In April 2026, the U.S. Department of Justice (DOJ) and Drug Enforcement Administration (DEA) announced a significant shift in federal cannabis policy. Effective immediately, the following categories of marijuana have been rescheduled from Schedule I to Schedule III under the Controlled Substances Act (CSA): (i) U.S. Food and Drug Administration (FDA)-approved drug products that contain marijuana; and (ii) marijuana in any form covered by a state medical marijuana license. 

Entities dealing in Schedule III substances must generally register with DEA and dispense those substances only pursuant to a prescription. The new rule, however, creates for the first time a federal registration pathway and potential tax relief for many state-licensed medical marijuana operators, while leaving state-legal recreational marijuana subject to Schedule I restrictions under federal law.

New Registration Pathways for State-Licensed Medical Marijuana Operators

Under the new DEA rule, state-licensed medical marijuana operators may apply to obtain registration as any of the following:

• Manufacturer – Authorizing cultivation, production, processing, packaging, labeling, and transfer of marijuana and marijuana products to registered distributors or other registered manufacturers, subject to the limitations of the underlying state license.
• Distributor – Authorizing receipt of marijuana and marijuana products from registered manufacturers and transfer of marijuana and marijuana products to registered dispensers or other registered distributors, subject to the limitations of the underlying state license.
• Dispenser – Authorizing dispensing of marijuana and marijuana products to individuals authorized by state law to possess marijuana and marijuana products for medical purposes, subject to the limitations of the underlying state license.

A single entity may obtain multiple types of registrations, allowing vertically integrated operations where consistent with state law.

DEA must “make every effort” to process all applications submitted by June 29, 2026, within six months. In addition, any applicant that submits an application by that date may continue to engage in the manufacture, distribution, and/or dispensing of medical marijuana in conformity with a state-issued license while the application is pending.

International Treaty Compliance: Purchase and Sell-Back Framework

Because the United States is a party to the Single Convention on Narcotic Drugs, DEA structured the rule to satisfy treaty obligations, particularly Article 23, which pertains to governmental control over cannabis cultivation. The rule requires all registered manufacturers to establish a nominal price for the purchase of their marijuana crops. DEA must then purchase the entity’s crops at that price and sell the crops back to the entity, or a related or subsidiary entity, at the same price plus an “administrative fee” calculated to approximate the cost to DEA of running the program.

Prescription and Dispensing Framework Under the CSA

Ordinarily, Schedule III substances must be dispensed only pursuant to a prescription issued by an authorized practitioner. Many state medical marijuana programs, however, rely on certifications or other documents rather than traditional prescriptions. Recognizing this, the new rule allows registered, state-licensed dispensers to continue dispensing marijuana to individuals who are allowed under state law to receive medical marijuana. In other words, patients can continue to access state-legal medical marijuana under this regime using the same state-issued medical marijuana cards or comparable documents they used prior to this rule.

Reporting and Recordkeeping Requirements

The rule also indicates that registrants will be subject to reporting and recordkeeping requirements, though DEA has not yet specified all of the details. Instead, DEA emphasizes that it intends to avoid unnecessary duplication and to leverage existing state systems to the extent possible. The agency states that it will require only such reports, records, and order forms as are necessary to comply with federal statutory and treaty obligations, and that it will accept state-required reports, records, and forms “to the maximum extent permissible.” Operators should therefore anticipate ongoing federal oversight while also expecting some ability to rely on their existing state compliance infrastructure.

Potential Federal Tax Relief: Section 280E Implications

One of the most significant consequences of rescheduling for state-licensed medical marijuana operators is the potential relief from Internal Revenue Code § 280E. Section 280E generally disallows federal tax deductions or credits for any amount paid or incurred in carrying on a trade or business if that trade or business consists of trafficking in Schedule I or Schedule II controlled substances. See 26 U.S.C. § 280E.

By moving state-legal medical marijuana into Schedule III, however, the DEA rule removes those activities conducted under a state license from the plain text of § 280E, which is limited to Schedules I and II. Thus, as a consequence of the rule, state licensees may no longer be subject to the deduction disallowance imposed by § 280E, although the devil may be in the details. The rule cautions that “qualifying state licensees should consult with tax counsel regarding the applicability of Section 280E to their specific circumstances,” but for many medical operators, this change has the potential to alter effective tax rates and improve after-tax profitability. Guidance from the Department of the Treasury — which the agency announced is forthcoming — could provide further clarity on the tax implications of this rescheduling.

Future Rulemaking and Upcoming Hearing

Additional rescheduling proceedings are already scheduled. DOJ and DEA have set new hearing proceedings for June 29, 2026, which may address the status of other marijuana-related activities, including some or all recreational marijuana.

At the time of the recent announcement, an earlier rescheduling rulemaking process (which we have previously covered here, here, and here) remained pending at DEA. DOJ and DEA have terminated that proceeding, explaining that, upon further review, the most expeditious way to complete the rulemaking process is to terminate the pending hearing and initiate new proceedings. Interested persons who wish to participate in the new hearing must provide written notice of their desired participation on or before May 28, 2026.

Why It Matters

For state-licensed medical marijuana operators, the new rule represents both an opportunity and a new set of obligations. It brings a measure of federal legitimacy to medical operations by offering a direct pathway to DEA registration as manufacturers, distributors, and dispensers of a Schedule III substance. It also holds out the prospect of eliminating § 280E’s disallowance of deductions and credits for qualifying medical activities, which could materially enhance the financial viability of many businesses. As noted in a recent Congressional Research Service Legal Sidebar, however, the rule’s pathway to compliance with the CSA does not address compliance with other aspects of applicable federal law — such as the Federal Food, Drug, and Cosmetic Act.

At the same time, registration under the CSA is likely to bring increased federal scrutiny for state-licensed medical marijuana operators. For the many businesses that operate in both medical and adult-use marijuana markets — including under dual-purpose state licenses — the divergence between Schedule III treatment for medical products and continued Schedule I status for recreational marijuana may require careful consideration with respect to the DEA registration pathway.

If you have questions about the business implications of the new DEA registration or forthcoming rulemaking hearing, our team is happy to assist.

Our Cannabis Practice provides advice on issues related to applicable federal and state law. Cannabis remains a controlled substance under federal law.