By Shay Aaron Gilmore | Shay Gilmore Law | May 25, 2026
We are now almost five weeks out from the April 22 order and 35 days from the June 29 administrative hearing. That interval has produced a clearer picture of what the order actually does, where the institutional threats to it lie, and what California operators and investors need to do before the June 27 priority registration window closes. This post synthesizes the order’s text, the Federal Register publication, the nonpartisan Congressional Research Service Legal Sidebar (LSB11424, April 30, 2026), authoritative commentary, and DOT’s recent guidance on drug testing, to provide a current, legally-grounded assessment for California operators and investors navigating a genuinely novel federal compliance environment.
A note on dates: the Acting Attorney General signed the order on April 22, 2026, and the DOJ announced it on April 23, 2026. The order was published in the Federal Register on April 28, 2026 — the operative effective date for regulatory purposes and the date from which the 60-day priority registration window is calculated. That window closes on June 27, 2026. In this post, “April 22” refers to the date of the order’s issuance; “April 28” is used only where the Federal Register effective date controls a specific regulatory calculation.
What the April 22 Order Actually Does — and Does Not Do
On April 22, 2026, Acting Attorney General Todd Blanche signed a final order placing two categories of marijuana in Schedule III of the Controlled Substances Act (CSA). The DOJ announced it on April 23; it was published in the Federal Register on April 28, 2026. The order does three operative things.
First, it immediately rescheduled from Schedule I to Schedule III: (i) marijuana contained in FDA-approved drug products containing Δ9-THC derived from the plant Cannabis sativa L. (other than mature stalks and seeds); and (ii) marijuana — including marijuana extracts and naturally derived delta-9-THC — subject to a qualifying state-issued license to manufacture, distribute, and/or dispense marijuana for medical purposes.
On the first category, an important clarification that has been underemphasized in most commentary: this provision appears intended to apply prospectively to products FDA may approve in the future, not to products previously rescheduled out of Schedule I. Marinol (dronabinol in sesame oil capsule form), for example, was originally placed in Schedule II upon FDA approval in 1985 and transferred to Schedule III in 1999; Syndros (dronabinol oral solution) is Schedule II. Neither was ever in Schedule I, and the April 22 order does not purport to affect their scheduling.
Second, the order amends 21 C.F.R. § 1312.30 to add FDA-approved marijuana products and state-licensed medical marijuana to the list of nonnarcotic Schedule III through V controlled substances for which an international import and export permit is required. This amendment is addressed in its own section below.
Third, the order withdrew the notice of hearing on the pending Biden-era proposed rulemaking and announced an expedited DEA administrative hearing beginning June 29, 2026, and concluding no later than July 15, 2026, to consider whether all marijuana should be moved from Schedule I to Schedule III.
Several exclusions require explicit emphasis. All adult-use or recreational cannabis — regardless of state licensing — remains in Schedule I. Synthetically derived THC, including delta-10 THC and similar compounds produced through chemical conversion, remains in Schedule I. Unlicensed bulk marijuana crops remain in Schedule I, as does any derivative not incorporated into a state-licensed or FDA-approved product. The order does not affect the legal status of hemp. For California operators holding only an Adult-Use (A) license with no M-designation, the order’s immediate benefits do not apply.
The Treaty Authority
Rather than completing the formal rulemaking process prescribed by 21 U.S.C. § 811(a), the Acting Attorney General invoked 21 U.S.C. § 811(d)(1) — the CSA’s “treaty exception” — which permits scheduling actions necessary to carry out U.S. treaty obligations without ordinary notice-and-comment procedures.
The operative treaty authority under § 811(d)(1) is the Single Convention on Narcotic Drugs of 1961 — and only that treaty. Section 811(d)(1) authorizes the Attorney General to schedule a substance without ordinary notice-and-comment only for treaties “in effect on October 27, 1970.” The Convention on Psychotropic Substances was signed February 21, 1971, and did not enter into force until 1976 — placing it outside § 811(d)(1)’s reach entirely. The companion FDA-approved products order (Federal Register doc. 2026-08176) does note that Δ9-THC appears in Schedule II of the 1971 Convention as a descriptive matter of international drug classification, but that observation does not make the 1971 Convention operative § 811(d)(1) authority. This distinction also explains why the § 811(d)(1) pathway is unavailable for psychedelics, most of which are scheduled exclusively under the 1971 Convention rather than the 1961 Single Convention.
The key treaty obligations under the Single Convention that the order’s regulatory apparatus is designed to satisfy include: restricting handling of covered drugs “exclusively to medical and scientific purposes”; imposing production quotas for covered drugs; requiring manufacturers, importers, and exporters to be licensed; requiring prescriptions (or their functional equivalent) for medical use; prohibiting possession “except under legal authority”; and — most controversially — requiring government purchase and monopolization of wholesale marijuana trade. Each of these obligations maps onto a specific regulatory mechanism in the April 22 order. The mapping is tighter for some obligations than others.
The 2024 OLC opinion determined that Schedule III status, combined with these additional regulatory controls, is sufficient to comply with the Single Convention. The opinion characterized the treaty question as “a close one” — a characterization the order itself essentially adopts when it treats multiple scheduling options as legally available and then chooses the option “most closely aligning to HHS’s findings.” That framing both reflects the breadth of executive discretion claimed and underscores its potential vulnerability under APA review.
What Makes This Order Legally Unusual
The § 811(d)(1) Bypass and APA Exposure
Legal commentators across the profession have noted that the order’s reliance on § 811(d)(1) generates litigation risk that operators cannot ignore. The core procedural objection is that the DEA had already been engaged in a § 811(a) rulemaking — a proposed rule in May 2024, nearly 43,000 public comments, and an ALJ appointment — before that proceeding collapsed when the presiding ALJ announced his retirement in July 2025, effective August 1, 2025. Rather than completing those proceedings, the April 22 order terminated them and invoked treaty authority to act without a hearing.
The two-tier scheduling architecture — Schedule III when held under a state medical license, Schedule I in all other contexts — has no prior analog in CSA history. The CSA has never before scheduled a substance differently based on the distribution channel through which it flows. The order simultaneously asserts that marijuana has an “accepted medical use” (for Schedule III purposes) and does not have one (for adult-use purposes) — a tension that CSA statutory text may not easily accommodate.
Production Quotas Remain — A Non-Standard Schedule III Feature
A significant regulatory feature that distinguishes rescheduled marijuana from virtually all other Schedule III controlled substances: as the CRS analysis confirms, “The CSA does not require DEA to set annual production quotas for Schedule III controlled substances, but the final order states that DEA will continue to apply quota requirements to marijuana as required by the Single Convention.”
California M-licensed cultivators who obtain DEA registration will be subject to DEA production quotas — a control feature that does not apply to other Schedule III substances — because the Single Convention mandates it. The quota framework for newly registered state-licensed cultivators has not yet been formally established. Operators structuring supply agreements, offtake arrangements, or investment projections should treat the production quota framework as an unresolved federal variable that will materially affect those projections.
The Wholesale Monopoly Requirement: The Order’s Most Contested Treaty Mechanism
The most legally contested mechanism in the April 22 order — and the one most deserving of sustained analysis — is the nominal-price purchase-and-resale arrangement designed to satisfy Articles 23 and 28 of the Single Convention.
What the treaty requires. Article 23 of the Single Convention requires each party that “permits the cultivation of the cannabis plant for the production of cannabis or cannabis resin” to establish or designate a government agency to: (1) take physical possession of all crops of cannabis; and (2) exercise exclusive rights to import, export, wholesale trade, and maintain stocks other than those held by manufacturers of cannabis preparations. Article 28 requires parties permitting cannabis production for purposes other than seed production or fiber to apply the Article 23 regime to it. Taken together, Articles 23 and 28 impose a requirement that a government agency monopolize the wholesale cannabis trade — not merely regulate it, but physically hold it and exclusively conduct it.
What the order does. The April 22 order satisfies this through a nominal-price purchase-and-resale mechanism applicable to registered manufacturers: the DEA nominally “purchases” a manufacturer’s harvested crop at a nominal price and “immediately” resells it back to the same manufacturer, plus an administrative fee, with DEA maintaining access rights to the facility during the transaction. As CRS characterizes it, this is “similar to procedures that apply to marijuana grown for research purposes.”
The debate: does it actually work?
There are at least three serious lines of criticism of the nominal-price mechanism as a genuine treaty compliance solution, and operators and investors should understand them clearly — not only because they bear on the order’s litigation vulnerability, but because they affect the plausibility of the overall regulatory framework under which DEA registration is being solicited.
First: physical possession. The treaty requires the government agency to “take physical possession” of all harvested crops. In the nominal-price mechanism, DEA does not physically move, warehouse, or take constructive possession of the crop in any meaningful commercial sense. DEA gains a contractual access right to the facility for the duration of the nominal transaction — but the product never leaves the manufacturer’s premises. Whether that satisfies “physical possession” under Article 23 is a genuine treaty interpretation question. The U.S. has long taken the position that its regulatory controls satisfy the Convention’s spirit, but the text of Article 23 is reasonably read to require something more than a nominal paper transaction.
Second: wholesale monopoly. Article 23 requires the government agency to hold “exclusive rights to . . . wholesale trade.” The nominal-price mechanism applies only at the manufacturer/cultivator level — once DEA nominally purchases and resells to the registered manufacturer, the product moves through the distribution chain (from licensed manufacturer to licensed distributor to licensed dispenser) under ordinary Schedule III transfer documentation rules. DEA does not monopolize the full wholesale chain; it occupies only the first link and only nominally. Whether Articles 23 and 28 require government control throughout the wholesale distribution chain, or only at the point of initial production, is a contested treaty interpretation question that neither the order nor the OLC opinion addresses with precision.
Third: long-standing non-compliance. Some of the most trenchant criticism is historical and systemic. As treaty scholars and policy analysts have noted, the United States has been in open, ongoing violation of the Single Convention’s cannabis-specific requirements — including the Article 23 wholesale monopoly requirement — for decades, as state after state has legalized or decriminalized marijuana in ways that directly conflict with the Convention’s mandatory prohibitions. On this view, the nominal-price mechanism is not a genuine treaty compliance solution but rather a fig-leaf designed to satisfy § 811(d)(1)’s requirement that the scheduling action be “necessary to carry out” U.S. treaty obligations — even as the broader commercial cannabis industry continues to operate in ways that are plainly inconsistent with the treaty as a whole. The OLC opinion itself was characterized, even by treaty-obligation proponents, as reaching a “close” question.
The practical implications. The mechanism’s fragility as a treaty compliance solution is precisely the kind of analytical weakness that APA petitioners will exploit in the D.C. Circuit. If a reviewing court concludes that the mechanism does not genuinely satisfy Articles 23 and 28, the entire § 811(d)(1) basis for bypassing ordinary rulemaking collapses — because the treaty-exception authority requires the scheduling action to be “necessary to carry out” treaty obligations, and a mechanism that does not satisfy those obligations cannot serve as the justification for bypassing procedural requirements.
For California operators, the practical lesson is not that registration should be deferred. Operators who register should do so with a clear-eyed understanding that the treaty compliance framework is legally contested, D.C. Circuit litigation will test it, and contingency planning for a judicial invalidation scenario — however unlikely in the near term — belongs in any serious risk management analysis.
The SAM/NDASA Lawsuit
On May 4, 2026, Smart Approaches to Marijuana (SAM) and the National Drug and Alcohol Screening Association (NDASA) filed a Petition for Review in the D.C. Circuit raising APA challenges to the April 28 order. No stay has been sought, and the order remains in full effect. The immediate litigation risk to operators is low. The moderate-term risk — that a successful APA challenge could reinstate Schedule I status — is real and should inform how operators structure reliance decisions, particularly in the context of the wholesale monopoly treaty argument analyzed above.
The Appropriations Threat — and Why the Rider’s Value Is Evolving
On May 14, 2026, the House Appropriations Committee approved the FY2027 Commerce, Justice, Science, and Related Agencies Bill with Section 591, which would prohibit the use of any appropriated funds to reschedule marijuana or conduct the June 29 administrative hearing. The committee vote was 32–28.
If enacted, Section 591 would cut off funding for the June 29 hearing and any further DEA administrative action toward broader rescheduling — but would not, on its face, retroactively undo the April 22 order, which was issued under treaty-compliance authority separately authorized by the CSA and directed by Executive Order 14370. Congress stripped similar anti-rescheduling language from the FY2026 continuing resolution in January 2026, which cleared the way for the April 22 order.
The annual medical marijuana appropriations rider — which has appeared in every appropriations bill since FY2015 and prohibits DOJ from using funds to prevent states from implementing their medical marijuana laws — is also changing in relevance. For state-legal medical marijuana businesses that register with DEA and come into full CSA compliance, the rider may become redundant, because those businesses do not need the rider to shield them from prosecution if they are no longer violating federal law. For unregistered operators and all adult-use operators, the rider remains the operative enforcement constraint. But it should not be treated as a permanent backstop for businesses that have a path to full CSA compliance.
Criminal Penalties: What Changes, What Doesn’t
Moving marijuana to Schedule III reduces applicable criminal penalties for some CSA offenses — but not for all of them. The quantity-based mandatory minimum prison sentences under 21 U.S.C. § 841 are structured around marijuana as a named substance, not around its schedule, and those mandatory minimums survive rescheduling. The Attorney General’s February 2025 Bondi memorandum, directing federal prosecutors to charge the most serious readily provable offense including mandatory minimums, also remains operative and unamended.
What Changed for California M-License Operators
280E Relief
The order’s most immediately operative benefit is the elimination of § 280E’s deduction disallowance for state-licensed medical marijuana activities. Section 280E applies only to “activities involving substances in Schedule I or II” — moving marijuana to Schedule III removes the disallowance for licensed medical operations.
Treasury and IRS confirmed on April 23, 2026, that formal guidance is forthcoming on the transition rule (expected to treat Schedule III status as effective for the entire 2026 tax year for calendar-year taxpayers) and an allocation methodology for businesses with both medical and adult-use activities. That guidance has not been formally published in the Internal Revenue Bulletin. Until it is, practitioners should not amend prior-year returns or take aggressive positions based on anticipated guidance alone.
One forward-looking legislative risk belongs in any honest analysis: a proposal in the 119th Congress would amend § 280E to deny deductions for marijuana trafficking regardless of CSA schedule — which would undo the 280E relief the order provides. This proposal has not advanced, but it represents a discrete legislative risk that investors and operators should account for in long-term tax modeling.
Certifications as Substitutes for Prescriptions — With Specific Requirements
Under the CSA, a controlled substance that is a prescription drug may only be dispensed via a valid prescription. Generally, pharmaceutical controlled substances in Schedule III are prescription drugs — but marijuana is not. The order’s solution is to provide that state-issued certifications are sufficient to permit dispensing — but only if those certifications contain the user’s name and address, are dated and signed on the day of issuance, and identify the issuing practitioner.
This is a material operational point for California dispensaries. Standard California physician recommendation practices were not written with these specific federal requirements in mind. The Medical Board of California and the DCC have not yet issued conforming guidance. California dispensaries that have obtained DEA registration — or are preparing to apply — need to verify that their physician certification intake procedures satisfy the order’s federal requirements, not merely California’s existing MAUCRSA standards.
The § 1312.30 Amendment: International Import and Export Permits
The order’s amendment to 21 C.F.R. § 1312.30 adds FDA-approved marijuana products and state-licensed medical marijuana to the list of nonnarcotic Schedule III through V controlled substances for which an international import and export permit is required. This amendment was legally necessary for a specific reason: the Single Convention’s requirement of a permit to import or export covered drugs would not be satisfied by Schedule III status alone. The § 1312.30 amendment is thus both a treaty-compliance mechanism and a new business opportunity.
DEA-registered medical cannabis operators may now, for the first time in U.S. federal drug law history, apply for DEA permits to import and export medical cannabis. The amendment makes that pathway legally available; it does not grant permits automatically and does not override foreign-country laws or bilateral agreements that would govern any actual transaction. A functioning bilateral international medical cannabis trade route requires regulatory coordination well beyond DEA registration alone. But the Schedule I barrier that previously made a federal permit application impossible has been removed for registered medical operators. For California cultivators and manufacturers with production scale and interest in international pharmaceutical or medical cannabis markets, this is a genuinely new legal pathway that did not exist before April 22.
Expanded Research Pathways
The final order clarifies that researchers who obtain marijuana or marijuana-derived products from a state licensee for use in scientific research incur no civil or criminal CSA liability solely by reason of having obtained such products from a state-licensed source, and shall not face adverse DEA registration action on that basis. Previously, DEA-registered researchers were required to obtain marijuana from DEA-approved manufacturers — a bottleneck that limited research supply and quality. The order opens the state-licensed supply chain as a lawful research source. For California research institutions, investors in clinical-stage cannabis companies, and operators interested in supplying the research market, this is a commercially relevant development.
The DEA Buy-Sell Mechanism: Practical Requirements
The treaty compliance and legal-contestability dimensions of the buy-sell mechanism are analyzed in the treaty section above. For California M-licensed manufacturers and cultivators, the practical operational requirements are: DEA facility access rights must be accommodated; the administrative fee must be budgeted; and how the nominal purchase-and-resale transaction is documented, recorded in METRC, and reflected in financial statements has not yet been clarified in DEA implementing guidance — an important open item to monitor before and after registration.
DEA Registration: What the Application Actually Asks — and What It Means for California Dual A/M Operators
The Priority Window and the Portal Gap
Every California M-designated cannabis operator — cultivator, manufacturer, distributor, and dispensary — must obtain DEA registration to lawfully handle Schedule III marijuana. Operators who file within the 60-day priority window receive an expedited six-month processing target and the right to continue operating under their existing state licenses while DEA reviews their application. Applicants who miss the window may still apply, but receive no guarantee of processing speed or interim operational protection.
The DEA dispensary portal opened April 29, 2026, for dispensary applications using Form 224. As of this writing, DEA has announced that separate cannabis-specific forms for manufacturers, bulk manufacturers (growers/cultivators), analytical labs, and distributors will be made available “in the coming weeks,” without specifying a date. Non-dispensary applicants may use the standard DEA Form 225 in the meantime.
The priority window closes June 27, 2026. California cultivators and manufacturers who want priority-window protection should prepare application materials now and monitor the DEA Diversion Control Division website daily for portal availability.
The Seven-Section Application: A Detailed Look for Dual-License Operators
Section 1: Personal and Business Information. Standard identifying information including whether primary ownership has changed in the past 12 months and whether the firm holds other DEA registrations. The applicant entity must be the actual DCC-licensed entity; management companies or holding companies that do not hold the DCC license cannot substitute as the registrant.
Section 2: Activity. The application requires selection of specific drug codes — Code 7362 for FDA-approved/state-licensed marijuana, Code 7353 for marijuana extracts, Code 7386 for naturally derived delta-9-THC — and asks separately whether the firm will handle or dispense medical marijuana and whether it will handle or dispense recreational marijuana. For California operators holding both an A and M designation on a single combined entity, answering this question honestly means acknowledging that the same premises handles both Schedule III medical marijuana and Schedule I adult-use cannabis. That admission creates a permanent federal record of co-located Schedule I and Schedule III activity — a record that could become material in enforcement, inspection, or investigation contexts. This question illustrates why legal and operational separation between M and A activities is a federal compliance posture, not merely a tax accounting strategy.
Section 3: State License(s). The DCC license number, issuing state, expiration date, and licensed activity must match the state license exactly. California operators with provisional licenses not converted to annual licenses before January 1, 2026, will have no valid state license to list.
Section 4: Liability Questions. This section asks about prior controlled-substance convictions, revoked or surrendered registrations, and — most importantly — whether any officer, partner, stockholder, or proprietor has previously manufactured, distributed, or dispensed any controlled substance without a DEA registration authorizing that activity.
My view is that honesty is critical here. Most applicants will have operated in state-legal markets that were federally illegal at the time — and that is understood. What matters is how the disclosure is presented. A reflexive “no” chosen for appearance has different legal consequences than an accurate “yes” with appropriate contextual framing, and both require careful legal analysis before the application is filed. The potential Fifth Amendment implications are real.
Section 5: Compliance Information. DEA requires written SOPs for twelve enumerated compliance areas; identifying information and disciplinary history for every individual with access to controlled substances; and documentation of physical security measures. Compliance with state regulatory requirements generally satisfies Schedule III regulatory requirements for physical security, packaging, and labeling — with the addition of the federal warning label on product labeling. Most California DCC-compliant M-designated operators do not face significant security infrastructure upgrades as a prerequisite for DEA registration.
For dual-license operators who have not yet separated their M and A operations, Section 5 creates a concrete problem: an application filed before operational separation describes a facility where Schedule III and Schedule I inventory are commingled. The appropriate sequence is to build operational separation first and then file an application whose Section 5 accurately describes the medical-only operation.
Sections 6 and 7: Payment and Submission. Registration fees are: dispensers, $888 per three-year registration period (Form 224); distributors, $1,850 per year (Form 225); manufacturers including cultivators, $3,699 per year (Form 225); and analytical labs, $296 per year (Form 225). Payment on the dispensary portal is currently accepted only via PayPal, with additional payment methods anticipated. Before submission, reconcile the application against all state license records, corporate documents, cap tables, management agreements, and prior enforcement history.
FOIA Exposure
The application requires disclosure of supplier relationships, SOP details, security configurations, and personnel access information that operators typically treat as trade secrets. Unlike DCC licensing materials, DEA registration materials are federal agency records subject to FOIA. Commercial confidentiality exemptions under FOIA Exemption 4 exist, but their scope in the cannabis operator registration context has not been tested. The trade-secret protection strategy should be evaluated before filing.
The Dual-License Structure: California’s Most Complex Compliance Challenge — and the DCC’s Response
California is a dual-market cannabis state. Virtually every established cannabis operator holds both Adult-Use (A-license) and Medical (M-license) designations from the DCC. The April 22 order has placed dual-designation operators simultaneously in two different federal regulatory regimes within a single business — and the DEA’s Section 2 asks them to declare, on a federal form, which regimes apply to their operations.
Recent legal analysis has also observed that the order reframes licensed medical cannabis activity through the lens of traditional health care law, with implications for California’s Corporate Practice of Medicine (CPOM) doctrine and Business and Professions Code § 650’s anti-referral provisions — issues that have historically been less prominent in cannabis compliance practice.
DCC-2026-03-E: What It Does and What It Practically Enables
The DCC updated its licensing procedures to allow operators to change their license designation between adult-use and medicinal at any time during the license period by submitting Form 27 to licensechange@cannabis.ca.gov. That adjusts the scope of a designation within an existing combined entity but does not create the structural separation that DEA registration and IRS allocation guidance will require.
The more significant move came on May 18, 2026, when the DCC issued a notice of proposed emergency rulemaking — DCC-2026-03-E — that would formally allow existing combined A/M licensees to bifurcate into two distinct legal entities, each holding a separate license (one M-only, one A-only), both authorized to operate at the same physical premises. The OAL will accept public comment through May 31, 2026. If approved, the regulations take effect immediately upon filing with the Secretary of State.
Under the proposed emergency rules, both entities must: (1) accept joint and several liability for all DCC obligations, debts, and violations incurred under either license; (2) share identical individual owners and a designated responsible party; (3) physically separate all cannabis goods by license assignment with inventory clearly distinguished in METRC; and (4) maintain entirely separate business records for each license. The initial M license carries no additional licensing fee; both licenses are separately assessed only at subsequent renewal.
Section 2 of the DEA application. Under DCC-2026-03-E, the M-license entity is a distinct legal person holding only a medicinal license. When that entity applies for DEA registration and Section 2 asks whether it will handle or dispense recreational marijuana, the honest answer is no — because adult-use activity belongs to a legally distinct entity under a separate A license. Without DCC-2026-03-E, a combined A/M entity cannot defensibly answer “no” in Section 2.
Section 5 compliance information. The M-license entity can describe SOPs, inventory systems, security, personnel access, and recordkeeping for a medicinal-only operation. The risk of inadvertently describing a facility that commingles Schedule I and Schedule III activity is structurally eliminated if the separation has been completed before the application is filed.
Section 4 entity-level history. DCC-2026-03-E creates a new legal entity with no prior operational history — it has never handled controlled substances without DEA registration. This does not resolve the Section 4 analysis for the individuals who own and control both entities, but it removes entity-level complexity arising from years of pre-registration operating history.
280E allocation defensibility. Two legal entities with separate financial records, separate METRC accounts, and separately designated inventory are in a far stronger position to satisfy whatever IRS allocation methodology is published than a single entity attempting proportional allocation across commingled operations.
The joint-and-several liability caveat. The DCC’s joint-and-several liability requirement makes both entities mutually responsible for each other’s violations — a deliberate enforcement condition. A buyer of the M-entity acquires an entity potentially exposed to the A-entity’s violations; a lender must account for that cross-liability.
The DOT Drug Testing Dimension: A Critical Compliance Gap
In mid-May 2026, the DOT’s Office of Drug and Alcohol Policy and Compliance published official guidance addressing 49 C.F.R. §§ 40.137, 40.141, and 40.151, answering directly whether a Medical Review Officer may verify a DOT-regulated marijuana positive as “negative” when an employee claims the positive resulted from consuming a state-licensed marijuana product. The answer is unambiguous: no. Four reasons:
- State-dispensed marijuana is not an FDA-approved drug and cannot be lawfully prescribed under federal law. A “legitimate medical explanation” under Part 40 requires use of a legally prescribed controlled substance — which state medical cannabis is not, regardless of CSA schedule.
- State-issued medical marijuana cards, physician recommendations, or dispensary receipts do not satisfy Part 40’s requirements for a “legitimate medical explanation.”
- Schedule III reclassification does not change this because the order changes the CSA schedule without changing the FDCA status of state-dispensed cannabis — it remains an unapproved drug product and therefore not a prescribed drug.
- Marijuana use is not compatible with safety-sensitive functions under DOT regulations regardless of state law or CSA schedule.
Even registered entities may not be in “full compliance with federal law” because marijuana itself is not an FDA-approved drug, and introducing an unapproved drug into interstate commerce remains unlawful under the FD&C Act. The DOT Q&A and this FD&C Act gap reflect the same structural limitation: reclassification under the CSA, without FDA approval, does not translate into recognition in federal regulatory programs that predicate protections on the FDA-approved prescription drug paradigm. California employers in the cannabis sector who are also DOT-regulated employers should consider updated written policies and employee handbooks reflecting the DOT’s position.
California Rulemaking That Has Not Yet Been Proposed — But Is Logically Necessary
DCC-2026-03-E is the opening regulatory move. At least five domains remain where the current California regulatory framework is misaligned with the new federal requirements.
METRC Tracking Architecture for Dual-Entity Licensees
DCC-2026-03-E creates co-located entities with two separate DCC license numbers at a single physical premises. METRC was not designed to accommodate two legally distinct entities sharing physical space at the same address. Without formal guidance or rulemaking establishing how METRC accounts are structured for co-located dual entities, operators will have no authoritative standard for the inventory segregation that DCC-2026-03-E requires and that DEA’s Section 5 implicitly demands.
Physician Certification: Federal Requirements Not Yet Addressed by California
The order specifies that a physician certification sufficient to authorize medical marijuana dispensing must include the user’s name and address, be dated and signed on the day of issuance, and identify the issuing practitioner. California’s existing MAUCRSA dispensing requirements and Medical Board recommendation guidance were not written with these federal specifications in mind. The Medical Board and DCC have not yet issued conforming guidance — which means California dispensaries that have registered with DEA are potentially dispensing product in a manner that satisfies state law but may not satisfy the order’s federal dispensing standard. That compliance gap also carries implications for California’s CPOM doctrine and BPC § 650 anti-referral provisions.
Conforming Regulations for Manufacturers and Distributors
Three friction points make rulemaking logically necessary. First, California’s distribution manifest system — calibrated to DCC license numbers and METRC tags — does not accommodate DEA’s documentation requirements for Schedule III transfers, which are tied to DEA registration numbers of both transferring and receiving entities. Second, the DEA’s general position treating state compliance as sufficient for physical security and labeling has not been formally extended to all facility types and has not been codified in California rulemaking. Third, California’s cannabis waste destruction requirements and DEA’s Schedule III disposal standards may diverge for outdoor cultivation operations — a question neither agency has yet addressed.
DEA Buy-Sell Implementing Guidance and Production Quotas
DEA has not issued implementing guidance on the mechanics of the nominal-price purchase-and-resale transaction or the administrative fee structure for the new class of registered state-licensed operators. Separately, the production quota framework for registered state-licensed cultivators has not been formally established — a significant unresolved variable for supply agreements and investment projections, given that DEA will apply Single Convention-mandated production quotas to marijuana even though quotas are not normally required for Schedule III substances.
Investor and Ownership Disclosure
DEA registration requires disclosure of all officers, partners, and stockholders for Section 4 purposes. This scope is potentially broader than the DCC’s 20% ownership threshold. California cannabis businesses with layered ownership structures need to analyze whether sub-threshold investors fall within DEA’s Section 4 scope before filing — filing an incomplete federal registration application is a basis for denial or later revocation.
The Post-Hearing Rulemaking Cascade
The DOJ’s April 23 press release stated that the order announces “procedural updates to expedite the ongoing rulemaking process required to fully remove marijuana from Schedule I and place it into Schedule III” — an express statement of the administration’s interest in rescheduling marijuana completely following the June 29 hearing. If the DEA issues a broader final rule moving all marijuana to Schedule III, California’s entire dual-designation M/A architecture may need revision. These are speculative questions — the hearing outcome is genuinely uncertain, the ALJ designation is unresolved, and the Section 591 rider creates institutional risk for the hearing process. But operators and investors structuring long-term arrangements should account for the possibility that the current partial-rescheduling architecture is transitional.
What the Order Does Not Resolve
FDCA and FDA status. The April 2026 rescheduling order “does not immediately bring the state-legal marijuana industry into compliance with federal law” because marijuana itself is not an FDA-approved drug and introducing an unapproved drug into interstate commerce remains unlawful under the FD&C Act. FDA has not issued any guidance on the impact of rescheduling on FDCA obligations.
Banking. Rescheduling does not eliminate Bank Secrecy Act obligations, SAR filing requirements, or the structural banking barriers the industry has sought to address through the SAFE Banking Act. Operators should expect banking relationships to be re-underwritten but should not anticipate rapid structural change.
Domestic interstate commerce. California’s licensed cannabis market remains an intrastate system. The FD&C Act prohibition on introducing unapproved drugs into interstate commerce continues to apply. Congressional action remains the only certain pathway to commercial interstate cannabis trade.
International trade: a new but limited opening. The § 1312.30 amendment opens a new import/export permit pathway for DEA-registered medical operators. That pathway remains largely theoretical until complementary regulatory frameworks exist in counterpart countries, but operators with international market ambitions should begin tracking its development.
The IRS guidance gap. The transition rule and allocation methodology have been announced but not formally published in the Internal Revenue Bulletin. Acting on anticipated guidance before formal publication carries risk, particularly for prior-year amended returns. The 119th Congress’s § 280E amendment proposal is a separate legislative risk for longer-term tax modeling.
Hemp Operators in California: The Federal Squeeze and State Parallel
The order does not affect hemp’s federal status. The federal definition of hemp is narrowing: Congress enacted legislation in November 2025 changing the definition of “hemp” so that it is defined based on total THC concentration rather than just delta-9 THC concentration, with the new definition scheduled to take effect in November 2026. Products that were previously “hemp” under the 2018 Farm Bill definition will be treated as marijuana under federal law after November 2026.
California’s AB 8 (effective January 1, 2026) has already banned intoxicating hemp products outside narrow licensed-channel exceptions. The DCC’s full AB 8 implementation rulemaking — governing complete integration of intoxicating hemp-derived products into the licensed cannabis supply chain by January 1, 2028 — has not yet been formally proposed, but is expected during fiscal year 2026–27. Operators selling hemp-derived THC products need to evaluate their product lines against both the November 2026 federal reclassification deadline and California’s AB 8 integration framework before the DCC rulemaking arrives.
Considerations for California Cannabis Operators and Investors
Separating the April 22 order from the June 29 hearing. These are not a single regulatory event. The § 280E relief, the DEA registration pathway, Schedule III status for M-designated activity, and the § 1312.30 international permit pathway are products of the April 22 order — currently in full effect. The June 29 hearing is the mechanism for potentially extending Schedule III to adult-use cannabis and faces distinct institutional risks from the Section 591 rider, the ALJ vacancy, and § 811(a) procedural questions. Treating the entire rescheduling picture as uncertain pending June 29 conflates two distinct legal events with genuinely different risk profiles.
Sequencing the registration decision around DCC-2026-03-E. For California dual A/M operators, the entity-separation structure makes the DEA registration application materially more defensible — particularly for Sections 2, 4, and 5. The OAL must act within ten working days of receiving the DCC’s final package following the May 31 comment deadline, meaning the regulation could take effect in mid-June, potentially leaving a window to complete entity separation before the June 27 priority deadline. For operators who can move quickly on entity separation, completing it before filing is the more defensible sequence.
Production quotas and the buy-sell mechanism belong in the due diligence. DEA registration initiates a federal regulatory relationship in which DEA’s quota-setting authority applies to registered cultivators and the nominal-price buy-sell mechanism governs the transfer of harvested crops. Both the quota framework and the buy-sell mechanics remain unresolved pending DEA implementing guidance and belong explicitly in investment projections and supply agreements.
The certification requirements for medical dispensing. California dispensaries need to verify that their physician recommendation intake procedures satisfy the order’s specific federal requirements — user’s name and address, dated and signed on the day of issuance, identifying the practitioner. Standard California recommendation practices may not uniformly meet these requirements, and neither the Medical Board nor DCC has yet issued conforming guidance.
The Section 4 question, investor disclosure, and the legacy-market reality. Most applicants will have operated in state-legal markets that were federally illegal at the time — and what matters is how the disclosure is presented. The scope of DEA’s stockholder disclosure requirement may be broader than the DCC’s 20% threshold. Working through who must be disclosed and what their histories require is a legal analysis that should happen before the portal is opened.
Accounting for federal funding risk without over-hedging. The Section 591 appropriations rider is a real institutional risk for the June 29 hearing. It is not, at this stage, a clear and present threat to the April 22 order’s currently operative effects. Actions relying on those operative effects — DEA registration, § 280E positions for 2026, entity-separation under DCC-2026-03-E — can be pursued now. Planning that depends on the June 29 hearing producing a broader Schedule III rule requires explicit contingency provisions in transactions: MAC clauses, representations that accurately describe current federal status, and no contractual obligations that assume adult-use Schedule III status before it exists.
The criminally exposed investor. Quantity-based mandatory minimum sentences under 21 U.S.C. § 841 do not change as a result of rescheduling. Schedule III rescheduling of M-designated activity does not reduce federal criminal exposure for investment in or financing of adult-use operations. Investors who hold interests across M and A operations — or who will be disclosed in a DEA registration application for an entity that also acknowledges adult-use activity in Section 2 — should be part of the legal analysis before any application is submitted.
Building toward the hearing record. The DOJ’s April 23 press release stated that the order announces “procedural updates to expedite the ongoing rulemaking process required to fully remove marijuana from Schedule I and place it into Schedule III” — an express statement of the administration’s intent to reschedule marijuana completely following the June 29 hearing. The hearing’s administrative record is the primary mechanism through which California-specific evidence — the dual-license problem, the economic effects of the Schedule I/III bifurcation on adult-use operators, and the compliance costs operators are bearing — reaches the DEA Administrator’s eventual decision on broader rescheduling. The hearing record remains open for documentary submissions until the proceeding concludes no later than July 15.
What to Watch in the Next 35 Days
OAL action on DCC-2026-03-E. Comment period closed May 31; OAL must act within ten working days of receiving the DCC’s final package. If approved, effective immediately. Operators aiming to complete entity separation before the June 27 deadline need to be positioned to move quickly when the OAL acts.
The DEA registration priority deadline: June 27, 2026. Dispensary applications via the Medical Marijuana Dispensary Registration Portal; manufacturer, distributor, and lab applications via Form 225, with cannabis-specific portals expected “in the coming weeks.” Prepare all application materials now. Note that registration initiates both the DEA production quota relationship and the buy-sell mechanism — the compliance analysis does not end at application submission.
DEA implementing guidance on the buy-sell mechanism. No formal implementing guidance has been issued on the mechanics of the nominal-price purchase-and-resale transaction for the new class of registered state-licensed operators. Monitor the DEA Diversion Control Division for notices, bulletins, or interim guidance.
The SAM/NDASA petition in the D.C. Circuit. Monitor for any motion for emergency relief — that would require immediate attention to contingency planning, particularly given the treaty-compliance arguments analyzed above. SAM, Inc. v. U.S. Dep’t of Justice, No. 26-1106 (D.C. Cir. filed May 4, 2026)
IRS formal guidance publication in the Internal Revenue Bulletin. Also monitor the 119th Congress’s § 280E amendment proposal.
The ALJ designation. The DEA’s sole ALJ announced his retirement in July 2025, effective August 1, 2025, and has not been replaced. Who presides over the June 29 hearing — and whether that designation draws legal challenges — is a material open question.
The House floor vote on Section 591. The FY2027 CJS bill must still pass the full House, the Senate, and receive presidential signature. The timeline and vote count bear watching; the President’s own executive order creates a direct political conflict with Section 591’s intent.
DEA hearing participant notifications. The deadline to file notice of intent to participate in the June 29 hearing was May 24, 2026 — which has now passed as of this writing. The DEA is expected to notify selected participants by June 22, 2026.
A Framework for Moving Forward
The clearest formulation of where things stand is this: the April 22 order “does not immediately bring the state-legal marijuana industry into compliance with federal law, but it appears to make it possible for some entities handling medical marijuana to come into compliance with the CSA.” The order opens a compliance pathway — it does not walk operators through it.
The DEA registration process is a serious federal disclosure event that demands careful legal preparation. The dual-entity separation structure that DCC-2026-03-E would enable is the most defensible compliance architecture available, and it matters for reasons that extend well beyond tax accounting to the structure and accuracy of the DEA application itself. Production quotas, the buy-sell mechanism, physician certification standards, METRC architecture, and investor disclosure scope are all unresolved variables that belong in the analysis before, not after, registration applications are filed.
The ring of institutional uncertainty surrounding the order’s operative benefits — the D.C. Circuit litigation, the appropriations threat, the criminal enforcement gap, the contested treaty mechanisms — warrants calibrated, sequenced action rather than paralysis. Take the benefits that are currently operative. Build structural separation before the priority window closes. Paper transactions to account for legal contingencies. The June 29 hearing is the beginning of a chapter, not the resolution of the rescheduling story.
Shay Aaron Gilmore is a California cannabis and hemp business attorney at Shay Gilmore Law in San Francisco. He advises operators, investors, and related entities on licensing, regulatory compliance, corporate transactions, and administrative law matters. He has served on the San Francisco Cannabis Oversight Committee, appointed by the San Francisco Board of Supervisors. Shay currently serves as a member of the Board of Directors of California NORML. This post is for informational purposes only and does not constitute legal advice. For guidance specific to your operation or investment, contact our office at shaygilmorelaw.com.
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Shay Aaron Gilmore is a California cannabis and hemp business attorney based in San Francisco, serving operators, investors, and cannabis startups across California. He advises clients on DCC regulatory compliance, cannabis licensing, corporate formation, intellectual property, commercial contracts, and administrative law proceedings. Recognized by the Daily Journal as a Top 20 Cannabis Lawyer in California and by Super Lawyers® as a Top 100 Northern California attorney, he is a leading voice in California cannabis and hemp law.