After the DEA Hearings: What Cannabis Businesses Should Do Now

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The DEA's expedited hearing on marijuana rescheduling wrapped up July 15, 2026, after two and a half weeks of testimony before Chief Administrative Law Judge Derek C. Julius. The record is now closed for final arguments. If you were hoping this process would deliver clarity for cannabis operators, it didn't -- not directly, anyway. No cannabis industry representative, no state medical program official, and no reform advocacy group made it onto the approved participant list. The voices that did get airtime included Smart Approaches to Marijuana, along with state governments from Idaho, Indiana, and Nebraska, all arguing against full rescheduling.

This hearing traces back to Trump's December 18, 2025 executive order directing DEA to move faster on the marijuana scheduling question, and the April 23, 2026 order signed off by Deputy Attorney General Blanche that shifted FDA-approved and state-licensed medical marijuana to Schedule III. That order didn't touch adult-use cannabis, which is why this hearing existed in the first place -- to determine whether marijuana broadly, including recreational product, belongs somewhere other than Schedule I.

Now the entire question sits with the DEA Administrator, who will decide based on this record. Realistically, that means a final rule isn't landing before late 2026 at the earliest, and 2027 is just as plausible once you factor in likely litigation. Cannabis businesses that treat this as a waiting game are going to fall behind operators who are already restructuring around the reality on the ground right now.

Where the Rescheduling Process Actually Stands

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Strip away the noise and here's what actually happened between June 29 and July 15: DEA held an expedited administrative hearing under Chief ALJ Derek C. Julius to determine whether marijuana -- all of it, including adult-use product -- should move off Schedule I. The federal government carried the burden of proof in this proceeding, and it came in with something it didn't have during the 2016 rescheduling denial: binding scientific findings from HHS and FDA concluding marijuana meets the criteria for Schedule III. That's a materially different posture than prior rescheduling attempts, where the scientific record was contested from the outset.

What's notable is who wasn't in the room. DEA didn't approve any cannabis operators, state medical program administrators, or reform organizations as participants in the hearing. The opposition that did get heard came from Smart Approaches to Marijuana, a prohibitionist advocacy group, plus state governments from Idaho, Indiana, and Nebraska -- three states with no legal cannabis programs of their own pushing back against national rescheduling.

With the record now closed, what's left is final arguments and any necessary corrections to the record before Judge Julius issues a recommended decision. That recommendation goes to the DEA Administrator, who holds final authority. Nothing about this timeline suggests speed. Given the procedural steps still ahead, plus the near-certainty of litigation from whichever side loses, a final rule realistically lands sometime between late 2026 and early 2027. Businesses planning around an imminent resolution are planning around a fiction.

The Bifurcated Reality: Medical vs. Adult-Use Right Now

Under federal 280E rules, adult-use cannabis operators can only deduct Cost of Goods Sold, while Rent & Payroll and Marketing & Ops expenses remain non-deductible—unlike medical cannabis businesses with broader deductions.

Here's the part that trips up a lot of operators: the April 23, 2026 order did not reschedule marijuana broadly. It moved exactly two categories to Schedule III -- marijuana contained in FDA-approved drug products, and marijuana operated under a state medical marijuana license. Everything else, meaning the entire adult-use recreational market, remains Schedule I and fully subject to Section 280E of the tax code, which limits deductions to Cost of Goods Sold only.

That's a real split, not a technicality. A licensed medical cannabis operator can now deduct ordinary business expenses -- rent, payroll, marketing, insurance -- the same way any other business does. An adult-use-only operator still can't. Treasury has been clear that this relief applies going forward from January 1, 2026, not retroactively, so there's no windfall for prior tax years sitting on the table.

The genuinely messy situation belongs to dual-license operators running both medical and adult-use lines under one roof, which describes a huge share of multi-state operators. The IRS hasn't issued guidance yet on how to allocate shared costs -- rent on a facility that serves both product lines, staff who touch both operations, marketing that covers the whole brand -- between the Schedule III medical side and the Schedule I adult-use side. Until that guidance shows up, these businesses are operating in a gap, and how they handle that gap now will shape their exposure later. This isn't a reason to freeze. It's a reason to get ahead of the allocation question with documented methodology before anyone tells you exactly how to do it.

Tax Moves to Make With Your Advisor Now

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Talk to your tax advisor about amended returns and protective claims covering medical operations from January 1, 2026 forward. That date matters because Treasury has drawn a firm line: the 280E relief tied to Schedule III medical marijuana applies prospectively, not retroactively. Any period before that date is still governed by the law as it existed then, meaning full 280E restrictions apply and there's no basis for going back and claiming deductions on pre-2026 filings.

For periods after that date, the calculus is different, and this is where protective claims earn their keep. A protective claim lets a business preserve its position on a deduction or filing approach without committing to an aggressive stance before the rules fully settle. It's a way to lock in a filing date and methodology while leaving room to adjust once the IRS issues formal guidance, rather than either overreaching now or leaving money on the table by waiting.

The operational piece matters just as much as the filing piece. Businesses need accounting systems that cleanly segregate costs attributable to medical cannabis operations from costs tied to adult-use lines -- separate cost centers, separate labor tracking, separate allocation of shared overhead like facility rent or utilities. Dual-license operators in particular should be building and documenting a cost allocation methodology now, rather than waiting for the IRS to hand down rules and then scrambling to retrofit their books. When guidance does arrive, the businesses that already have a defensible, documented approach in place will be in a far stronger position than those trying to reconstruct two years of records after the fact. This is groundwork that pays off regardless of exactly how the final IRS guidance lands.

Get DEA Registration Paperwork in Order

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Any business holding a state medical marijuana license should be assembling DEA registration application materials right now, not after a final rule publishes. That means pulling together supplier information, documented standard operating procedures, personnel records, and a security plan that meets DEA standards for handling a Schedule III controlled substance. These aren't quick documents to produce on short notice, especially the security and SOP components, which typically require real lead time to build out properly.

One thing worth being blunt about: medical rescheduling to Schedule III does not authorize interstate commerce in cannabis. That's a separate legal question requiring its own DEA approval process, layered on top of state-level action. A handful of states -- California, Oregon, and Washington -- already have interstate commerce trigger laws sitting on their books, passed in anticipation of exactly this kind of federal movement. None of them have activated those triggers yet, and it's not clear when or under what conditions they will.

The practical takeaway is that registration readiness functions as a competitive edge right now, not busywork. Nobody knows how DEA will handle processing timelines for a wave of new registrants once rescheduling clears its remaining hurdles -- whether it'll be first-come-first-served, whether there will be backlogs, whether certain categories get prioritized. Businesses that have their paperwork complete and their security infrastructure already built when that window opens will move through registration faster than competitors still assembling documents from scratch. Given how much lead time SOPs and security plans require, starting now instead of later isn't optional preparation -- it's the difference between being first in line and being stuck behind everyone who started earlier.

Why M&A Activity Is Already Picking Up

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The clearest market signal since the April Schedule III shift hasn't been in tax filings or registration offices -- it's been in deal activity. M&A interest in cannabis has picked up noticeably, and the reason is straightforward: a state medical marijuana license is now a materially different, more valuable asset than a license limited to adult-use sales. The tax treatment alone changes the economics of what a buyer is willing to pay.

Buyers are actively targeting operators with clean medical licensure, and clean is doing real work in that sentence -- no compliance gaps, clear chain-of-custody documentation, and defensible tax positioning already in place ahead of further IRS guidance. Operators who've spent the last several months getting their books, their licenses, and their SOPs in order are the ones showing up on acquisition shortlists.

If you're a business owner sitting on a medical license, this is the moment to get a fresh valuation and have your license structure reviewed by counsel, because deal terms across the industry are being shaped right now around the medical/adult-use split. A valuation done a year ago doesn't reflect the current landscape. And if your business straddles both markets, expect buyers to scrutinize your revenue and expense segregation harder than they used to -- that's precisely the area the IRS hasn't finished clarifying, and sophisticated buyers know it's also where liability tends to hide. Getting that segregation clean now isn't just about tax compliance; it's about not leaving value on the table in a negotiation, or worse, killing a deal during due diligence over records that should have been sorted out months earlier.

It's worth remembering that this whole review process traces back to 2022, when the initial directive to study rescheduling first went out. Four years later, the industry finally has a hearing record and a bifurcated federal framework, but still no final rule. That's the pattern to internalize: this process moves in years, not quarters, and businesses that spent the last several cycles waiting for certainty before acting have simply lost time they can't get back.

The operators pulling ahead right now aren't the ones betting on a clean, fast resolution from the DEA Administrator. They're the ones treating the medical/adult-use split as the operative business reality today -- restructuring their books, documenting their cost allocations, assembling registration paperwork, and getting their license structures valued, all without waiting for permission from a final rule that may not arrive until 2027.

None of this requires guessing at what DEA or the IRS will eventually decide. It requires talking to tax counsel and compliance advisors now about documentation, registration readiness, and deal positioning, and building a paper trail that holds up no matter which direction the final guidance breaks. The businesses that treat the next twelve months as prep time will be the ones ready to move the moment the rules actually change -- and the ones that don't will be explaining to their own advisors why they didn't start sooner.