• The Controlled Substances Act of 1970 (the “CSA”) divides drugs into five schedules based on potential for abuse and medical value.
  • Marijuana moving from Schedule I (no accepted medical use, high abuse potential) to Schedule III (accepted medical use, moderate-to-low dependence risk) would mark the most consequential federal cannabis policy change in more than half a century, as it acknowledges, for the first time, marijuana’s medical value and relative safety.
  • Rescheduling does not federally legalize marijuana or state-authorized cannabis programs; rather, it legitimizes cannabis as medicine, lowers perceived risk for lenders, removes the 280E tax burden, and has many other indirect benefits as described below.
  • For a deeper dive into the legal and business implications of Schedule III and the federal-state pilot program, explore our Vicente LLP Federal Cannabis Schedule III Updates & Resources Hub.

The CSA has governed America’s relationship with cannabis since its enactment in 1970. The CSA divides drugs, certain chemicals used to make drugs, and other regulated substances into five distinct categories called “schedules.”  Drugs are classified according to their abuse potential and currently accepted medical use. Schedule V drugs represent the lowest potential for abuse relative to medical value, whereas Schedule I drugs carry the highest potential for abuse and the lowest medical value. Since the CSA’s inception, marijuana (e.g., the parts of the cannabis plant with a Delta-9 tetrahydrocannabinol concentration level exceeding 0.3 percent) has been inappropriately classified as a Schedule I substance despite its various medical applications and relative safety.

Read: US Officially Recognizes Medical Use and Safety of Cannabis: The Top 6 Things to Know About Schedule III and the Process Ahead

Moving Marijuana from Schedule I to Schedule III Under the CSA

Schedule I drugs are defined as drugs with no currently accepted medical use and a high potential for abuse. Heroin is an example of a Schedule I drug, as well as other well-known illicit drugs such as lysergic acid diethylamide (LSD) and 3,4-methylenedioxymethamphetamine (ecstasy). It is illegal to produce, dispense, or possess Schedule I substances except in the context of federally approved scientific studies. Unauthorized activities involving Schedule I controlled substances are federal crimes that may give rise to significant legal liability, including substantial fines and jail time. Marijuana has been a Schedule I drug since the enactment of the CSA under Nixon in 1970.

Ongoing federal activity on rescheduling, including former President Biden’s directive to re-evaluate the control status, the stalled administrative hearings under the Biden Administration, and now President Trump’s rumored Executive Order, proposes to move marijuana from its inappropriate Schedule I classification and re-classify it as a Schedule III drug under the CSA.

Most notably, rescheduling formally recognizes the cannabis plant’s medical use and lower abuse potential. Unlike Schedule I drugs, drugs classified as Schedule III are recognized as having only a moderate-to-low potential for physical and psychological dependence. Additionally, rescheduling eliminates the punitive IRS Section 280E tax burden and positions the industry to ease research barriers.

While a valuable incremental change, rescheduling does not legalize marijuana nor solve the longstanding federal-state conflict and associated challenges facing cannabis businesses in state-regulated markets.

Federal Efforts to Reschedule Marijuana

Rescheduling entered the cannabis lexicon in earnest in October 2022 when then-President Biden directed the Secretary of Health and Human Services (“HHS”) and the U.S. Attorney General to initiate the administrative process to review expeditiously how marijuana is scheduled under the federal CSA.

Nearly a year later, in August 2023, HHS recommended that marijuana be transferred to Schedule III under the CSA, concluding that it has a currently accepted medical use and a lower potential for abuse than Schedule I or II substances. In April 2024, the Department of Justice’s (“DOJ”) Office of Legal Counsel advised that HHS’s scientific and medical findings are binding on the Drug Enforcement Administration (“DEA”) prior to rulemaking and entitled to significant deference thereafter, prompting DOJ to issue a Notice of Proposed Rulemaking on May 21, 2024, while noting that the DEA had not yet reached its own determination.

Although the DEA initially scheduled an administrative hearing for January 2025, the Chief Administrative Law Judge stayed the proceedings pending resolution of an interlocutory appeal concerning alleged improper ex parte communications. Following President Trump’s inauguration in January 2025, the rulemaking was placed on hold while the new administration reviewed the matter. In August 2025, President Trump stated that his administration is “very strongly” considering an Executive Order to finalize rescheduling to Schedule III.

Read: Trump Signals Cannabis Rescheduling: Schedule III Marijuana Decision Expected Soon

Impact of Rescheduling on the Federal Legality of Marijuana

Schedule III status does not automatically bring state-authorized cannabis operators into compliance with federal law or resolve the federal-state conflict. State marijuana businesses will continue to operate in violation of the federal CSA and the Federal Food, Drug, and Cosmetic Act (“FFDCA”). As long as marijuana remains a controlled substance, whether in Schedule I or Schedule III, the manufacture, distribution, and possession of state-legal marijuana generally remain federal crimes. Legalization demands further action from Congress.

In recent decades, nearly all states have changed their laws to authorize the use of cannabis for medical purposes.  A significant number of states with medical programs have authorized recreational sales for adults. Others have adopted state-regulated hemp programs. Due to the Supremacy Clause of Article VI, Clause 2, of the U.S. Constitution, however, states cannot actually legalize marijuana because they cannot override its illegal status under federal law. Thus, as long as marijuana is a controlled substance under the CSA, all unauthorized activities involving marijuana are considered federal crimes anywhere in the United States. This includes cannabis-related activities in states that have authorized medical and/or adult use marijuana under state law.

While Schedule III substances have an accepted medical use and may be dispensed by prescription, federal Food and Drug Administration (“FDA”) approval and a prescription issued by a DEA-registered practitioner is required. Currently, state medical marijuana programs rely on physician “recommendations” or “certifications” rather than valid federal prescriptions to avoid conflicting with federal law. Rescheduling alone does not convert state-level “recommendations” into valid federal prescriptions, nor does it authorize pharmacists to dispense botanical cannabis.  While some criminal penalties for CSA violations are lower for Schedule III substances, mandatory minimum sentences based on the quantity of marijuana trafficked would remain unchanged. Federal collateral consequences regarding gun ownership, housing, and immigration would also largely remain in effect.

Immediate Impacts of Rescheduling Cannabis

Moving marijuana from Schedule I to Schedule III would mark the most significant federal cannabis policy shift in nearly half a century. While rescheduling would not legalize state-authorized cannabis programs or resolve all conflicts with federal law, it would bring several positive immediate impacts to taxation, financing, medical research, and access pathways, as well as significant indirect impacts for future needed reforms.

Taxation

Perhaps the most immediate benefit would be a relief from Internal Revenue Code Section 280E, which currently prevents cannabis companies from deducting ordinary business expenses that other businesses can claim. Schedule III status would remove this barrier and significantly improve the potential profitability for cannabis businesses, freeing capital for reinvestment, hiring, research, innovation, and expansion.

Read: Rescheduling Heralds a Cannabis Industry Renaissance

Banking & Finance

Although rescheduling would not legalize state cannabis markets or guarantee full access to traditional banking, it could reduce perceived legal risk. This shift may encourage more financial institutions to provide services to licensed operators, including the availability of loans, gradually improving the industry’s financial stability.  Rescheduling establishes a political environment in which Congress is more likely to support banking and capital markets reform, such as the proposals contemplated by the Secure and Fair Enforcement Regulation (“SAFER”) Banking Act and the Capital Lending and Investment for Marijuana Businesses (“CLIMB”) Act.

Read: 4 Major Implications of Cannabis Moving to Schedule III

Medical Research

Rescheduling would acknowledge cannabis’s accepted medical use and lower abuse potential. While researchers would still be required to obtain materials through DEA-registered manufacturers rather than state dispensaries due to the CSA’s “closed system,” a move to Schedule III could broaden the pool of registered suppliers and streamline the registration process.

This improved regulatory environment could facilitate the collection of more robust clinical safety and efficacy data, though researchers may still face unique statutory requirements imposed by the Medical Marijuana and Cannabidiol Research Expansion Act. Importantly, rescheduling to Schedule III would signal to universities and hospitals that cannabis research can be conducted within federal law, assuaging concerns that such work jeopardizes federal funding or carries professional stigma. This reduced institutional risk encourages broader participation from the medical community, allowing researchers to more easily secure federal grants that can be used to generate the robust clinical data necessary to guide treatment and ensure patient safety. This could lead to immeasurable potential benefits, including new medical breakthroughs and health impact studies.

Prescription Pathways

Under the current federal paradigm, only FDA-approved cannabinoid medicines, such as Epidiolex, Marinol, and Syndros may be lawfully prescribed by DEA-registered practitioners and dispensed by pharmacies. Rescheduling to Schedule III does not alter the FFDCA requirement that a drug must undergo the rigorous New Drug Application process to be legally marketed and prescribed in interstate commerce. Instead, rescheduling would likely facilitate the development of new, standardized cannabis-derived medications by reducing the heavy regulatory burdens and costs associated with Schedule I research, thereby encouraging pharmaceutical companies to seek FDA approval for new formulations.

Rescheduling does not bring state-authorized dispensaries into compliance with federal law. The botanical cannabis products they sell lack FDA approval and remain “unapproved new drugs” under the FFDCA that cannot be legally dispensed by licensed pharmacists. Still, while federal law compliance remains at issue for state-authorized dispensaries, the federal government’s formal acknowledgement that cannabis has a “currently accepted medical use” would legitimize its therapeutic potential within the medical community, potentially reducing provider stigma and paving the way for standardized dosing protocols that are currently absent in state markets.

Read: The Legality of Distributing and Dispensing Botanical Cannabis under Schedule III

Looking Ahead

President Trump’s rumored Executive Order directing the rescheduling of marijuana is a watershed moment, bringing federal drug policy closer to science, medicine, and public opinion. While rescheduling alone does not resolve the longstanding tension between federal law and state-legal cannabis programs, it represents a meaningful and long-overdue step forward.

Rescheduling to Schedule III will deliver immediate economic relief through the elimination of Section 280E, while creating energy for broader reform. At the same time, recent congressional action narrowing the federal definition of hemp makes clear that THC regulation, across both marijuana and hemp-derived products, remains unsettled. Taken together, these developments underscore the need for a coherent, evidence-based federal framework that protects consumers without stifling innovation. And while significant work remains, rescheduling and the momentum it creates mark the beginning of a renaissance for the American cannabis industry.

Vicente LLP continues to monitor federal cannabis rescheduling developments and their implications for businesses, policymakers, and advocates. Vicente’s attorneys work at the intersection of law and policy to advance responsible cannabis regulation and support equitable, evidence-based reform. 

For guidance on navigating cannabis policy or engaging in federal advocacy efforts, contact us today. 

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