Three States Are Trying to Block Cannabis Rescheduling. Here's Why That's Weirder Than It Sounds.

 

Three States Are Trying to Block Cannabis Rescheduling. Here's Why That's Weirder Than It Sounds.

You'd expect pushback on federal cannabis progress to come from the usual places. Religious coalitions. Law enforcement lobbies. Career prohibitionists who've been fighting this since the Reagan administration.

You probably wouldn't expect it to come from the attorneys general of states that already have medical cannabis programs.

And yet here we are.

What Just Happened

On April 23, 2026, Acting U.S. Attorney General Todd Blanche signed a two-phase order that moved cannabis rescheduling forward in a way nobody had quite anticipated.

Phase one: state-licensed medical cannabis and FDA-approved cannabis products were immediately reclassified from Schedule I — where they've sat alongside heroin for decades — to Schedule III of the Controlled Substances Act. Effective immediately. No waiting period.

Phase two: a new expedited administrative hearing was ordered to consider rescheduling all cannabis to Schedule III, with that hearing set to begin June 29 and conclude no later than July 15, 2026. Adult-use cannabis didn't move in phase one. It goes through the hearing process like everyone expected.

On May 22, 2026 — less than a month later — the attorneys general of Nebraska, Indiana, and Louisiana filed a 15-page petition in the U.S. Court of Appeals for the D.C. Circuit asking the court to declare that order unlawful and vacate it entirely.

Why These Three States?

This is where it gets interesting.

Indiana and Louisiana both have state medical cannabis programs. Nebraska has no cannabis program at all — total prohibition. All three are represented by Republican attorneys general. None of them are making an argument that cannabis is dangerous or that rescheduling is bad policy. Their argument is procedural: they're saying the DOJ didn't follow the rules when it issued this order.

The mechanism Blanche used to immediately reclassify medical cannabis bypassed the standard Administrative Procedure Act process — the notice-and-comment rulemaking that federal agencies normally have to follow before major policy changes take effect. Instead, he invoked the United States' obligations under the United Nations Single Convention on Narcotic Drugs, an international drug treaty, which gave him a legal pathway to act immediately without going through that public process.

The states are arguing that pathway was improperly applied — that the order exceeds the authority granted by the Controlled Substances Act, that it conflicts with the international treaty it claims to be fulfilling, and that it was ultimately arbitrary and capricious as a matter of administrative law.

They are not arguing cannabis shouldn't be rescheduled. They're arguing this isn't the right way to do it.

The D.C. Circuit has consolidated their petition with a similar challenge filed on May 4 by Smart Approaches to Marijuana — the country's most prominent anti-legalization advocacy group — and the National Drug and Alcohol Screening Association. The states have until June 26 to file their full brief. SAM's brief is due June 4.

What Schedule III Actually Means (And What It Doesn't)

Before we get into why this matters, it's worth being clear about what rescheduling actually does — because there's a lot of confusion out there.

What it does:

The single biggest practical impact of moving medical cannabis to Schedule III is relief from Section 280E of the federal tax code. For years, 280E has prevented cannabis businesses from deducting ordinary operating expenses — rent, payroll, utilities, marketing — because they were classified as trafficking in a Schedule I substance. Cannabis operators have been taxed on gross revenue rather than net income, with effective tax rates in some cases reaching 70% or higher. Industry analysis suggests the typical dispensary could save around $268,000 per year once 280E no longer applies.

The Treasury Department has confirmed that rescheduling removes 280E as a barrier for businesses covered by the order — meaning state-licensed medical cannabis operators. That's real money, and for a lot of operators it could be the difference between staying open and shutting down.

Schedule III also removes barriers to research. Cannabis has been nearly impossible to study at scale under Schedule I. Moving it to Schedule III makes clinical research significantly more feasible, which matters if you actually want to understand what cannabis does and doesn't do medically.

What it doesn't do:

Cannabis is not federally legal. Recreational adult-use cannabis remains Schedule I for now and goes through the June 29 hearing. Possessing or selling cannabis outside of a state-licensed medical program is still a federal crime.

Banking reform is not included. The SAFE Banking Act hasn't passed. Cannabis businesses still don't have normal access to financial services, and that doesn't change with rescheduling.

Your local dispensary looks exactly the same as it did before the order. The customer experience doesn't change overnight. What changes is the financial reality for the operators behind the counter.

One more important unanswered question: retroactivity. It's currently unclear whether dispensaries can amend prior-year tax returns to claim deductions that were blocked by 280E before rescheduling. The IRS hasn't issued guidance yet. Operators should talk to their accountants before doing anything on that front.

Why the Legal Challenge Could Actually Matter

If the D.C. Circuit sides with Nebraska, Indiana, and Louisiana, the immediate rescheduling order gets thrown out. Medical cannabis goes back to Schedule I while the traditional rulemaking process plays out — which would take considerably longer. The 280E relief evaporates. The research barriers go back up.

The argument over the UN treaty pathway is a legitimate legal question. The DOJ's Office of Legal Counsel issued an opinion concluding that rescheduling to Schedule III satisfies U.S. obligations under the Single Convention on Narcotic Drugs. The states are going to argue that opinion was flawed. Courts have ruled against agencies on APA grounds before, and the current federal judiciary is not especially friendly to administrative overreach — regardless of which administration is doing the overreaching.

The June 26 brief deadline is the next thing to watch. That's when the legal arguments actually land on paper and the court gets to evaluate them.

The Bigger Picture

Here's what makes this moment genuinely strange: this is a situation where a Republican president's administration is pushing cannabis reform further than many expected, and Republican state attorneys general are the ones trying to stop it on procedural grounds — while the practical beneficiaries of the reform are the medical cannabis patients and operators in those same states.

Indiana and Louisiana have medical patients who would benefit directly from their state's own AG reversing this order. That's the tension nobody in mainstream coverage is really sitting with.

What this tells you is that cannabis policy in 2026 is no longer a simple left-right issue. It's a layered fight over administrative authority, federal-state relationships, and legal procedure — and the outcomes are going to be determined in courtrooms, not at ballot boxes, at least for the next few months.

The June 29 hearing for adult-use rescheduling is also a date worth circling. That process will determine whether recreational cannabis eventually follows medical into Schedule III — which would be the bigger story for most consumers.

We'll be tracking both timelines here at Scunk Gardens. This one is moving fast.

Mr. Scunk is a cannabis educator, dispensary manager, and host of the Let's Toke About It podcast. Find him at twitch.tv/scunkgaming.

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