A new report from congressional researchers is shedding light on what the Trump administration’s move to reclassify cannabis could mean for the industry, while also outlining the limits of the policy shift under federal law.
The analysis, released recently by the Congressional Research Service (CRS), examines the DOJ’s decision to move medical cannabis from Schedule I to Schedule III under the CSA. The report explains that while the change could offer legal protections to some patients and licensed medical cannabis operators, it does not fully legalize cannabis businesses at the federal level, particularly those tied to recreational sales.
According to the report, the rescheduling decision creates a pathway for certain medical marijuana businesses to comply with federal regulations. Still, CRS cautioned that the action does not instantly bring the broader state-licensed cannabis market into alignment with federal law.
The DOJ also instructed the Drug Enforcement Administration to accelerate the registration process for state-authorized medical cannabis businesses. Under the directive, the DEA is to establish a faster approval system and process early applications within six months.
Last week, the agency introduced an online application portal for medical marijuana companies seeking federal registration and related protections.
Even so, CRS pointed out that federal drug laws continue to create significant complications. Under existing rules, controlled substances typically must be dispensed through a valid prescription. Marijuana does not currently qualify as a federally approved prescription drug, although the order permits access through physician certifications issued under state medical cannabis programs if specific conditions are met.
Due to that distinction, patients using marijuana under state medical programs may be allowed to possess cannabis without a traditional federal prescription. However, businesses operating in the industry could still face legal uncertainty outside the scope of the CSA.
The report highlighted another major hurdle involving the Federal Food, Drug, and Cosmetic Act. While the FDA has approved several cannabis-derived medications, including Epidiolex, cannabis itself has not received FDA approval as a drug product. That means companies involved in producing or distributing cannabis could still face civil or criminal penalties tied to federal law.
The researchers stressed that recreational cannabis remains federally prohibited regardless of state legalization measures. Even if marijuana is permanently placed in Schedule III after upcoming hearings, the production, sale and possession of non-medical cannabis would continue to violate federal statutes.
The CRS review also addressed a longstanding congressional budget restriction that bars the DOJ from using federal funds to interfere with state medical cannabis laws. Analysts said the rescheduling move does not remove that protection but could make it less necessary for businesses that obtain DEA registration and comply with federal standards.
The report further noted that some criminal penalties linked to marijuana offenses may be reduced under the new classification. However, mandatory minimum sentences tied to large quantities of cannabis would remain unchanged because those penalties are written directly into federal law.
Beyond legal concerns, the report identified two areas where the policy shift could have a substantial impact: scientific research and taxation.
It noted that studies involving Schedule III substances face fewer regulatory barriers than those involving Schedule I drugs. The updated policy may also allow scientists to use marijuana obtained through state-regulated markets instead of relying solely on federally approved research supplies.
The tax implications could also be significant. Under current IRS rules known as 280E, businesses dealing with Schedule I or II substances cannot claim many standard business deductions. If marijuana officially remains in Schedule III, cannabis companies may become eligible to deduct ordinary operating expenses on federal tax returns.
The IRS and Treasury Department have already indicated that new tax guidance is expected following the announcement.
While many cannabis advocates welcomed the change, the administration has continued sending mixed messages on marijuana policy.
The White House Office of National Drug Control Policy recently released a national strategy document warning about high-potency cannabis products and claiming criminal organizations have taken advantage of state legalization systems. The administration has also discussed plans to tighten federal restrictions on hemp-derived THC products later this year.
As the ramifications of the recent decision to reclassify some marijuana products continue to become clearer, marijuana companies like Tilray Brands Inc. (NASDAQ: TLRY) (TSX: TLRY) will be able to ascertain how exactly those reforms impact the trajectory of the industry in the near term.
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