DEA Marijuana Rescheduling Hearing Ends as Opposition Witnesses Fall Short

Hearing Closes Without New Evidence from Opponents

Opposition witnesses presented no novel scientific findings or legal arguments that would compel the DEA to abandon the rescheduling proposal, according to procedural records filed July 17. The hearing featured testimony from Smart Approaches to Marijuana, the National Association of Drug Court Professionals, and individual physicians who argued that cannabis lacks accepted medical use under the Controlled Substances Act's five-factor test.

ALJ Mulrooney granted the opposition 18 months to compile evidence after the DEA published its Notice of Proposed Rulemaking in May 2024. That NPRM followed an August 2023 recommendation from the Department of Health and Human Services. HHS concluded cannabis meets the statutory criteria for Schedule III placement based on accepted medical use, lower abuse potential relative to Schedule I and II substances, and moderate-to-low dependence liability.

The hearing record now totals more than 43,000 pages. It includes submitted testimony, agency memoranda, and public comments. Mulrooney has 90 days under DEA procedural rules to issue his recommended decision, though that timeline isn't binding.

What Schedule III Means for Operators and Investors

Rescheduling to Schedule III would eliminate the application of Internal Revenue Code Section 280E to state-licensed cannabis businesses, allowing ordinary business-expense deductions and dramatically improving EBITDA margins. Multi-state operators currently pay effective federal tax rates between 60% and 75% because 280E disallows deductions for cost of goods sold beyond direct cultivation and processing expenses.

Analysts at Cowen estimated in March 2025 that Schedule III placement would improve MSO EBITDA margins by 8 to 12 percentage points. That translates to $1.2 billion in annual tax savings across the $28 billion U.S. cannabis market. Those savings wouldn't require congressional action. Schedule III status automatically removes 280E's application the day a final rule takes effect.

Rescheduling doesn't legalize cannabis under federal law. Schedule III substances remain controlled, require DEA registration for manufacturing and distribution, and are subject to FDA regulation as drugs. State-licensed dispensaries would still operate in violation of the Controlled Substances Act absent further legislative reform, though Justice Department enforcement priorities would likely shift.

Timeline to Final Rule Runs Through Early 2027

If Mulrooney recommends approval and Administrator Milgram accepts that recommendation, the DEA must publish a final rule in the Federal Register, triggering a 60-day effective date under the Administrative Procedure Act. That sequence places the earliest possible effective date in Q1 2027, assuming no further delays or judicial challenges.

Two variables remain outside the DEA's control. First, the incoming administration in January 2027 could pause or withdraw the rulemaking if it disagrees with the HHS recommendation or the ALJ's findings. Second, opponents have signaled intent to file suit in federal court. They'll challenge any final rule on grounds that the five-factor analysis was procedurally defective or scientifically unsupported.

For full background on this proceeding, see the CannIntel topic hub on DEA rescheduling.

The next milestone: Mulrooney's recommended decision, expected by mid-October 2026. Operators should model two scenarios. One where 280E relief arrives in Q1 2027. One where litigation extends the timeline into 2028.