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On April 23, 2026, the U.S. Department of Justice (DOJ) and Drug Enforcement Administration (DEA) issued a landmark order&nbsp;immediately rescheduling certain cannabis products from Schedule I to Schedule III under the Controlled Substances Act (CSA). This marks the most significant change in federal cannabis policy in decades.

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Effective immediately, FDA‑approved cannabis products and cannabis held under a qualifying state medical marijuana license are now Schedule III substances.

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Adult‑use/recreational cannabis products remain on Schedule I.

The DOJ and DEA announced the launch of an expedited administrative process to consider broader rescheduling of marijuana in the coming months.

Internal Revenue Code §280E no longer applies to state‑licensed medical cannabis operations covered by the order.

Federal criminal law still applies, and this is not federal cannabis legalization.

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Acting Attorney General Todd Blanche issued a final order that moves&nbsp;(1) FDA‑approved marijuana drug products&nbsp;and (2) marijuana produced, distributed, or dispensed under a qualifying state medical marijuana license from Schedule I to Schedule III&nbsp;of the CSA, effective immediately.

The DOJ relied on its treaty‑obligation authority under the CSA to implement the change without traditional notice‑and‑comment rulemaking.

Recreational/adult‑use cannabis remains a Schedule I substance.

Cannabis is still illegal under federal law outside the limited scope of the order.

Interstate commerce in cannabis remains prohibited.

Banking, securities, immigration, and federal contracting risks remain largely unchanged.

Practical Impacts for Operators &amp; Investors

State‑licensed medical cannabis businesses that fall within the order are no longer subject to the punitive tax treatment under IRC §280E, unlocking ordinary business deductions for federal tax purposes.

Covered operators will need to obtain DEA registrations to manufacture, distribute, or dispense Schedule III cannabis. The DOJ has instructed the DEA to create a streamlined registration pathway for existing state‑licensed medical operators.

Companies operating both medical and adult‑use lines should expect a split federal treatment—Schedule III compliance on the medical side, Schedule I risk remaining on the adult‑use side.

The removal of 280E for medical operations is expected to materially impact valuations, deal structures, and diligence considerations—particularly for vertically integrated operators and MSOs with medical footprints.

The DEA will begin a new, expedited administrative hearing process in late June 2026 to consider whether marijuana more broadly should be moved to Schedule III.

Litigation challenging the order is likely.

Additional federal guidance is expected on:

Evaluate eligibility. Confirm whether current operations qualify as “state‑licensed medical marijuana” under the order.

Coordinate with tax advisors regarding immediate and retroactive §280E implications.

Prepare for DEA registration and enhanced federal compliance obligations.

Segregate medical and adult‑use operations where applicable to manage risk.

Revisit transaction documents, valuations, and diligence assumptions.

If you have questions about how this change affects your business, investments, or upcoming transactions, or if you would like assistance assessing eligibility or planning next steps, please contact our Michael Best cannabis team.

For discussion purposes only; this is not intended and should not be taken as legal advice.

Close-up of green cannabis leaves against a soft, blurred background.

Close-up of green cannabis leaves with soft natural light and a blurred yellow background.

Schedule III Status for Medical Cannabis: Federal Update and Legal Considerations

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