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On Thursday, December 18, President Trump issued an executive order directing the U.S. Attorney General to reclassify marijuana and associated hemp‑derived products from Schedule I to Schedule III “in the most expeditious manner in accordance” with the Controlled Substances Act and other federal law. This shift, when completed, will represent a significant development for the legal cannabis industry nationwide. Businesses operating in this sector will benefit from consulting experienced legal counsel to ensure compliance with relevant federal and state regulations while preparing to take advantage of opportunities created by the new classification.

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The Controlled Substances Act categorizes drugs and chemical compounds into five schedules based on accepted medical use and potential for abuse. Schedule V includes substances with the lowest risk of addiction and recognized medical uses. Schedule I, by contrast, is reserved for substances with a high potential for abuse and no accepted medical use. Because scheduling authority rests with the U.S. Department of Justice, the President retains substantial discretion to direct rescheduling actions.

For more than fifty years, marijuana has been grouped alongside Schedule I substances such as heroin and certain methamphetamines. During that time, there has been growing recognition that marijuana does not fit squarely within this category. Both the expansion of medical marijuana programs and widespread legalization of recreational cannabis at the state level reflect consensus that marijuana’s risks, such as addiction potential or severe health complications, are significantly lower than those of other Schedule I drugs. Likewise, the medical community has increasingly acknowledged potential therapeutic benefits.

The decision to reclassify marijuana constitutes one of the most consequential federal actions affecting the cannabis industry since issuance of the Cole Memoranda, which directed federal authorities to deprioritize enforcement of federal marijuana prohibitions in states with their own legal frameworks. Although this enforcement posture enabled the rapid growth of state‑regulated cannabis markets, the industry has nevertheless continued to operate under the shadow of an unchanged federal prohibition.

The exact timeline for reclassification remains an open question. The executive order directs the Attorney General to issue a Final Rule for reclassification, but the exact pathway is unclear. The Department of Justice could use a “Treaty Rule” reclassification, where the DOJ considers rescheduling necessary to comply with an international treaty obligation. Otherwise, reclassification outside the treaty process would proceed under 21 U.S.C. § 811, which requires notice‑and‑comment periods, administrative review, and issuance of a final order. This process, even at its most streamlined, will take over a month and potentially far longer. Significant litigation risk exists for both pathways, which could further delay a final order.

Any issuance of a Final Rule rescheduling marijuana will meet legal challenges, including through advocacy groups. This could delay the rescheduling process or prevent it entirely. The risks of backtracking on the rescheduling process increases the risk for capital markets and banking services to enter the industry. Rescheduling does not automatically end the federal-state marijuana gap, and key monetary services understand that risks persist in the industry.

The federal-state marijuana gap has imposed substantial burdens on cannabis businesses. The exact impacts of reclassification on the cannabis industry will develop over time and depend on both the process and nature of the final order, such as:

Section 280E Relief: Rescheduling will remove the tax burden of Section 280E if regulated businesses follow certain procedures, including valid prescriptions, limited refills, and registration with the DEA. Failure to comply may expose industry participants to significant risk, and the current cannabis businesses will need to make changes to comply with new federal regulations.

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Expanded Medical Research: Reclassification acknowledges marijuana’s current and potential medical uses, allowing increased research and development in the medical marijuana sector, with potential downstream impacts on recreational markets. As we <a href="https://www.michaelbest.com/Newsroom/343322/What-Does-Schedule-III-Mean-for-Me" target="_blank" rel="noreferrer noopener">wrote</a> previously, this likely means more competition from large pharmaceutical players at some point in the future.

Access to Capital and Banking: The industry will likely see some improvement in access to capital markets and banking services. Still, rescheduling alone does not guarantee broad lender participation, and many institutions may remain cautious. Risks remain, which means the exact rescheduling process will impact potential access to these markets.

Marijuana Gap in Federal and State Laws: New federal rules accompanying rescheduling may impose additional obligations and restrictions on the cannabis and hemp industries. These may conflict with or impose competing obligations alongside state laws. Businesses will need trusted legal partners to ensure that cannabis business processes, recordkeeping, reporting, and security protocols comply with local, state, and federal law.

Even with rescheduling, the current medical marijuana market will not be compliant with the Controlled Substance Act. The CSA requires FDA clearance of any cannabis-based medications. These drugs will need to undergo the New Drug Application process, and any approvals will likely be for standardized cannabinoid medications instead of botanical cannabis. The medical marijuana industry will continue to be non-complaint with federal law in 2026.

The intoxicating hemp market will also see significant changes in 2026 due to the rescheduling of marijuana and recent amendments to the federal hemp definition in the 2026 Fiscal Year Agriculture Appropriations Act. While uncertainty remains until the DOJ issues a Final Rule, it is possible, and even likely, that intoxicating hemp will fall within an updated Schedule III definition of marijuana. Businesses within the hemp industry will need to ensure compliance with all state and federal laws and regulations throughout 2026.

While this is a moment of celebration for many cannabis businesses, we encourage cautious optimism and careful planning as these new rules and regulations unfold. Industry participants should remain active in conversations with regulators and the government as the hemp and cannabis industries transition to a new and uncertain regulatory environment. As always, our team of qualified and experienced legal advisors will be here to help businesses navigate compliance obligations, leverage the benefits, and avoid the pitfalls, of Schedule III classification.

If you have any questions or would like to discuss this topic further, please feel free to reach out to your Michael Best and Friedrich, LLP contact.

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Federal Cannabis Rescheduling Update

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