DEA Pauses Adult Use Rescheduling. Medical Schedule III Is Still in Effect.

Our friends at Marijuana Moment reported yesterday that the DEA administrative law judge has paused the broader marijuana rescheduling proceeding while the parties address a new Government Accountability Office report criticizing gaps in the federal drug scheduling process. For anyone concerned that this somehow reverses what happened earlier this year with medical marijuana, it does not. The order placing marijuana subject to qualifying state medical marijuana licenses into Schedule III is already in effect. Nothing about this latest development changes that. Section 280E applies to Schedule I and Schedule II substances, so qualifying medical marijuana activity is no longer subject to 280E.

What has been delayed is the broader proceeding that would move marijuana generally into Schedule III, including the adult use market. That is still a big deal for the industry. According to BDSA, adult use cannabis sales were approximately $23.9 billion in 2025 compared with $7.6 billion of medical sales. That means roughly three quarters of the regulated cannabis market is adult use. For businesses operating only in adult use markets, we are going to have to wait a little longer. For businesses operating in states with both medical and adult use programs, I think the situation is much more interesting.

Can the Same Marijuana Be Schedule I and Schedule III?

States like Oregon illustrate the problem pretty well. Oregon allows OLCC retailers that are registered for medical sales to sell marijuana to both adult use customers and medical marijuana cardholders. Marijuana sold to a cardholder for medical purposes is treated as a medical sale and is not subject to Oregon's marijuana sales tax. The same retailer can then sell marijuana to a customer without a medical card as an adult use sale.

For a lot of the product moving through that system, there is fundamentally no difference between the marijuana being sold. The marijuana can come from the same producer, move through the same regulated supply chain, be tracked through the same system, sit in the same dispensary inventory and ultimately be purchased by either a medical patient or an adult use customer. The difference occurs when the customer gets to the register. If the customer has a qualifying medical card, the transaction is a medical sale. If the next customer does not, it is an adult use sale.

This is not Schrödinger's cat. The exact same product cannot logically be both Schedule I and Schedule III at the same time simply because one customer has a medical card and the next one does not.

I understand the argument the federal government may make. The medical rescheduling order specifically applies to marijuana products subject to qualifying state medical marijuana licenses. The government may argue that Schedule III treatment only follows the medical side of the market and that adult use transactions remain Schedule I. I am not convinced that resolves the problem. We are not talking about two different substances. In many cases we are not even talking about two different batches of marijuana. We are talking about the exact same inventory sitting on the exact same shelf.

We raised this issue earlier this summer after the DEA hearing concluded. At the time I wrote that the government may argue that adult use transactions remain outside the medical rescheduling decision, but that still does not explain how the same flower can shift from Schedule III to Schedule I solely at the point of sale. I know attorneys who are already preparing to take this argument to court on behalf of their clients. I expect this is eventually going to have to be resolved by the courts.

This Also Matters for Prior Year Refunds

The Attorney General did something else in the medical rescheduling order that I continue to believe is extremely important. He specifically encouraged Treasury to consider retrospective relief from Section 280E for prior years in which businesses operated under qualifying medical marijuana licenses. We do not know where Treasury or the IRS will ultimately land on retrospective relief, but the refund statutes are not going to wait for them.

This has been one of my biggest concerns throughout the 280E fight. The government can spend years working through DEA proceedings, IRS guidance, Treasury guidance and litigation. Cannabis businesses generally have a limited amount of time to amend their tax returns and claim refunds. Once that statute expires, it is gone.

Imagine that Treasury ultimately agrees that medical marijuana businesses are entitled to retrospective relief. Or imagine that a court agrees that marijuana moving through a mixed medical and adult use system cannot simultaneously be Schedule I and Schedule III. That could result in substantial refunds for cannabis businesses. But winning the argument later does not help a taxpayer who allowed the statute of limitations on their refund to expire while they waited for an answer. We have already seen this happen with older tax years.

This is why I continue to believe cannabis operators should be looking at their open years now. For some businesses, that may mean filing amended returns and claiming the refund. For others, particularly those uncomfortable requesting the refund before some of these legal questions are resolved, a protective claim may make more sense. Neither guarantees that the IRS will ultimately issue the refund. What they can do is preserve the taxpayer's opportunity to pursue it.

I have never understood why waiting is automatically characterized as the conservative position. There is risk in challenging 280E. There is also risk in doing nothing and watching the statute expire.

If your business operated under a medical marijuana license or endorsement, particularly in a state with both medical and adult use sales, I think it is worth looking at your prior returns and determining how much 280E tax you paid and which years are still open. The goal right now is not to predict exactly where the DEA, Treasury, the IRS or the courts will ultimately land. The goal is to make sure that if they land in your favor, you have not already lost your right to the refund.

This article is intended for informational purposes only and does not constitute legal, tax or medical advice.