Acting Attorney General Todd Blanche signed an order Today reclassifying state-licensed medical marijuana under federal law, marking one of the most consequential shifts in American drug policy in decades. The change moves medical cannabis from Schedule I, the most restrictive federal drug category, to Schedule III, the same tier as ketamine and Tylenol with codeine.
The order does not legalize marijuana at the federal level. Recreational use remains prohibited under federal law, and the cultivation, sale and possession of cannabis outside of state-licensed medical programs would still be subject to federal enforcement. What changes is how the government treats the drug’s medical potential and how it taxes the businesses that sell it.
The Drug Enforcement Administration will hold administrative hearings in June to consider a broader, formal reclassification of cannabis at the federal level.
What prompted the move
The effort to downgrade marijuana’s classification has circulated through several administrations without reaching a conclusion. The Biden administration initiated a rescheduling attempt in 2024, opening a 60-day public comment period, but the process stalled in the transition between administrations after the DEA’s top judge paused the scheduled hearings indefinitely.
President Donald Trump signed an executive order in December directing the Justice Department to expedite the process and push through Biden’s proposed rule change. Progress remained slow in the months that followed. Trump publicly expressed frustration over the weekend at a White House event with podcaster Joe Rogan, saying the process was being deliberately dragged out.
Sources familiar with the discussions said both the White House and the Justice Department faced mounting pressure from the cannabis industry to finalize the change. There was internal discussion about announcing the decision on April 20, a date associated with marijuana culture, but that idea was set aside as inappropriate.
The tax implications are substantial
One of the most immediate practical effects of rescheduling involves federal tax law. Cannabis businesses currently fall under IRS Code Section 280E, an early 1980s provision that bars companies engaged in trafficking Schedule I or II substances from deducting ordinary business expenses such as rent and payroll. That has left some cannabis companies with effective tax rates of 70% or more.
Since 2018, cannabis businesses have paid an estimated $15 billion in excess taxes under that provision, according to an analysis by Whitney Economics. Moving marijuana to Schedule III would likely exempt those businesses from 280E, though the IRS would need to issue formal guidance to confirm.
Cannabis law attorney Brian Vicente of Vicente LLP described the potential economic effect as transformative for an industry that has carried an unusually heavy tax burden for years. He said the change could generate billions of dollars in new economic activity and tens of thousands of jobs across states that have already legalized cannabis.
The rescheduling also opens new possibilities for banking access, which has historically been difficult for cannabis companies due to their federal legal status.
Research restrictions could ease significantly
Beyond taxes, researchers and medical institutions stand to benefit from reduced federal barriers. Scientists studying cannabis for therapeutic applications including chronic pain, PTSD and neurological disorders have long faced strict approval processes, limited supply access and heavy compliance requirements.
Universities and hospitals in states with legal cannabis programs have declined to conduct research out of concern that federal involvement could jeopardize their federal funding. A Schedule III designation would not eliminate that tension entirely but would reduce the stigma and legal exposure that has kept many institutions on the sidelines.
Tilray CEO Irwin Simon told CNBC the company expects to hear from pharmaceutical companies interested in partnerships following the reclassification, similar to the outreach from alcohol companies that followed the surge in demand for hemp-derived beverages. Tilray currently partners with Novartis in Canada and has served patients across more than 20 countries through its medical segment.
Opponents move quickly to challenge the order
Not everyone welcomed Today’s announcement. Smart Approaches to Marijuana, an advocacy group that opposes marijuana legalization, said it would pursue immediate legal action against the order, arguing the decision serves the financial interests of the cannabis industry rather than public health.
The group also questioned why the administration bypassed the Food and Drug Administration’s standard review process in executing the change.
Supporters of rescheduling noted that the policy reflects where public opinion already sits. A 2024 Pew Research Center survey found that nearly six in ten Americans support the full legalization of recreational cannabis. Forty states, three territories and Washington, D.C., currently allow some form of medical marijuana use, while 24 states, two territories and the District have legalized adult recreational use.
The rescheduling arrives just days after Trump signed a separate executive order directing federal agencies to accelerate research and expand access to psychedelic treatments including psilocybin, MDMA and ibogaine.
