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A sweeping federal shift is sending shockwaves through the cannabis industry and beyond, as the Justice Department moves to reclassify state-licensed medical marijuana, unlocking new research pathways while igniting fresh legal and political battles.

Acting Attorney General Todd Blanche signed an order Thursday that downgrades licensed medical marijuana from the most restrictive drug category, Schedule I, to Schedule III. The decision marks a dramatic pivot in federal policy that could reshape how cannabis is studied, taxed and regulated across the United States.

The move does not legalize recreational marijuana under federal law. But it does ease long-standing barriers that have limited scientific research and strained state-legal businesses operating under heavy tax burdens.

What the reclassification means

For decades, marijuana sat alongside drugs like heroin and ecstasy in Schedule I, a classification that effectively blocked rigorous medical research and imposed strict legal constraints.

Now, by shifting medical marijuana to Schedule III, the federal government places it in the same category as certain prescription medications, including ketamine and Tylenol with codeine.

The implications are immediate and far-reaching.

Licensed medical marijuana businesses could see significant tax relief. Researchers may gain easier access to study cannabis. Doctors could have more data to guide patient care.

"These actions will enable more targeted, rigorous research into marijuana’s safety and efficacy, expanding patients’ access to treatments and empowering doctors to make better-informed healthcare decisions," Blanche wrote in a social media post on X.

At the same time, the Drug Enforcement Administration is preparing for broader action. Administrative hearings are scheduled for June to consider reclassifying marijuana more broadly, a move that could impact the entire cannabis industry.

Industry caught in limbo

Despite the breakthrough, the decision creates a confusing split system.

Medical marijuana now sits in Schedule III. Recreational marijuana remains illegal under federal law and tied to stricter classifications.

That divide leaves many businesses in a precarious position, especially those operating in both medical and adult-use markets.

"They’ve bifurcated one plant into two different schedules, which is very odd to me," Colorado-based attorney Rachel Gillette told CNN.

Gillette described the order as progress, but warned it raises new uncertainties.

"It certainly is going to cause a lot of potential confusion and complications if it remains in this status quo and the hearing come June doesn’t lead to broader rescheduling," she said.

A long, stalled effort gains momentum

The reclassification effort has been years in the making, with multiple administrations attempting and failing to finalize a change.

Former President Joe Biden launched a renewed push in the final year of his presidency, but the process stalled before completion. Critics pointed to delays within the DEA, where hearings were ultimately paused indefinitely.

Momentum returned after President Donald Trump issued an executive order in December directing the Justice Department to fast-track the process.

Still, progress remained slow, frustrating advocates and industry leaders.

Trump himself acknowledged the delays, telling podcaster Joe Rogan during an Oval Office event that "they’re slow-walking me."

Behind the scenes, pressure mounted from cannabis companies eager for regulatory clarity and financial relief.

Legal challenges erupt immediately

The policy shift is already facing fierce opposition.

Smart Approaches to Marijuana, an anti-legalization advocacy group, announced plans to challenge the order in court.

"The only thing today’s decision advances are the interests of an addiction-for-profit industry and if the president isn’t going to use the Food and Drug Administration as the law requires, why doesn’t he simply abolish it," the group said in a statement.

The looming legal fight could determine how quickly, or whether, the reclassification takes full effect.

Billions on the line

Beyond policy and politics, the financial stakes are enormous.

One of the most significant impacts could come from relief tied to Internal Revenue Code Section 280E. This provision has long prevented cannabis businesses from deducting ordinary expenses, leading to punishing tax rates that can exceed 70 percent.

If marijuana is fully moved to Schedule III, many businesses could escape those restrictions.

"We’re talking about billions of dollars in new economic activity, tens of thousands of new jobs or just really a wind in the sail for this industry that’s really paid a very heavy tax burden for years," said Brian Vicente, a founding partner of Vicente LLP.

Since 2018, cannabis businesses have paid an estimated $15 billion in excess taxes due to 280E, according to Whitney Economics.

"That would be life-changing for many, many state-legal cannabis businesses," Vicente said.

The Internal Revenue Service is expected to issue guidance on how the new classification will affect taxation.

Research, stigma and the road ahead

Another major shift could come in the medical field.

Researchers and institutions have long hesitated to study cannabis due to federal restrictions and fears of losing funding. Moving marijuana to Schedule III could accelerate clinical trials and reduce stigma around its medical use.

"For years in Colorado and across the country, I’ve talked to universities and hospitals that want to allow research, but they’re afraid of federal illegality and losing federal funds," Vicente said.

Still, key limitations remain.

Recreational marijuana is still illegal under federal law. The longstanding conflict between federal and state cannabis policies remains unresolved.

A nation divided but shifting

Public opinion has steadily moved toward legalization.

A 2024 Pew Research Center survey found nearly six in 10 Americans support legalizing recreational cannabis.

Currently, 24 states, two territories and Washington, DC allow recreational use, while 40 states permit medical cannabis.

What began as a fringe market has evolved into a multibillion-dollar industry drawing interest from major players in alcohol, agriculture, pharmaceuticals and tobacco.

Now, with federal policy beginning to shift, the next phase could redefine the entire landscape.

For businesses, patients and regulators alike, the question is no longer if change is coming.

It is how fast and how far it will go.