U.S. Justice Department Moves Medical Marijuana to Schedule III

In April, the U.S. Department of Justice reclassified federally authorized medical marijuana from a Schedule I to a Schedule III controlled substance. The change removes the tax disallowance of IRC Section 280E for qualified state‑licensed medical cannabis operators, allowing them to claim ordinary business deductions and improving reported profitability, cash flow and valuation.

A hearing is scheduled for June 29 to consider whether adult‑use (recreational) marijuana should be moved to Schedule II, which would further expand tax benefits but has not yet been decided. The attorneys general of Indiana, Louisiana and Nebraska have filed a federal court petition arguing that the DOJ order violates administrative law and international drug‑control treaties.

Industry analysts note that the rescheduling could boost shares of multi‑state operators and facilitate financing, but it does not constitute full federal legalization. Adult‑use businesses will still need to navigate 280E restrictions, maintain clear accounting for mixed medical and recreational activities, and address ongoing banking and regulatory challenges.