AFTER PRESIDENT Trump announced that he’d orderded the Department of Justice to explore rescheduling marijuana, the ball has started to roll.
Acting U.S. Attorney General Todd Blanche in April signed an order immediately moving state-licensed medical marijuana products, along with cannabis-based drugs approved by the
Food and Drug Administration, to Schedule III from Schedule I. A second phase begins June 29, when the federal government will hold expedited administrative hearings to consider broader rescheduling of all cannabis, including adult-use marijuana.
State-licensed medical cannabis firms are expected to gain relief from Section 280E of the Internal Revenue Code, even retroactively to the first quarter, pending guidance from the Treasury Department and IRS. Treasury is also considering whether to allow tax relief for prior years.
The administration has also indicated that medical cannabis operators serving both medical and recreational markets may be able to allocate expenses between the two sides of their business, potentially allowing partial tax deductions even if they also sell adult-use products.
Challenges still exist
Until the June-July hearing process concludes and additional federal rulemaking is finalized, recreational marijuana remains a Schedule I substance under federal law. That means sales are still subject to 280E restrictions and remain federally illegal despite legalization in many states.
But while the rescheduling effort is being celebrated across much of the industry, it has also created a major legal and regulatory conundrum.
Under federal law, Schedule III substances are considered to have accepted medical uses.
However, under the federal Food, Drug and Cosmetics Act, Schedule III drugs generally can only be sold through FDA-approved prescription channels and by DEA-registered entities.
That means state-licensed medical cannabis operators are not automatically compliant with broader federal law simply because their products are now considered Schedule III substances.
According to a recent Congressional Research Service analysis, medical cannabis businesses will still need to register with the DEA to legally manufacture, distribute or dispense marijuana under the new framework.
Even then, the products would still technically remain unapproved drugs under FDA rules unless they undergo the federal drug approval process.
Blanche’s order emphasized that federal regulators want to avoid disrupting established state medical cannabis systems and instead pursue what DOJ called a “cooperative federalism” approach.
In anticipation of this order, California recently streamlined the process for cannabis firms to add or convert to medical marijuana license designations, potentially positioning operators to qualify for future federal tax relief.
The takeaway
The federal landscape is finally shifting, but the cannabis industry is entering a transitional phase filled with both opportunity and uncertainty.
Tax relief may be coming for medical operators, but broader legalization for adult- use operators, interstate commerce and full rescheduling remain unresolved.