By: Kelli Cigelnik, Staff Editor

February 13, 2025

In May of 2024, the Department of Justice (DOJ) invited public comment on the possibility of rescheduling cannabis.[1] Cannabis is currently a Schedule I drug under the Controlled Substances Act (CSA) and the DOJ has proposed the rescheduling of cannabis as a Schedule III drug under CSA.[2] This shift could have profound legal and regulatory consequences. This change, if implemented, would redefine how cannabis is treated under federal law, affecting criminal justice policies, medical research, taxation, and business operations.

Under the CSA, Schedule I drugs are classified as substances with a high potential for abuse and have no accepted medical use.[3] This classification has historically hindered research and led to severe criminal penalties for cannabis-related offenses.[4] Schedule III, in contrast, includes substances with moderate to low potential for abuse and has accepted medical applications, such as anabolic steroids and certain pain medications.[5]

The rescheduling process itself typically involves recommendations from agencies such as the Drug Enforcement Administration (DEA) and the Food and Drug Administration (FDA), followed by regulatory rulemaking.

 

Legal and Criminal Justice Implications

 

In terms of federal prosecution and criminal charges, moving cannabis to Schedule III would likely reduce the severity of federal criminal penalties for cannabis-related offenses.[6] While state laws have varied significantly, federal law under the CSA has continued to impose strict consequences for possession, distribution, and manufacturing of cannabis, such as mandatory sentences.[7] Rescheduling could prompt reforms in sentencing and potentially affect ongoing and past convictions. However, while rescheduling could influence sentencing reforms, it would not automatically expunge past convictions unless Congress enacts additional legislative measures.[8]

Currently, the Schedule I classification has created major barriers to scientific research on cannabis.[9] With a move to Schedule III, researchers would face fewer regulatory hurdles in obtaining cannabis for study than they currently face under a Schedule I designation.[10] This could lead to potential advancements in medical treatments and expanded FDA-approved applications. While Schedule III status reduces restrictions, cannabis would still be a controlled substance, meaning it would be subject to FDA regulations and prescription-based distribution rather than broad adult-use legalization.[11]

A significant impact of rescheduling would be on the cannabis industry’s financial operations.[12] Under Internal Revenue Code Section 280E, businesses dealing with Schedule I and II substances cannot deduct ordinary business expenses for federal tax purposes.[13] If cannabis moves to Schedule III, companies would gain access to tax deductions, improving profitability and reducing financial burdens on legal cannabis enterprises.[14] However, rescheduling might not fully resolve the banking challenges that cannabis businesses face. Many financial institutions remain hesitant to serve the industry due to ongoing federal restrictions.[15]

Even if cannabis is rescheduled, state legalization efforts and federal prohibition may continue to conflict. Some states have fully legalized cannabis for recreational and medical use, while others maintain strict prohibitions.[16] Rescheduling would not equate to full federal legalization but could signal further legislative changes down the line.[17]

 

A Path Forward

 

Rescheduling cannabis from Schedule I to Schedule III would mark a significant policy shift with broad implications for the legal system, medical research, taxation, and the cannabis industry. While rescheduling represents progress toward federal and social acceptance, full legalization and reconciliation between state and federal laws remain unresolved. Policymakers, businesses, and legal professionals must navigate these changes carefully to maximize benefits and address lingering challenges.

[1] Press Release, Off. of Pub. Affs., Justice Department Submits Proposed Regulation to Reschedule Marijuana (May 16, 2024) https://www.justice.gov/opa/pr/justice-department-submits-proposed-regulation-reschedule-marijuana.

[2] Press Release, Off. of Pub. Affs., Justice Department Submits Proposed Regulation to Reschedule Marijuana (May 16, 2024) https://www.justice.gov/opa/pr/justice-department-submits-proposed-regulation-reschedule-marijuana.

[3] 21 U.S.C. § 812(b)(1).

[4] See  The National Academies of Sciences, Engineering, and Medicine, The Health Effects of Cannabis and Cannabinoids: The Current State of Evidence and Recommendations for Research 1 (National Academy of Sciences 2017) (claiming that ongoing restrictive policies on cannabis research have limited studies on its health effects in the U.S., leaving patients, healthcare professionals, and policymakers without the evidence needed to make informed decisions about its use); see, e.g., Martin D. Carcieri, Obama, the Fourteenth Amendment, and the Drug War, 44 Akron L. Rev. 303, 325 (2011) (“U.S. marijuana prohibition has long been motivated largely by racism”); see also Richard J. Bonnie & Charles H. Whitebread, The Forbidden Fruit and the Tree of Knowledge: An Inquiry Into the Legal History of American Marijuana Prohibition, 56 Va. L. Rev. 971, 1011 (1970) (“From a survey of contemporary newspaper and periodical commentary we have concluded that there were three major influences [on states’ decisions to criminalize marijuana]. The most prominent was racial prejudice.”).

[5] 21 U.S.C. § 812(b)(3).

[6] Joanna R. Lampe, Cong. Rsch. Serv., LSB11105, Legal Consequences of Rescheduling Marijuana 3 (2024).

[7] Joanna R. Lampe, Cong. Rsch. Serv., LSB11105, Legal Consequences of Rescheduling Marijuana 3 (2024).

[8] Joanna R. Lampe, Cong. Rsch. Serv., LSB11105, Legal Consequences of Rescheduling Marijuana 3 (2024).

[9] Dorothy C. Kafka, Cong. Rsch. Serv., LSB11227, Legal Effect of Marijuana Rescheduling on FDA’s Regulation of Cannabis 2 (2024).

[10] See Lindsay Stafford Mader, The State of Clinical Cannabis Research in the United States, 85 HerbalGram J. Am. Botanical Council 64, 67 (2010), https://www.maps.org/media/herbalgramnidamonopolyfeb2010.pdf (“While more people are able to obtain marijuana for treatment under some states’ laws, little research is being done to document the efficacy and safety of cannabis as a medicine.”)

[11] Dorothy C. Kafka, Cong. Rsch. Serv., LSB11227, Legal Effect of Marijuana Rescheduling on FDA’s Regulation of Cannabis 3 (2024).

[12] Joanna R. Lampe, Cong. Rsch. Serv., LSB11105, Legal Consequences of Rescheduling Marijuana 3 (2024).

[13] Adam Hoffer & Benjamin Patrick, What Are the Tax Consequences of Rescheduling Marijuana?, Tax Foundation (Oct. 1, 2024), https://taxfoundation.org/blog/rescheduling-marijuana-taxes/.

[14] Adam Hoffer & Benjamin Patrick, What Are the Tax Consequences of Rescheduling Marijuana?, Tax Foundation (Oct. 1, 2024), https://taxfoundation.org/blog/rescheduling-marijuana-taxes/.

[15] Russell Rosendal, Rescheduling Alone Wouldn’t Solve the Marijuana Industry’s Banking Problem, MJBiz (Aug. 16, 2024), https://mjbizdaily.com/rescheduling-alone-wouldnt-solve-the-marijuana-industrys-banking-problem/#:~:text=Gaps%20in%20rescheduling&text=Because%20state%2Dlicensed%20marijuana%20operations,serving%20clients%20in%20this%20sector (“Because state-licensed marijuana operations don’t comply with federal rules governing the sale of Schedule III substances, such businesses still would be considered illegal under federal law and most financial institutions would continue to refrain from serving clients in this sector.”).

[16] Athena Chapekis & Sono Shah, Most Americans Now Live in a Legal Marijuana State – and Most Have at Least One Dispensary in Their County, Pew Research Center (Feb. 29, 2024), https://www.pewresearch.org/short-reads/2024/02/29/most-americans-now-live-in-a-legal-marijuana-state-and-most-have-at-least-one-dispensary-in-their-county/#:~:text=Since%20Colorado%20and%20Washington%20became,drug%20for%20medical%20use%20only.

[17] Joanna R. Lampe, Cong. Rsch. Serv., LSB11105, Legal Consequences of Rescheduling Marijuana 3 (2024).