It’s 2025, and after generations of legal whiplash, the federal status of marijuana is once again at center stage. The question on everyone’s mind: what would it actually mean if marijuana is moved from Schedule I to Schedule III of the Controlled Substances Act (CSA)? Whether you’re in the dispensary trenches or handling commercial contracts for multi-state operators, this possible paradigm shift could reshape the marijuana industry—for better, for worse, or… for an uncertain somewhere in between.
Historical Backdrop: From Reefer Madness to Policy Realignment
First, a little context. In the late 1930s, an anti-drug church group released the film “Reefer Madness” that painted marijuana as a menace capable of driving users to madness and ruin. While this played into anti-marijuana paranoia in the 30s, it also made us laugh in college years later (the movie, that is, or well, maybe both.) Decades later, U.S. Government policy followed suit: in 1970, Congress slammed marijuana into Schedule I of the CSA, lumping it in with heroin and LSD, and declaring it had no accepted medical use. That decision cast a shadow over cannabis for more than five decades—medical research was stifled, commercial practitioners were criminalized, and tax law brought the hammer down on anyone who dared to participate, even in states where it was legal.
But times have changed. Attitudes shifted, scientific research expanded, Deadheads bought Cadillacs, and, with medical marijuana now legal in 38 states, the federal government has finally started listening. In May 2024, the Department of Justice issued a proposed rule to reschedule marijuana as a Schedule III drug. Today, the country sits in regulatory limbo, with hearings, public comments, and political brinksmanship still in motion.
What Does Schedule III Actually Mean?
The expected schedule change will not be quite as a dramatic as Dorothy stepping from black-and-white Kansas into technicolor Oz (or as the bass line introduction to “Money” for those who prefer to listen to Pink Floyd’s Dark Side of the Moon while watching), but it’s still a shift from zero tolerance to regulated acceptance.
Medical Value Recognized: Schedule III drugs are considered to have a legitimate medical use—think ketamine and certain codeine products.
Onerous Restrictions Lifted: Businesses may finally escape the deadweight of Section 280E of the Internal Revenue Code—which currently prohibits anyone “trafficking” in Schedule I or II substances from deducting ordinary business expenses. Without these deductions, state-legal cannabis companies have been hit with outsized federal tax bills, leaving many with razor-thin margins.
More Credibility: The federal government would, for the first time, officially recognize that marijuana is not as dangerous as heroin or LSD and that it serves a legitimate role in healthcare.
But Not All That Glitters Is Legalization
If you’re imagining this change as a green light to start shipping cross-country or banking with ease, it’s time to pump the brakes.
Not Federal Legalization: Marijuana would still be federally illegal except for medical uses permitted under CSA rules.
Banking Hurdles Remain: While some banks may tilt toward serving cannabis businesses, comprehensive access to banking services will likely still require further legislative action on Capitol Hill
State Law Still Reigns: State-legal businesses would still operate in a patchwork system; existing state licensing and regulatory frameworks remain.
DEA Registration & Compliance: Any entity involved in cultivating, manufacturing, distributing, or dispensing would, in theory, fall under DEA regulation, similar to pharmacies or pharmaceutical manufacturers—an operational burden that could reshape the industry.
How To Prepare: Scenario Planning for Schedule III and the Status Quo
—If Rescheduling Happens:
Tax Planning: Prepare for major changes to tax strategy. The end of 280E restrictions could usher in new opportunities for marketing, employee benefits, and reinvestment, but close coordination with tax professionals is essential as the IRS may pursue alternative strategies to capture revenue.
Legal and Compliance Review: Anticipate potentially significant new DEA requirements—registration, recordkeeping, security controls, and reporting. Work with your legal team to start building compliance infrastructure now.
Interstate Operations: While the dream of interstate commerce is alive, it’s not a guarantee. Watch for FDA and other federal agency guidance that could impact labeling, transportation, and sales practices.
Banking & M&A: Improved legitimacy may open doors with lenders and mergers/acquisitions, but don’t count on overnight transformation.
R&D and Clinical Trials: With Schedule III status, research obstacles will shrink, but strict DEA controls on sourcing and security will remain.
—If Rescheduling Stalls:
Continue Defensive Posture: Business remains as usual, with 280E hitting the bottom line, and ongoing federal illegality. Risk management protocols, legal compliance, and robust state/local relationships will remain crucial.
Prepare for Rapid Change: Regulatory shifts can happen with little lead time. Keep scenario plans up to date: have SOPs for pivoting in response to federal directives or enforcement shifts.
Monitor Political Developments: Presidential administrations—and their interpretations of marijuana policy—can flip the game board in a single election cycle, as seen from Biden to Trump-era rhetoric and priorities.
Key Takeaways for Cannabis Businesses
Don’t Overreact, Don’t Underprepare: The wisest path is flexible readiness; invest in compliance, keep legal and tax advisors close, and follow federal developments daily.
Education is Power: Train staff on new regulatory requirements as soon as guidance is available and keep client-facing communications updated to reflect the latest law.
Engage with Policymakers: Comment during rulemaking, join industry coalitions, and participate in public hearings—you can help shape the next chapter.
Conclusion
Marijuana’s possible move from Schedule I to Schedule III is a historic step, decades in the making. But for industry players, it’s not a magic ticket. Being nimble, compliant, and well-advised will make all the difference—whether federal winds change or stand still. Follow the sage advice offered by those famous cannabis aficionados the Grateful Dead “If you get confused, listen to the music play.” For the cannabis industry, the music is changing, but the dance continues.
Leon Silver and Rebecca Cain are experienced trial lawyers at Silver Cain PLC focused on commercial and real property disputes as well as general business matters.
Reach them at lsilver@silvercain.com, rcain@silvercain.com
Silver Cain, PLC is an Arizona based boutique law firm with recognized excellence in commercial and real estate related disputes. The firm represents businesses, investors, and professionals in sophisticated legal matters throughout the United States, providing nuanced strategies and high-caliber advocacy in both state and federal courts, arbitrations and mediations. Our attorneys work closely with business owners, investors, and individuals to protect their interests and find the best path forward, making Silver Cain, PLC a trusted resource for clients and fellow professionals alike.
