term industry stability. Improved financial health will allow operators to reinvest in product quality, workforce development, and compliance infrastructure. The enhanced legitimacy conferred by federal recognition of cannabis’s medical utility may also attract new capital investment and encourage more consistent regulatory standards across states.[21]
Looking Forward
This announcement represents a genuine inflection point for cannabis law and policy in the United States. The immediate reclassification of state-regulated medical marijuana and FDA-approved cannabis products to Schedule III delivers concrete, near-term relief, while the expedited hearing process set for June 2026 indicates a path toward permanent, comprehensive rescheduling. For industry participants, patients, researchers, and legal practitioners, the months ahead will require careful attention to the evolving regulatory landscape. The rescheduling of cannabis to Schedule III is not the finish line. It is the beginning of a more rational, evidence-based federal framework that has been decades in the making.
How Frier Levitt Can Help
The authors of this article are also the authors of the recently published Legal Guide to the Business of Cannabis and Hemp (PLI Press, 2025) and can provide advisory support to companies in the cannabis and hemp sectors. Frier Levitt will continue to closely monitor federal and state developments impacting the cannabis and hemp industries, including rescheduling, tax implications, regulatory enforcement, and access to medical and hemp-derived products. As the legal and regulatory landscape evolves, our attorneys remain focused on helping operators, investors, medical cannabis providers, and ancillary businesses navigate risk, compliance, and strategic planning. For questions regarding how rescheduling or related federal actions may affect your cannabis business, please contact a member of Frier Levitt’s Cannabis, Hemp, and Life Sciences team.
[1]U.S. Dep’t of Justice, Office of Public Affairs, “Justice Department Places FDA-Approved Marijuana Products and Products Containing Marijuana Subject to a Qualifying State-issued License in Schedule III, Strengthening Medical Research While Maintaining Strict Federal Controls” (Apr. 23, 2026), available at https://www.justice.gov/opa/pr/justice-department-places-fda-approved-marijuana-products-and-products-containing-marijuana.
[2]Exec. Order, “Increasing Medical Marijuana and Cannabidiol Research” (Dec. 18, 2025).
[3]21 U.S.C. § 812 (Controlled Substances Act, Schedules of Controlled Substances).
[4]The Washington Post, “Trump Officials Reclassify Medical Marijuana as Schedule III Drug” (Apr. 23, 2026), available at https://www.washingtonpost.com/politics/2026/04/22/trump-marijuana-rescheduling/.
[5] Moritz College of Law, Drug Enforcement and Policy Center, “Federal Marijuana Rescheduling” (updated Apr. 2026), available at https://moritzlaw.osu.edu/faculty-and-research/drug-enforcement-and-policy-center.
[6]Moritz College of Law, Drug Enforcement and Policy Center, “Federal Marijuana Rescheduling” (updated Apr. 2026), available at https://moritzlaw.osu.edu/faculty-and-research/drug-enforcement-and-policy-center.
[7]DEA Notice of Proposed Rulemaking, 89 Fed. Reg. 44597 (May 21, 2024); DEA Notice of Hearing, 89 Fed. Reg. 70088 (Aug. 29, 2024).
[8]See supra note 2.
[9]See supra note 1.
[10]See supra note 1.
[11]See supra note 1.
[12]Congressional Research Service, “Legal Consequences of Rescheduling Marijuana” (LSB11105, updated Dec. 22, 2025), available at https://www.congress.gov/crs-product/LSB11105.
[13]See supra note 11.
[14]26 U.S.C. § 280E; Congressional Research Service, “The Application of Internal Revenue Code Section 280E to Marijuana Businesses: Selected Legal Issues” (R46709, updated Feb. 6, 2026).
[15]Marijuana Policy Project, “What is 280E?” available at https://www.mpp.org/policy/federal/what-is-280e/.
[16]Ferrari, G.F. and Asebey, E.J., “The Rescheduling of Cannabis: Government Scientists Speak – Will DEA Listen?”, The Health Lawyer, American Bar Association (Feb. 28, 2024).
[17]Ibid.
[18]Medical Marijuana and Cannabidiol Research Expansion Act, Pub. L. No. 117-215, 136 Stat. 2257 (2022).
[19]CNBC, “Trump Administration Moves to Reclassify Cannabis in Major Shift That Could Expand Research” (Apr. 23, 2026), available at https://www.cnbc.com/2026/04/23/trump-administration-reclassifies-cannabis.html.
[20]The Philadelphia Inquirer, “Marijuana Reclassified as a Schedule III Drug by Trump’s Acting Attorney General” (Apr. 22, 2026), available at https://www.inquirer.com/business/weed/marijuana-schedule-3-substance-regulation-trump-20260422.html.
[21]Pillsbury Winthrop Shaw Pittman LLP, “The Times, They Are a-Changin’: Maximizing Tax Benefits from Cannabis Rescheduling,” available at https://www.pillsburylaw.com/en/news-and-insights/maximizing-tax-benefits-cannabis-rescheduling.html.
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