Federal Cannabis Regulation - What to Expect in 2025

The judge’s order comes after a group of cannabis reform advocates filed a motion accusing the DEA of sabotaging the upcoming hearing through, among other allegations, improper communications with cannabis reform opponents. Though Judge Mulrooney denied the advocates’ request for the removal of DEA Administrator Anne Milgram, his order noted the allegations against the DEA are “unseemly,” “troubling,” and “embarrassing.”[1]

If and when the hearing is rescheduled, we can expect Judge Mulrooney will ensure the testimony focuses on narrow issues, such as addiction potential. In a preliminary hearing, he made clear that arguments will not center on whether cannabis is “good or bad.”

The parties currently set to testify in the hearing include the DEA, 14 organizations, and three physicians. Hemp for Victory, for example, is a nonprofit organization based in Dallas, Texas, advocating for the use of cannabis by veterans to manage service-related ailments. Conversely, Smart Approaches to Marijuana seeks to educate the public about the harms of legalizing marijuana and its commercialization.

A reclassification poses sweeping implications for producers, manufacturers, retailers, and consumers. Marijuana is presently classified as a Schedule I substance under the CSA, which the Act defines as a substance with “no currently accepted medical use and a high potential for abuse.” A Schedule III classification would redefine marijuana as a substance “with moderate to low potential for physical and psychological dependence.”

Proponents for rescheduling argue that a shift toward a less restrictive schedule will encourage medical research by reducing burdensome regulatory hurdles which, in turn, could lead to advances in treatment options utilizing cannabis. The same proponents also emphasize the medical purpose cannabis currently serves as demonstrated by 47 states that have already legalized its use for medical purposes.

A Schedule III classification may also enable friendlier banking practices toward cannabis-related businesses as lending institutions are hesitant to offer their services, fearing legal consequences such as violating federal anti-money laundering laws.[2] Additionally, major credit card companies have internal policies prohibiting transacting with cannabis businesses. A reclassification to Schedule III signals a sense of federal acceptance that may encourage credit transactions as opposed to cash sales.

A federal reclassification may also open the door to a significant tax incentive. Section 280E of the Internal Revenue Code prohibits businesses involved with Schedule I substances from making standard business deductions, while businesses involved with Schedule III substances are eligible. This would allow cannabis-related businesses to save a substantial amount in taxes which may encourage the expansion of business opportunities in the cannabis industry.

However, critics argue that rescheduling does not close the policy gap between state and federal laws. Given that the CSA is a creature of federal law, recreational use that is already legalized at the state level would nonetheless remain illegal federally. Thus, a reclassification, as opposed to de-scheduling cannabis altogether, does little to address the inconsistent treatment of recreational cannabis use across states and levels of government.

Further, even if cannabis moves to Schedule III, cannabis-related businesses may still face regulatory hurdles as a consequence of federal registration requirements. Specifically, current federal law requires individuals and organizations involved in the manufacturing, distributing, dispensing, importing, and exporting of controlled substances to register with the DEA and maintain adequate records.[3] Moreover, Schedule III substances are only available by prescription, posing major questions for cannabis-related businesses that are currently operating at the state level without a need for a customer’s prescription. Schedule III substances are also approved by the US Food and Drug Administration (FDA), which would require cannabis-related businesses that are currently operating to seek federal regulatory approval, which can be cumbersome, in order to be in compliance with federal law.[4] Other critics, on the contrary, argue that the potency of cannabis and potential for cannabis use disorder support its Schedule I classification, along with other controlled substances such as heroin.

While the future of cannabis under federal law remains uncertain, one thing is clear: a shift toward Schedule III would mark a significant departure from historic federal consensus by legitimizing the medical use of cannabis and affirming its relatively low potential for abuse. However, a change in scheduling neither legalizes cannabis federally nor removes cannabis-related criminal penalties.

As an industry that already brings in over $25 billion in state sales annually, a reclassification to Schedule III would likely spur economic growth and create new opportunities for cannabis-related businesses.

Our team will continue to monitor developments and provide updates as they become available. Please reach out to your ArentFox Schiff attorney contact or one of the authors with questions or concerns.