Federal Courts Weigh Lawfulness of Marijuana Schedule III Order as MMJ Challenges Rescheduling

The U.S. Court of Appeals for the District of Columbia Circuit is weighing challenges to the Attorney General's April 2026 Marijuana Rescheduling Order, with MMJ International Holdings among the petitioners arguing the order was issued unlawfully. The order, published as Order No. 6754-2026 at 91 Fed. Reg. 22714 on April 28, 2026, moved two categories of marijuana from Schedule I to Schedule III: marijuana contained in FDA-approved drug products and marijuana produced and distributed under qualifying state medical-marijuana laws. It also created an expedited federal registration pathway for state marijuana businesses and new import and export requirements.

The cannabis industry has largely treated the order as a settled foundation for growth, with state-licensed operators projecting substantial federal tax savings from removal of qualifying medical-marijuana activity from the reach of 26 U.S.C. § 280E, pursuing expedited DEA registrations and seeking financing based on the expectation that the new regulatory framework will remain in force. The federal courts have not yet decided whether that foundation is lawful. Briefing on a motion to stay the rescheduling order and on state-licensed operators' motion to intervene, including arguments over MMJ's standing, concluded on July 17, 2026; both motions remain pending.

MMJ is involved in three separate federal matters examining the government's treatment of cannabis: a D.C. Circuit challenge to the legality of the Rescheduling Order in SAM Inc. v. Department of Justice, Nos. 26-1106, 26-1130 and 26-1136; federal litigation arising from its nearly eight-year effort to obtain a DEA bulk-manufacturer registration; and a D.C. Circuit appeal in SAM Inc. v. Kennedy, No. 26-5205, challenging a Medicare reimbursement pathway for certain cannabinoid products. MMJ contends that the Attorney General could not lawfully create the new framework without following the procedures Congress prescribed, including the required administrative process, evidentiary development and reviewable findings. According to MMJ's petition, the government relied on a treaty-related statutory provision to issue the order without formal rulemaking on the record, and adopted new regulatory provisions without the public notice and comment ordinarily required under the Administrative Procedure Act. The Department of Justice disputes the claims and maintains the order was lawfully issued, arguing among other things that MMJ lacks standing.

During the DEA's administrative hearing on the proposed rescheduling, a DEA scientist in the Drug and Chemical Evaluation Section testified under oath that state medical marijuana programs are a significant source of marijuana diversion. The scientist acknowledged that this diversion analysis was not included in the Department of Health and Human Services' August 2023 scientific evaluation that served as the foundation for the order. An FDA witness also testified that federal survey data identified state dispensaries as the largest source of marijuana obtained for both medical and non-medical use. MMJ says the testimony raises questions about the integrity of the government's scientific process and the factual foundation of the April 28, 2026 Order.

MMJ argues that the April Order does not require state-licensed marijuana placed in Schedule III to have completed an Investigational New Drug development program, nor does it require FDA review of finished-product chemistry, manufacturing controls, specifications, stability or labeling, or adequate and well-controlled clinical evidence. Instead, the federal classification turns principally on whether the marijuana is covered by a qualifying state medical-marijuana license. Schedule III is not an FDA seal of approval; Marinol, an FDA-approved dronabinol product in Schedule III, reached the market with defined chemistry, fixed dosage, pharmacokinetic evidence, manufacturing controls and federally reviewed labeling.

MMJ has spent nearly a decade and more than $10 million pursuing FDA-regulated cannabinoid medicines for Huntington's disease and multiple sclerosis. The company has obtained FDA Investigational New Drug applications, orphan-drug designation, manufactured GMP investigational soft-gel capsules through Catalent, and operates a DEA-registered analytical laboratory. Its subsidiary MMJ BioPharma Cultivation, Inc. applied on December 27, 2018, for DEA registration as a bulk manufacturer of marijuana; the application remains unresolved after more than seven years. MMJ maintains the delay has prevented it from securing federally controlled botanical material necessary to advance its investigational medicines, even as the order offers expedited registration to qualifying state medical-marijuana operators.

MMJ has also called on the cannabis industry to apply evenly the product integrity standards its leaders are demanding of intoxicating hemp products, arguing the order granted federal medical classification to an entire category of state-licensed products without requiring evidence those standards exist. The company contrasts its path with multistate operators that disclosed federal illegality in SEC filings and built market share selling products marketed for therapeutic relief without FDA-reviewed clinical trials. Trulieve became the first U.S. cannabis operator listed on the NYSE, and Green Thumb filed for DEA registration under the order's fast-track pathway. The government's own April 2026 Federal Register publication conceded that transferring marijuana to Schedule III "requires formal rulemaking on the record after opportunity for a hearing" before skipping that process; under D.C. Circuit precedent in NORML v. DEA, that shortcut is unlawful. If the court stays and ultimately vacates the order, Schedule I status would return, along with Section 280E's prohibition on deducting ordinary business expenses, and the expedited DEA registration pathway would fall with the order. The consolidated petitions remain pending before the D.C. Circuit.