The proposed rescheduling of cannabis currently under consideration by the Department of Health and Human Services, the Department of Justice and the Drug Enforcement Agency would move it from Schedule I to Schedule III under the federal Controlled Substances Act (CSA) with a final rule is expected potentially by mid-to-late 2026.
This change is important because it formally acknowledges that cannabis has an accepted medical use and a lower potential for abuse than Schedule I substances, which could have significant impacts on taxation, research, and medical access.
Currently, under federal law, marijuana is a Schedule I controlled substance, meaning it is considered to have no currently accepted medical use and a high potential for abuse, alongside drugs like heroin and LSD.
The federal government has taken action that demonstrates that it actually doesn’t believe cannabis is a Schedule I substance because it has encouraged state legal medicinal markets. Additionally, most states have passed legislation and have approved commerce that has generated tens of billions of dollars while also passing repeated legislation prohibiting prosecution of cannabis crimes.
The Department of Health and Human Service recommended moving it to Schedule III, a category for substances with a moderate-to-low potential for dependence and an accepted medical use in treatment, such as Tylenol with codeine, ketamine, and anabolic steroids. The Department of Justice and the Drug Enforcement Administration have initiated the formal rulemaking process to enact this change.
Rescheduling is a major shift in federal drug policy with several key implications:
• Business Challenges: Retailers and cannabis businesses now face narrowing profit margins, as they are forced to absorb part of the tax or risk losing customers by passing the full cost on to consumers. Small businesses may be especially vulnerable, encountering obstacles in maintaining competitive pricing, covering operational costs, and retaining employees. This financial squeeze could threaten the survival of local dispensaries and limit consumer choices.
• General Tax Relief for Businesses: The most immediate impact would be relief from Internal Revenue Code Section 280E. This code currently prohibits state-legal cannabis businesses from deducting ordinary business expenses (like rent and payroll) because they are considered “trafficking” – for tax purposes – a Schedule I substance. Moving to Schedule III would allow these businesses to claim normal deductions, significantly improving profitability and freeing up capital for reinvestment.
• Michigan 24% Cannabis Tax Offset: The new 24% Michigan cannabis tax is a wholesale excise tax levied on licensed cannabis businesses, specifically the entity making the first sale or transfer of adult-use cannabis to a retail licensee. Rescheduling cannabis to Schedule III has significant implications for Michigan. Rescheduling would allow state-licensed cannabis businesses to benefit from tax deductions previously denied under federal law, increasing profitability and economic growth in Michigan’s cannabis industry.
For everyday consumers, the steep 24% tax means a substantial increase in the price of legal cannabis products. As a result, many may seek out untaxed, illicit sources, inadvertently fueling the black market and undermining the state’s regulatory efforts. This trend could also disproportionately affect medical cannabis users who rely on these products for their health.
The 24% tax will, without rescheduling, increase the financial burden on both consumers and businesses is likely to destabilize Michigan’s legal cannabis industry. New entrepreneurs may be discouraged from entering the market, and established operators could scale back investments, slow expansion, or exit altogether. Such instability could stifle innovation and reduce the quality and diversity of available products for consumers.
• Facilitation of Research: Rescheduling would substantially ease the significant regulatory barriers that have hindered scientific research on cannabis’s potential harms and benefits. Scientists would face less burdensome DEA requirements, encouraging more institutions, researchers, and federal funding (like from the NIH) to enter the space and generate even more clinical evidence on safety and efficacy.
• Acknowledgment of Medical Value: The change formally recognizes at the federal level that cannabis has an accepted medical use. This could reduce the stigma faced by medical patients and encourage more healthcare professionals to discuss cannabis use with their patients.
• Improved Banking Access: While not guaranteeing full access to traditional banking, the reduced perceived legal risk may encourage more financial institutions to offer services to licensed cannabis operators, which has been a major challenge for the industry.
• Potential for FDA-Approved Products: Rescheduling could encourage pharmaceutical companies to develop FDA-approved cannabis-derived medications, which could eventually be prescribed by doctors and potentially covered by health insurance plans, including Medicare.
Eased research restrictions could empower Michigan’s universities and medical centers to conduct groundbreaking studies and attract federal grants, enhancing the state’s leadership in medical innovation. The formal recognition of cannabis’s medical value could reduce stigma and encourage more healthcare providers in Michigan to discuss cannabis treatment options with patients. Improved access to banking would help Michigan’s cannabis businesses operate more securely and efficiently. However, recreational cannabis use would remain federally prohibited, meaning adult-use programs in Michigan would still face legal uncertainty until further congressional action is taken.
It is important to note that rescheduling would not federally legalize recreational marijuana. The manufacture, distribution, and possession of cannabis outside of the new, regulated framework would remain subject to federal criminal prohibitions. State-legal adult-use programs would continue to operate in a gray area of tension with federal law unless Congress passes further legislation.
Michigan consumers and business owners deserve better.
Headquartered in Au Gres, Michigan, and established in 2020, Hello Farms is a leading producer of sun-grown cannabis, dedicated to sustainable and eco-friendly practices. Nestled across 240 acres, Hello Farms nurtures more than 60,000 plants, ensuring each one thrives under natural sunlight, resulting in high-quality cannabis with a super low carbon footprint.
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