CHNANY Deep Dive: Cannabis Moves to Schedule III: What This Means for the Cannabis Industry

Written by Lucas McCann, PhD, CHANY Member & Co-founder of CannDelta canndelta.com

On April 23, 2026, the Department of Justice issued the final order rescheduling medical marijuana from Schedule I to Schedule III of the Controlled Substances Act (the "CSA"), a movement that was signaled by Trump last December. It is the most significant federal cannabis reform in over fifty years. The Drug Enforcement Administration (the "DEA") has opened a portal for medical marijuana dispensaries to complete their registration, with the promise that registration forms for manufacturers, transporters/distributors, and testers are well on the way and should be available before the sixty-day priority registration window closes. Adult-use cannabis remains on Schedule I pending a separate hearing scheduled for June.

Schedule III is the same federal category as ketamine, anabolic steroids, and codeine. These substances have all undergone significant clinical research and have established medical uses. State-licensed medical cannabis is no longer treated as having no accepted medical use (despite the years of anecdotal evidence, clinical data, and other countries like Canada, Australia or Germany have already implemented medical frameworks). Adult-use cannabis remains Schedule I until the June 29 hearing resolves the broader question of what’s next for that industry segment.

The process of rescheduling itself is structured and slow. Three federal bodies are involved: the DEA, the Food and Drug Administration (the "FDA"), and the Department of Health and Human Services ("HHS").

The trigger can come from several places. The DEA can initiate scheduling on its own. HHS can petition. Drug manufacturers can also petition (this is how new FDA-approved drugs typically get scheduled). Members of the public or interest groups can also petition, which is how the cannabis rescheduling process started in the first place. The cannabis process took years. HHS recommended rescheduling to Schedule III in August 2023. The DEA published its proposed rule in May 2024.

The most immediate tax relief in wake of this announcement comes through Section 280E of the federal tax code, which has cost the cannabis industry billions in disallowed deductions (such as normal business expenses including rent, wages, marketing, professional fees, etc..). Section 280E applies only to trafficking in Schedule I and II substances. For medical operators, rescheduling removes 280E exposure on medical operations. Treasury has not yet issued formal apportionment guidance, but the statutory basis for 280E relief is clear.

Banking access improves along with other advantages, and more regional banks and credit unions are expected to enter the medical cannabis market through 2026, with better terms for their cannabis clients.

Medical research for cannabis becomes feasible. Schedule I status has made cannabis nearly impossible to study under FDA-approved protocols, and very few organizations have been able to register with the DEA to research cannabis. Schedule III opens the door to legitimate clinical trial data, which builds the evidence base for product claims, dosing, and new formulations. What’s exciting is that beyond CBD and synthetic THC analogues (Marinol and others), the other 130 or so cannabinoids can now be formally evaluated. Operators, universities and public institutions with R&D ambitions can finally pursue them.

Medical cannabis is now, technically, federally regulated under the DEA. This changing of the guard from state regulations to a federal regulator comes with more questions than guidance for operators. Operators must register, report, file inventory records, comply with security requirements, and submit to inspection. On the registration form itself, operators must also disclose any prior unregistered handling of controlled substances by anyone involved in the firm’s ownership or operation.

Under the DEA’s Medical Marijuana Dispensary Information Submission form’s Section 4, with the header “Liability Questions,” prospective registrants must respond to the following: “Has anyone who will be involved in the ownership or operation of the firm previously manufactured, distributed, and/or dispensed any controlled substance without a DEA registration authorizing such activity?” and are required to provide the names along with a “brief explanation.” This, along with other concerns about the rollout, has left many break-even dispensary owners wondering whether, despite supplying the medical framework, the registration aligns with their immediate needs and if there are any immediate benefits, especially if the registration represents an additional cost to their already struggling business without an immediate return.

There are hard costs associated with registration. Manufacturer registration, with the forms still not available at the time of publication, is $3,699 per year and includes cultivators and processors. Registering a medical marijuana dispensary with the DEA costs $794 annually for a non-refundable application fee. This is separate from the costs of compliance support from the most experienced, reputable, top-tier consulting firms, which charge upwards of $30,000 for vertically integrated businesses to draft, complete, support, submit, and cure registrations with the DEA, and to perform the gap analyses operators need to transition from a state regulatory framework to a federal one under the CSA. Over time, this framework moves cannabis dispensaries toward the same regulatory footing as pharmacies like Duane Reade. Until a medical DEA registration is completed, submitted, and approved, prospective registrants will be required to comply with state regulations. Vendor qualification will change as registered counterparties cannot transact with unregistered ones. Operators who delay registration risk losing access to suppliers, lab partners, and distribution channels that have moved first. Once accepted business operators will be effective inviting DEA agents, such as compliance and enforcement teams into their facilities for audit. As such, operators will operations in both the medical and adult-use segments will are unclear how this will be evaluated during the audits.

New York's medical cannabis market is structurally tiny. Only 19 Registered Organizations are licensed statewide, and just 13 are operationally active, running 39 dispensing locations serving roughly 77,500 patients. Now, if we consider the six RODs (Registered Organizations with Dispensaries), three RONDs (Registered Organizations with No Dispensaries), and seven research licensees, and the total DEA-eligible New York licenses sits at roughly 20 to 25 entities. Further, the medical market in New York is shrinking currently. Medical sales have declined for the third year in a row, from $162M in 2023 to $105M in two years, even as adult-use surged past $1.6B. DEA registration and newly anticipated 280E relief may be the difference between New York's medical program surviving or being absorbed entirely by adult-use. Each RO is a multi-site, vertically integrated operator that paid $200,000 (or more) to enter, half the price of what the “paper” adult-use licenses are being sold for now from licensed operators that might want to divest. State regulators like New York have not (yet, at least) made any accommodation for existing adult-use operators who may wish to add or include a medical designation as a part of their license to benefit from some of the new potential opportunities for registered medical marijuana entities. However, California’s DCC has allowed adult-use operators to add the Medical (or ‘M’) designation as a separate event from license renewal, providing one model for how states may bridge the medical and adult-use frameworks during the transition.

New York’s adult-use cannabis market has expanded to 2,259 licenses since the licensing window ended in 2023, yet none of them qualify for Schedule III rescheduling or DEA registration under the April 2026 order.

The fate of the New York’s adult-use cannabis industry remains undetermined in light of these decisions until June 29, a few days after the priority window closes for medical marijuana. At that time the DEA will hold a hearing about what to do with that “segment” of the industry.

It’s unclear at this time what operators running mixed-license facilities must segregate physically, though segregation of medical and adult-use financials and recordkeeping is going to be expected. The DEA opened the dispensary registration portal on April 29 at mmapplication.diversion.dea.gov. The manufacturer and distributor portals are expected imminently. Cultivators register as manufacturers using DEA Form 225.

Operators who file within the sixty-day expedited window (closing June 26) receive priority review and a safe harbor to continue operating under their state license while the application processes. This is the single most important date in 2026 for medical operators. Once the priority window closes, it’s unclear when the application portal will open again, what the backlog will be as a result of operators flooding the portal, or how many operators even intend to apply.

The application requires entity information, controlled substance handling details, security plans, ownership disclosures, and (for manufacturers) the Single Convention purchase-and-resell mechanism. Each operating location requires its own registration, so subsidiaries with multiple locations must register each independently. Expect the full process to involve documentation gathering, security plan development, and SOP review that most operators have not yet done.

A pathway to new markets is likely the leading advantage. It’s understood that as s Schedule III drug, cannabis will be allowed to move across State lines and beyond, offering significant advantage to Multi-State Operators. This is a framework that can be expected with any other drugs that shares the same level of regulatory scrutiny. However, when we extrapolate where this is going, it represents a clear pathway for medical marijuana manufacturers to be able to participate in the global market. Doing so, will not be immediate, however, in the coming years, it’s expected that an export framework will be established. Many cannabis operators will need to achieve international standards to meet the expectations for the global market. These are largely complying with either European Union’s Good Manufacturing Practices (referred to as “EU-GMP” certification) for finished cannabis products (i.e. finished, final, tested, packed and labelled products ready for the end-user). This represents a pharmaceutical level of production standard that occurs after fresh cannabis is processed and removed from a drying room in a licensed manufacturing facility for further processing (i.e., testing, packaging and labelling). With a European production partner, products could be exported to through the European market using an EU-GMP certified partner to complete the processing steps while exporting the products under Good Agricultural Collection Practices (often referred to as “GACP” certification)

If you hold a medical cannabis license, file inside the window. The cost and effort of registration are smaller than the potential opportunity costs of being locked out of registered supply chains, losing access to improved banking, and continuing to carry 280E exposure. Adult-use operators should track the June 29 hearing and prepare to file as soon as the rule is finalized. Schedule III is not the finish line. It is the start of cannabis operating like a real regulated industry. The operators who treat the next sixty days seriously are the ones who set the pace.