Cannabis Operators Keep Schedule III Tax Relief but Lose a Seat in Court

By Nicolás Rodríguez, Managing Editor

State-licensed medical cannabis operators can continue relying on Schedule III for now, but they will not have full party status in the federal lawsuit that could determine whether those protections survive.

A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit on Wednesday rejected an attempt to suspend the federal government’s April cannabis order while consolidated challenges move forward.

Judges Robert Wilkins, Justin Walker and Bradley Garcia ruled that the challengers had “not satisfied the stringent requirements for a stay pending court review.”

The unsuccessful motion came from the National Drug and Alcohol Screening Association, a drug-testing trade group, and MMJ International Holdings, a pharmaceutical developer pursuing cannabinoid medicines. A stay would have returned state-licensed medical cannabis and FDA-approved cannabis drugs to Schedule I until the litigation is resolved.

For operators, the immediate result is continuity. The Justice Department’s April order remains in effect, preserving Schedule III treatment for state-licensed medical cannabis businesses and the resulting relief from Section 280E.

The tax provision applies only to businesses trafficking in Schedule I or II substances. Moving qualifying medical cannabis activity to Schedule III therefore allows affected operators to deduct ordinary business expenses—potentially transforming reported profitability, cash flow, and tax liabilities.

The court delivered a less favorable ruling to MedPharm Iowa and Tri-Mountain Pure, two cannabis operators seeking to intervene in the case. Both have pursued federal DEA registrations and taken tax positions based on the April order.

The judges concluded that the federal government adequately represents their interests and denied intervention, admitting the companies only as amici curiae. That allows them to submit arguments but leaves them without the procedural rights held by formal parties.

That distinction matters because the operators making business decisions under the new framework will not control the government’s litigation strategy, the claims it prioritizes, or whether it seeks further review following an adverse decision.

The consolidated challenges—including SAM, Inc. v. Department of Justice—argue that DOJ exceeded its authority by using an international treaty provision to reschedule medical cannabis without the conventional notice-and-comment process.

Wednesday’s order does not resolve that underlying dispute or validate the government’s legal theory. It only rejects an effort to freeze the policy during litigation.

The parties must now submit proposed briefing formats within 30 days. Until the court reaches the merits, operators retain the economic benefit of Schedule III—but remain exposed to a case they cannot directly steer.