Acting Attorney General Moves State-Approved Medical Marijuana to Schedule III, Easing Research and Tax Burdens

Acting Attorney General Todd Blanche signed an order on Thursday that reclassifies state-approved medical marijuana from Schedule I to Schedule III of the Controlled Substances Act (CSA), a significant administrative move that will not legalize marijuana at the federal level but is expected to have immediate effects on research and taxation for state-licensed suppliers.

The change comes after public prodding from President Donald Trump, who on Saturday asked Secretary of Health and Human Services Robert F. Kennedy Jr., "Will you get the rescheduling done, please?" and complained that "They're slow-walking me on rescheduling….You're gonna get it done, right?" While the Department of Health and Human Services (HHS) plays an advisory role in scheduling, the CSA vests final authority in the attorney general—the authority Blanche exercised with his order.

Under Blanche's direction, marijuana products sold by businesses that hold a "state medical marijuana license" will be treated as Schedule III substances, the category that already includes drugs such as ketamine, anabolic steroids, and prescription formulations like Tylenol with codeine. Those state-licensed businesses will be required to register with the Drug Enforcement Administration (DEA), and Blanche said the move "allows for research on the safety and efficacy of this substance, ultimately providing patients with better care and doctors with more reliable information."

Blanche's order is narrower than the broader rescheduling President Trump instructed then-Attorney General Pam Bondi to pursue in December, when Trump directed her to "complete the rulemaking process" to move marijuana from Schedule I to Schedule II. Blanche said a general reclassification will not be completed until after the DEA holds an administrative hearing scheduled to begin on June 29. "Under the direction of President Trump and Acting Attorney General Blanche," DEA Administrator Terry Cole said, "DEA is expeditiously moving forward with the administrative hearing process—bringing consistency and oversight to an area that has lacked both."

Forty states currently allow medical use of marijuana, and Blanche cited that many state regimes "have developed robust infrastructure for preventing diversion, ensuring product safety, maintaining records, and conducting facility inspections"—functions he says align with federal registration and recordkeeping goals. He further argued that limiting this change to medical programs helps meet U.S. obligations under the Single Convention on Narcotic Drugs, which the order invokes to justify treating "medicinal cannabis" differently from a wholesale-control perspective.

Legal and scientific observers, however, note difficulties with Blanche's selective approach. Cannabis products used by patients are pharmacologically identical to those consumed recreationally, and CSA scheduling criteria hinge on accepted medical use and abuse potential. The HHS itself, in August 2023, recommended that marijuana be placed in Schedule III, a recommendation Blanche cites even while noting he is not legally bound to follow it. Critics question how two identical products can occupy different schedules based solely on intended or licensed use, noting that other substances such as cocaine or fentanyl are scheduled uniformly regardless of legal or illicit sourcing.

Beyond doctrinal disputes, the practical benefits of the reclassification are substantial for state-licensed firms and researchers. Section 280E of the Internal Revenue Code bars businesses trafficking in Schedule I or II substances from deducting ordinary business expenses on federal tax returns, a rule that has produced effective tax rates many industry observers say exceed 70 percent for some operators. Blanche's order means that state-licensed medical marijuana businesses "will no longer be subject to the deduction disallowance imposed by Section 280E," a change that industry figures call transformative. "We are thrilled that medical cannabis has been moved to Schedule 3," said Ryan Hunter, chief revenue officer at vape company Spherex, calling the move "the most significant drug policy update since the introduction of the Controlled Substances Act."

Researchers have also long said Schedule I status imposes burdensome registration, storage, and approval requirements. National Institute on Drug Abuse Director Nora Volkow has testified that Schedule I designation "makes research much harder," creating a "lengthy and cumbersome" registration process. Blanche's order explicitly clarifies that cannabis researchers will not be penalized for obtaining state-licensed marijuana or cannabis-derived products for research, and says the reclassification will "enable more targeted, rigorous research into marijuana's safety and efficacy, expanding patients' access to treatments and empowering doctors to make better-informed healthcare decisions."

Industry leaders and advocates welcomed the move even while noting its limits. Richard Baca, founder and CEO of the marketing company Grasslands, described the order as "historic," while acknowledging that "it's not full legalization." For now, federal prohibition remains in place for recreational markets, which two dozen states permit; Blanche and the DEA say a broader rescheduling process will follow. The order thus represents both a major policy shift in how the federal government treats state medical cannabis programs and a legal puzzle about how scheduling criteria will be applied going forward.