The Drug Enforcement Administration opened a formal hearing on June 29 to consider moving marijuana from Schedule I to Schedule III under the Controlled Substances Act - a process set in motion by President Trump's executive order signed December 18, 2025. The shift would not legalize cannabis at the federal level. What it would do is alter the regulatory and tax architecture that licensed cannabis businesses operate under, and that distinction matters enormously for operators trying to run profitable, compliant businesses in 2025 and beyond.
For dispensary owners and multi-state operators, the most immediate business implication of Schedule III status is the potential elimination of Section 280E of the Internal Revenue Code - the provision that bars cannabis businesses from deducting ordinary business expenses because they traffic in a Schedule I or II controlled substance. Reclassification to Schedule III would remove marijuana from 280E's reach, effectively delivering a meaningful reduction in federal tax liability for licensed retailers and cultivators. As Columbia University law professor David Pozen told USA TODAY at the time of Trump's order, "The main effect of rescheduling will be a tax cut for marijuana firms." State-level operators running seed-to-sale compliance programs - including those using a Metrc-compliant POS for Massachusetts or similar regulated markets - would see the same structural tax burden reduced, assuming their state programs remain in good standing. Research organizations would also benefit, facing fewer federal barriers to clinical study design and funding.
Here's the catch, though: rescheduling changes what the federal government can do with marijuana administratively. It does not override state law. A dispensary operating in Tennessee, for instance, gains nothing from Schedule III status in terms of local legality. Tennessee prohibits recreational marijuana outright, treats possession of a half-ounce or less as a misdemeanor punishable by up to a year in jail and a $2,500 fine, and has no full medical marijuana program. Qualified patients in Tennessee are allowed limited access only to products containing less than 0.9% THC. And starting July 1, 2026 - two days after the DEA hearing opened - Tennessee's House Bill 1376 banned hemp-derived products with more than 0.3% THC concentration, including THCA, Delta-9, Delta-8, and Delta-10 variants that had previously occupied a legal gray zone under the 2018 Farm Bill framework. Possession of non-compliant products now risks a Class A misdemeanor, fines, and license penalties for retailers who carry them.
What Schedule III Actually Changes - and What It Doesn't
The DEA defines Schedule III substances as having moderate to low potential for physical and psychological dependence. Other drugs in that category include products containing less than 90 milligrams of codeine per dosage unit, ketamine, anabolic steroids, and testosterone. Schedule I drugs - where marijuana has sat since the Controlled Substances Act of 1970 - are defined as having no currently accepted medical use and a high potential for abuse. The Department of Health and Human Services concluded that marijuana does have valid medical uses, which formed the foundation of the DOJ's 2024 rescheduling proposal and, ultimately, Trump's executive order.
What the rescheduling does not do is authorize medical marijuana at the federal level, create a federal retail licensing framework, preempt state prohibition, or change how local law enforcement handles possession and distribution. To put it plainly: a dispensary in a licensed adult-use state gets a potential tax break; a would-be operator in a prohibition state gets nothing. The DEA's hearing process will determine whether the agency formally adopts the Schedule III designation - and that outcome is not guaranteed. Hearings at this scale involve testimony from multiple stakeholders, and the timeline for a final rule is uncertain.
Compliance Operators Should Watch the Federal Tax Question Closely
For licensed retailers, the 280E issue has long been one of the most punishing structural disadvantages in cannabis business finance. Unlike a conventional retailer, a cannabis dispensary cannot deduct standard operating costs - payroll, rent, marketing, point-of-sale systems, delivery logistics - against federal taxable income. The effective tax rates that result can make otherwise viable operations difficult to sustain, particularly for single-state operators or smaller independent retailers without the capital cushion of a large multi-state operator. Schedule III status would change that math directly.
Compliance and legal teams at cannabis businesses should also watch for how rescheduling interacts with banking access and payments. Financial institutions that have historically avoided cannabis clients due to federal Schedule I status may reassess their risk posture under Schedule III - though regulatory guidance from banking regulators would need to follow for any real shift to materialize. The same applies to payment processors, insurance carriers, and commercial landlords who factor federal controlled substance status into their underwriting decisions.
The DEA hearing that opened June 29 represents the most consequential federal cannabis regulatory proceeding in decades. But operators - particularly those in restrictive states - should calibrate expectations carefully. Rescheduling is a federal administrative action, not a legalization order. State law governs what happens in the dispensary, in the supply chain, and on the compliance log. Until that changes state by state, the operational environment for most cannabis retailers will look roughly the same the morning after a Schedule III ruling as it did the night before.
