In a move that would have seemed unthinkable a decade ago, the Trump administration has officially rescheduled state-licensed medical marijuana from Schedule I to Schedule III. Acting Attorney General Todd Blanche signed the order Thursday, delivering on President Trump’s December directive and bypassing the usual Drug Enforcement Administration (DEA) review process via an international treaty provision.
The move is historic and arguably the most significant federal action on marijuana since Congress enacted the Controlled Substances Act (CSA) in 1970. It legitimizes 40 state medical marijuana programs, allows medical marijuana companies to claim federal tax deductions on the same basis as other companies, and eases research barriers. But it does not imply full legalization and leaves a number of unanswered questions for state-licensed marijuana businesses, vendors, investors, patients, and consumers of marijuana products.
The order sidesteps a potentially significant obstacle by including “marijuana in any form covered by a state medical marijuana license.” Normally, a Schedule III designation is reserved for pharmaceutical products that have been approved by the Food and Drug Administration (FDA), and the order does include “FDA-approved drug products containing marijuana.” Since the FDA requires years of testing and typically allows only one potentially active molecule to be tested at a time, restricting FDA approval to only FDA-approved products would have effectively left almost no pathway for the majority of existing products to become legal.
Medical marijuana operators receive equitable tax treatment from the order, which will allow them to deduct ordinary business expenses from their tax liability—a practice denied to businesses “trafficking” in Schedule I substances, even with state authorization.
Research into cannabis and cannabinoids will also become easier, allowing universities and other institutions to study these compounds without risking federal funding. In particular, research can be done with the types of marijuana patients actually consume rather than marijuana provided by the National Institute on Drug Abuse, which testing has revealed to be genetically dissimilar. The order also establishes an expedited process for DEA registration, which is now required for any entity that handles Schedule III substances, including dispensaries.
However, recreational marijuana consumers and businesses gain no relief. Cannabis for non-medical use remains Schedule I, and possession without a state-issued medical authorization remains a federal crime.
Many questions also remain, including how the federal law will treat dispensaries authorized by their state to dispense medical marijuana alongside recreational products. In Washington state, for example, 302 of 460 licensed adult-use marijuana retailers are authorized to sell tax-free cannabis to registered medical marijuana patients. The order provides no guidance on inventory segregation or liability. There is also no clear direction on whether licensees could segregate these lines of business in their tax filings, in which ordinary business expenses are allowable under one group of products but not the other. For instance, would a dual licensee be barred from claiming business deductions when they traffic in any amount of recreational marijuana?
The legality of medical marijuana products and their possession also remains ambiguous. For Schedule III drugs, like ketamine, federal law requires a DEA-registered practitioner’s prescription for legal possession. But there is no FDA-approved medical marijuana flower, edible, or vape cartridge. The order legalizes sale by state-licensed dispensaries but creates no explicit federal immunity for possession by patients. A patient with a state card may be tolerated, but not legally protected.
Another uncertainty is the degree to which financial institutions will cooperate with the new rules. Moving medical marijuana to Schedule III removes some legal risks and significant compliance costs for banks and insurers who might work with state marijuana licensees. But federal regulators, like the Treasury Department and the Federal Reserve, have not yet issued guidance. Until they do, many financial institutions may choose to stay on the sidelines, leaving operators undercapitalized and reliant on cash-based transactions.
How the order will affect interstate commerce is perhaps the most significant uncertainty the order creates. Because medical marijuana is now federally authorized, state laws banning the import or export of such products will likely be deemed unconstitutional under the dormant Commerce Clause. We have argued that these laws were already unconstitutional because only Congress can regulate trade between the states. Federal illegality of the underlying products made this otherwise straightforward conclusion murky, but now that medical marijuana is federally legal, state laws interfering in interstate commerce are unambiguously unconstitutional. A dispensary in Oregon can now argue that it has the right to ship to a registered patient in California, just as a cultivator or manufacturer can argue it can ship to a licensed retailer in a different state. Such claims will likely force federal courts to strike down existing state laws banning interstate commerce in these products.
This is a historic shift—there is no question. It’s the end of the era where marijuana is deemed more dangerous than cocaine, and it’s a big win for patients and businesses. The order goes as far as it can within the bounds of the CSA and international treaties, but will surely leave recreational consumers disappointed. Going further will require a full rescheduling hearing, which the order also sets in motion to be concluded by July 15. If that hearing doesn’t result in broader rescheduling or descheduling, such a move may require an act of Congress. However, Congressional marijuana reform has proven elusive, regardless of which political party is in power.