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On April 23, 2026, the Department of Justice (“DOJ”) and Drug Enforcement Administration (“DEA”) announced a final order that will reschedule certain “marihuana” (today generally referred to as “cannabis”) products from Schedule I of the Controlled Substances Act (“CSA”) to Schedule III. This action follows President Donald Trump’s December 18, 2025 Executive Order directing the DOJ to expedite its rulemaking process for rescheduling cannabis. [To learn more about that Executive Order, see Lewis Brisbois' Client Alert, “President Trump Issues Order on Cannabis Rescheduling.”]
This action is the most significant change in federal cannabis policy since the passage of the CSA itself in the 1970s. This Client Alert examines the action and what may come next.
Background of Federal Cannabis Laws
The CSA, passed in the early 1970s, places controlled substances into one of five schedules – Schedule I being the most regulated and Schedule V being the least. Schedule I contains substances such as heroin that have no accepted medical use and a high potential for abuse. Drugs that are on Schedules II through V may generally be prescribed by physicians.
Despite cannabis’s status as a Schedule I substance, over the past 30 years, numerous states passed laws to decriminalize or even regulate its consumption, either for medical purposes or for medical and recreational purposes. Today, most states have some form of regulated cannabis program, all of which conflict with federal law.
Former President Joe Biden initiated the reform process during his presidency, and his Department of Health and Human Services issued a recommendation that DEA move cannabis to Schedule III (alongside ketamine, steroids, and other substances). And in December 2025, President Trump issued the Executive Order mentioned above, directing the DOJ to expedite the process.
The Government’s New Action
The government’s April 2026 action amends existing federal regulations adopted under the CSA. Some of the relevant highlights are:
- The regulation reschedules Food and Drug Administration (“FDA”)- approved drugs containing cannabis.
- It also reschedules marijuana products that are subject to a state license. The term “state medical marijuana license” is defined as a license issued by a state or territory that authorize cannabis activity “for medical purposes.”
- DEA will be required to adopt an expedited review process for state medical marijuana licensees to register with DEA for one or more registrations. The types of registrations that will be available are (a) marijuana manufacturer, (b) distributor, and (c) dispenser.
- The rule explicitly states that registrations do not authorize cannabis activity “for non-medical purpose.”
Tax Ramifications
Cannabis businesses today are subject to Section 280E of the Internal Revenue Code, which generally prohibits making tax deductions for trafficking in Schedule I or II drugs. For cannabis products that are rescheduled, Section 280E will no longer apply. This is a massive sea change for cannabis businesses, which are subject to extremely high tax rates.
While this change will likely only be prospective, the final order notes that “The Administrator encourages the Secretary of the Treasury to consider providing retrospective relief from Section 280E liability for taxable years in which a state licensee operated under a state medical marijuana license.” Whether the Internal Revenue Service considers tax refunds remains to be seen.
Unanswered Questions Remain
The federal government’s action is clearly intended only to apply to medical cannabis. In many states, including California, licensees often operate with both medical and recreational licenses with very little (if any) distinction. It is not yet clear how those licensees will be able to take advantage of these changes in federal law. Federal and state governments are likely to provide guidance in the coming weeks, but implementing these changes may be difficult in practice for these hybrid licensees.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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