By: Irina Dashevsky, Esq. and Nick Richards, Esq.
By most any account, this has been a banner year for the cannabis industry, and one that the industry desperately needed. After years of stagnation from Congress, we finally have movement at the federal level, brought to us by the Executive Branch. Medical cannabis has been rescheduled by Executive Order from Schedule I to Schedule III of the Controlled Substances Act. The implications of this rescheduling are significant, and everyone is still processing what implementation looks like, but make no mistake—this, in and of itself, is tremendous progress, especially for medical cannabis patients.
In conjunction with the rescheduling of medical cannabis, the DEA also scheduled and held hearings on rescheduling cannabis generally (namely “adult-use” cannabis) to Schedule III. Remarkably, here, for the first time in generations of prohibitions, the federal government argued in favor of rescheduling. Indeed, during the hearing, Dominic Chiapperino, director of the FDA’s controlled substance staff, acknowledged that cannabis has accepted medical uses in the United States, comparing its abuse and safety profile favorably to alcohol and opioids. As further discussed below, the hearings have concluded and await a decision.
This takes us to the midterm elections. Nearly every election cycle brings about some cannabis legalization effort at the state level and this cycle is no different. We outline the various state cannabis-related efforts below. But with rescheduling, the focus also remains at the federal level. With several pieces of reform legislation, such as the SAFER Banking Act, the CLAIM Act, the Cannabis Administration and Opportunity Act (CAOA), and CLIMB Act introduced (and reintroduced) this year in Congress, is legislative reform finally on the horizon? Prognosticating rarely works, but there is traction.
Where the DEA Rescheduling Hearing Stands
As discussed in our previous analysis, the DEA’s hearings on the proposed rescheduling of marijuana recently concluded (without closing arguments).
Testimony focused on the scientific and regulatory basis for moving adult-use cannabis to Schedule III. The first requirement to remove cannabis from Schedule I is a finding that it has medical use. Dangerous, addictive drugs without a medical use are Schedule I, and those with a medical use are Schedule II. A finding that marijuana has a medical use will then prompt the determination of its danger and addictive properties to determine whether it should be Schedule II or a lesser schedule. The HHS, as discussed, has determined that marijuana has a medical use and is less dangerous and addictive than those drugs listed under Schedule II. Thus, the federal government has recommended Schedule III.
During the hearings, DEA pharmacologist Dr. Luli Akinfiresoye testified that cannabis lacks a currently accepted medical use and criticized aspects of the Department of Health and Human Services (HHS) review supporting rescheduling. Harvard Medical School professor Dr. Bertha K. Madras argued that cannabis lacks the consistency and clinical evidence expected of pharmaceutical products.
However, Dr. Madras also acknowledged that cannabis meets the statutory criteria for Schedule III and noted that it does not cause the respiratory-depression deaths associated with opioids. The testimony underscores the central question facing regulators, which is whether the risks of cannabis warrant continued Schedule I status or support its proposed move to Schedule III.
Recent testimony from opponents of cannabis rescheduling focused on workplace safety, impaired driving, and the medical evidence supporting cannabis use. The National Drug and Alcohol Screening Association (NDASA) argued that moving cannabis to Schedule III could undermine workplace drug-testing programs, but its director, Mary Jo McGuire, acknowledged during cross-examination that private employers would still be able to conduct cannabis testing under company policies, with any impact largely limited to federally regulated Department of Transportation testing programs.
While the recent hearings offer a notable federal policy signal on cannabis reform, they stop short of committing to broader legalization measures. The testimony frames the move involving licensed medical marijuana from Schedule I to Schedule III, as expanding access to medical treatment and promoting additional research into cannabis safety and efficacy.
However, the testimony failed to endorse broader adult-use marijuana reform or reduced criminal penalties, indicating that such decisions would require further consultation with DEA officials and other stakeholders. The hearings also touched on potential tax implications under Section 280E and federal cannabis enforcement priorities, suggesting continued support for medical cannabis reform while leaving wider adult-use policy questions unresolved.
With the hearing concluded, the presiding administrative law judge (ALJ) will issue a recommendation. The ALJ judge did not comment on when he will issue his recommendation, but typically, recommendations have been issued as early as 1-2 months after proceedings conclude. Notably, that ALJ recommendation is not binding. The final call on whether adult-use marijuana moves to Schedule III rests with the DEA Administrator. Separately, the U.S. Court of Appeals for the D.C. Circuit is reviewing legal challenges to the April 23 order itself, adding another layer of uncertainty for businesses trying to plan around the outcome.
Cannabis on the Ballot This November
Several states will put cannabis policy directly before voters this fall, and the measures run the gambit from overturning legalization laws to expanding rights to access.
Idaho stands out as the state with the most cannabis activity on its ballot. Voters will decide on HJR 4, a legislature-referred constitutional amendment that would strip citizens of the ability to legalize marijuana, or any other controlled substance, through the initiative process going forward. If HJR 4 passes, only the legislature would retain that authority.
Advocacy groups in Idaho have also been collecting signatures for a separate Idaho Medical Marijuana Legalization Initiative that would establish a limited registration system for patients with qualifying conditions. Idaho currently has no medical cannabis program, making it one of only a handful of states without one.
While efforts in Arizona to repeal marijuana legislation were stopped, Massachusetts faces repeal efforts aimed at its existing adult-use markets. The potential measure in Massachusetts would repeal laws permitting commercial sale and home cultivation of recreational marijuana while keeping the medical program intact. After barely securing the required number of certified signatures, the measure is currently facing legal challenges from industry advocates over its signature gathering.
Massachusetts also expanded its cannabis possession limits earlier this year, with the law signed by Governor Healey. The legal limit for adults 21 years and older increases the possession of marijuana flower from one ounce to two ounces.
Efforts in Nebraska and Missouri to have cannabis-related measures on the November ballot were unsuccessful. Another state-level initiative in Washington that would cut the state’s cannabis excise tax from 37% to 7% to help licensed retailers compete with the illicit market also failed.
Virginia adult-use is finally coming online! The state recently enacted adult-use cannabis sales language in its signed state budget, a notable step for a state that legalized possession years ago, and will allow licensed retail dispensary sales to officially launch on July 1, 2027.
What This Means for Cannabis Businesses and Investors
The federal and state processes are moving on different timelines. Although nothing is settled yet, there is cause for excitement. Medical cannabis businesses operating under a state medical license already have the benefit of Schedule III status and the tax relief that comes with it. The extent to which mixed and adult-use operators will receive relief from Section 280E is still uncertain.
The IRS has stated that it will provide guidance as to allocation of expenses for purposes of Section 280E – suggesting that only medical expenses will be eligible for relief and that adult-use will remain subject to Section 280E. Ultimately, clarity at the Federal level will take time – perhaps a long time. At the state level, the ballot measures are less about steady expansion and more about whether existing markets hold.
Businesses operating in this space should pay close attention to the DEA hearing record as it develops and the pending D.C. Circuit litigation. Our Cannabis law practice group is tracking each of these processes and is available to help clients assess how they may affect licensing, tax treatment, and compliance obligations.
This publication is provided by Greenspoon Marder LLP is issued for informational purposes only and is not intended to be construed or used as general legal advice nor a solicitation of any type. Please contact the author(s) or your Greenspoon Marder LLP contact if you have any questions regarding the currency of this information. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer’s legal qualifications and experience.
