The Trump administration just took a significant, albeit tempered, first step toward shifting federal regulation on cannabis closer in line with what so many states have already accomplished. Moving state-licensed medical cannabis to Schedule III, alongside other drugs that are deemed less harmful than heroin, LSD, synthetic opioids, ecstasy and more, is not just a symbolic gesture. It will have real impacts on progressing cannabinoid research and alleviating excessive taxation on cannabis companies. But it also shatters the long-standing logic upon which the Controlled Substances Act (CSA) was built.
The CSA, which was signed into law by President Richard Nixon in 1970, places all substances which are in some manner regulated under existing federal law into one of five schedules. This placement is based upon the substance’s medical use, potential for abuse, and safety or dependence liability, according to the U.S. Drug Enforcement Administration.
Mike Feldman, general counsel for Nabis, one of the country’s largest licensed cannabis wholesale platforms, pointed out a major problem with reclassifying medical marijuana without also updating regulations on adult-use recreational cannabis.
"Two people can be using cannabis together — the same product purchased from the same place — one labeled medical marijuana and the other labeled for adult-use. And now one is placed in Schedule I and another in Schedule III, and that's completely unprecedented, and that's not how the Controlled Substances Act works,” he said, adding that substances have always been scheduled based on their properties.
“This order breaks that premise. It creates a regime where the same product, in the same packaging, is federally Schedule III or Schedule I, depending on where it is purchased. That has never been how drug schedules work, for opioids, for psychedelics, for anything."
Sara M. Klock, a partner at Holland & Knight, said the Trump administration’s changes to the CSA create a lot of uncertainty for medical, recreational and hybrid cannabis operators and states. It’s unclear how much cannabis in each state is only for medical purposes, versus both recreational and medical, or just recreational; it’s unclear how state law reviews safety and labeling, and how that complies with the Food, Drug and Cosmetic Act; and it’s unclear if manufacturers of medicinal cannabis will resituate all of their product to fall under this new federal avenue.
Rescheduling could also create substantial headaches for hybrid cannabis companies trying to figure out which parts of their businesses are eligible for tax exemptions.
Kevin Hart, CEO of Green Check, said that while rescheduling could finally get more financial institutions to come off the sidelines and serve an expanding cannabis market, it will also require even more financial discipline from cannabis operators.
“Rescheduling brings 280E relief, which will have a massive positive cash flow impact for cannabis-related businesses. As a result, tighter tracking of operational compliance requirements will be needed, and cash management will become even more critical,” he said.
Rescheduling is a long-awaited lifeline to a still-struggling industry, but by bifurcating cannabis within the CSA, it’s also created a lot of confusion. There’s still a chance to fix it, though. A new administrative hearing is scheduled for June 29, and it could broaden reclassification to adult-use recreational cannabis.
But Feldman said moving adult-use cannabis to Schedule III and collapsing the source-based distinction is only one piece of assembling the new cannabis regulatory puzzle.
He said the Treasury also needs to issue guidance on how operators handle 280E in a dual-schedule world, particularly for upstream supply chain transactions. Courts need to work through the APA challenges that are coming, both to yesterday's order and to any final rule from the broader rescheduling.
“And, ideally, Congress acts to create a coherent federal framework, though that is the least likely piece. Realistically, the industry should plan for an 18- to 24-month period of operating under a partially resolved framework, with the durable answer arriving in 2027 or 2028,” he said.
