Medical Cannabis Rescheduling: State Implementation and Regulatory Conflicts

In this second article in a series, we turn from the federal order itself to the state compliance problems it creates, particularly in jurisdictions where medical and adult use regulations or licensing systems are not separated in a way that maps neatly onto the DEA’s framework.

Can Adult Use Operators Obtain Medical Registration?

As mentioned in our prior alert, “DEA Final Order Creates Federal Pathway for Medical Marijuana” (May 2026), medical cannabis licensees were given 60 days to opt into a DEA Schedule III priority registration pathway[CL1]. Meanwhile, good-faith operators who are just trying to follow the rules are left with more questions than answers. In particular, the order does not clearly answer whether the DEA will evaluate only an applicant’s proposed medical cannabis activities, or whether the agency will scrutinize historical and anticipated state-licensed adult use activities when determining eligibility for registration.

That question carries particular weight for operators with both medical and adult-use authorizations, especially those using the same facilities, personnel, or systems across both lines of business. Critically, the DEA regulates controlled substances through a “closed system of distribution,” under 21 U.S.C. § 842(a)(2), which requires that entities in the supply chain must be DEA-registered or otherwise authorized, and registrants may distribute or dispense controlled substances only as permitted by their registration and only to another registrant or other authorized person. As of the date this article is published, we are aware of no clear guidance from the DEA about how state-compliant licensees and DEA licensees will be able to interact with each other.

Informally, our attorneys have heard from a DEA insider that the agency cannot bifurcate these operations and will not recognize “two legal realities” in the same facility. Stated bluntly, the DEA’s enforcement tools are a sledgehammer, not a scalpel, and it must enforce federal law enforcement priorities as applicable.  Contrary to the prior federal de-prioritization of state-legal adult use activity, this informal guidance suggests the DEA may view ongoing adult use activity differently when it is being conducted alongside federally authorized medical marijuana operations under its direct jurisdiction. This begs the question: if a registrant cannot separate its medical business from its adult-use business, can that operator be registered at all?

That question affects not only licensed operators, but also the individuals they currently employ or plan to hire. The registration portal requires demographic information, including Social Security numbers, for any employee who will have access to legal Schedule III marijuana at the facility. Beyond concerns about employee privacy, the more critical issue is how the federal government will characterize employees’ conduct with respect to any co-located adult-use operations. If the “sledgehammer” analogy discussed above is accurate, operators may be exposing their workforce to heightened risk by proceeding under the recent order.

How Will Dual Licenses be Treated?

Maryland has a combined inventory structure in that marijuana products are not segregated as medical or adult use at the production or storage level.  Certain products are reserved for purchase by medical patients, but others are not.[1] As a result, many Maryland licensees will be forced to work backwards to determine which products, if any, qualify as ScheduleIII.

For example, before completing a medical sale under Maryland’s COMAR, a dispensary agent must query the Administration data network to verify the patient’s or caregiver’s registration, active certification, and remaining purchase allowance. Although Maryland law distinguishes certain product categories as medical only or imposes potency-based limitations on dual market products, inventory is not universally segregated by medical versus adult use designation. Rather, medical status is determined transactionally at the point of sale, based on patient verification and POS coding.

This structure raises several fundamental questions under the proposed Schedule III framework:

• If a product available to both medical and adult use customers is sold to a registered medical patient as part of a medical transaction, does that product become Schedule III by virtue of that sale?
• If the DEA purchases and re-sells a product to a dispensary for resale to a medical patient, must that product be permanently reserved for sale as a medical product or will there be a way to add the product back into inventory for potential sale to an adult use customer?
• How does this point-of-sale determination translate for tax purposes? If Schedule III status is triggered retroactively by a specific sale:
  • How are deductible costs allocated for that product?
  • Does allocation depend on the percentage of the licensee’s medical versus adult use sales overall?
  • How should operators treat shared expenses such as employee labor, utilities, or rent—where the medical product was stored, handled and displayed alongside adult use inventory prior to sale?
  • Does it matter whether adult use or medical products are physically stored together or separately?
• How far upstream does medical determination reach? For example, if a manufacturer sells a 10mg edible to a retailer, and that retailer later sells the product to a registered medical patient:
  • May the manufacturer treat that transaction as a medical, 280E‑exempt sale?
  • Or is Schedule III status limited solely to the retail transaction itself, notwithstanding the product’s ultimate medical use?

Absent federal guidance, Maryland’s point-of-sale model exposes operators to uncertainty at every stage of the supply chain—exactly the opposite of what a priority registration pathway was intended to accomplish.

Michigan’s market presents the same fundamental issue, but from the opposite direction. The state has a formal, frequently utilized mechanism that allows licensees to “flip” inventory between co-located Medical Marihuana Facilities Licensing Act (MMFLA) and Michigan Regulation and Taxation of Marihuana Act (MRTMA) licenses.

In practice, cultivators commonly take advantage of the lower license fees and regulatory costs associated with medical licenses by maintaining a predominantly medical plant count and later transferring finished product to a single adult use license for sale into the state’s largely recreational market.  Unlike Maryland, Michigan requires co-located facilities and sales locations to physically segregate inventory so that regulators and staff can identify which products belong to which license type at any given moment.[2] This structure provides a clear transactional record of when a package ceases to be “medical” inventory and becomes “adult use” inventory under state law.

That clarity, however, exposes a different federal complication. The moment a dual licensee transfers product from medical inventory into adult use inventory is the moment the federal characterization of that product becomes unsettled. Prior to the transfer, the product fits naturally within the April 23rd federal framework for marijuana “subject to a state medical marijuana license.” After the transfer, the same package is now being held and sold as adult use inventory under the MRTMA, meaning it’s an illegal, Schedule I substance in the eyes of the federal government.

Because the DEA’s final rule ties federal registration eligibility to the scope of the applicable state medical license, a product that has been affirmatively flipped into adult use inventory almost certainly falls outside of the current medical-only federal overlay, notwithstanding its origin under a medical license.  All of the questions discussed above therefore apply here in reverse. And, as with Maryland, there are presently no clear answers.

Washington’s structure creates a particularly acute line-drawing problem because that jurisdiction blends the two markets such that there is no separate product designation at all. Rather, unlike Michigan and Maryland, Washington has integrated the medical market into the regulated retail system (Wash. Rev. Code §69.50.375). State law creates a medical cannabis endorsement to a cannabis retail license rather than a separate standalone medical dispensary license, and the Department of Health states expressly that Washington regulations do not differentiate between “medical” and “recreational” products.[3] At the same time, Washington does impose medical-specific rules on certain products and transactions, such as enhanced purity testing requirements. DOH-compliant products fall into three categories, and while general-use and high-CBD compliant products may be sold at any licensed cannabis store, high-THC compliant products may be sold only at licensed, medically endorsed cannabis stores, and only to qualifying patients or designated providers entered in the patient registry. Thus, Washington often lacks a clean upstream moment in the supply chain when a product becomes definitively “medical” or definitively “adult use,” and as such, Washington operators are left wondering if the entire state is barred from taking advantage of any benefits allegedly made possible under the order.

As of May 7^th, 2026, both Michigan CRA and Maryland MCA have publicly said they are still reviewing the federal order and that existing state law remains in place. Neither has released a regulatory guidance document, press release, or FAQ update explaining how the state will treat the rescheduling.

Shifting Inspection Authority

Another area of regulatory conflict regards competing inspection authority. Most state cannabis frameworks expressly grant automatic access to restricted areas for investigators from the relevant cannabis regulatory agency and, in emergency circumstances, to certain responders including law enforcement officers. Licensed facilities are therefore accustomed to routine government access as a condition of licensure.

By contrast, new 21 CFR 1301.13(k)(6) requires that all registered manufacturers store marijuana crops in a facility “to which the Administration maintains access” until the DEA completes the nominal purchase-and-resale transaction. The rule goes further, expressly stating that the DEA “shall have the right to inspect such facilities on demand.” State regulatory regimes do not account for unfettered access by any other third-party including, technically, federal law enforcement agencies.

While that conflict may be purely academic, it does tempt another fundamental question not addressed in the order: what happens when the DEA inspectors, now entitled to on-demand access, observe conduct that remains federally unlawful? State law may expressly authorize adult use activity in the same facility, but under federal law, such activity remains prohibited. The final order does not explain whether DEA inspection authority is meant to be cabined to the registered medical operations, how such a boundary would be practically enforced in shared facilities, or what obligations or exposure arise if inspectors encounter adult use inventory, transactions or employees. But, if the “sledgehammer vs. scalpel" commentary noted above is taken seriously, one should expect this conflict to come with very real consequences for dual oparators.

This unresolved tension also comes to the foreground in the DEA Medical Marijuana Dispensary Application Form, which asks applicants:

• Will your firm be handling or dispensing medical marijuana?
• Will your firm be handling or dispensing recreational marijuana?

For licensees that lawfully engage in both activities under state law, answering these questions candidly creates an immediate concern: does selecting both answers effectively disqualify an applicant from registration? Or worse, does it operate as an affirmative admission of illegal conduct that could place the applicant on a federal enforcement list? How should an operator’s leadership address these issues with current staff (whose social security numbers will be expressly provided to the DEA)?

Given these serious questions, we cannot help but recall the Catch-22 of the 1937 Marijuana Tax Act: you couldn’t get the stamp without first being inspected, and if you were inspected without the stamp, you were breaking the law. Thus, from our vantage, it is unclear whether we are truly looking at a path to federal legalization, or the latest federal maneuver against the traditional, state-legal cannabis community.

Deliberate Ambiguity and Procedural Constraints?

By leaving so many questions unanswered, the DEA preserves flexibility in how it reviews applications, interprets applicant responses, and addresses compliance issues later. Clear, applicant-specific direction would limit DEA’s ability to revisit those issues in a registration or enforcement context.

One frustrating example of this lack of direction is the so-called dispensary registration “Instructions” provided alongside the application form. They do not explain how to answer the form, how DEA interprets key questions, what level of detail is expected, how applicants should handle ambiguous situations, or if any of the questions are automatically disqualifying.[CL2][BS3][JK4][BS5][6]

Instead, they simply say the online registration has seven sections and then list the fields applicants will be asked to complete.   The industry would benefit from DEA detailed guidance or FAQ to address these issues.

Unfortunately, though its own public pages tell people to contact the Registration Call Center and the Policy Section for “interpretation and guidance on DEA policies and regulations”, DEA staff cannot materially explain what they really want here without risking Paperwork Reduction Act (44 U.S.C. §§3501–3521) violations. In fact, we have been told that regional DEA offices are prohibited from providing guidance. The PRA requires agencies to collect only the information and burden that has been formally approved by OMB. Providing substantive explanations, clarifications, or qualifiers would effectively change how applicants understand or respond to application questions, and as such, could be viewed as altering the scope or meaning of the approved information collection without going through the PRA notice-and-approval process.

The Administrative Procedure Act also requires agencies to be cautious that informal guidance does not impose obligations resembling binding rules absent notice‑and‑comment rulemaking. The more concretely the agency explains how a question should be answered or what a response must show, the easier it becomes to argue that the agency has effectively adopted an unauthorized rule rather than simply administering an application process.[4]

This approach also aligns with DOJ’s estoppel guidance,[5] which emphasizes that the federal government generally is not bound by informal representations and therefore has reason to avoid applicant-specific advice that could later be invoked in an enforcement dispute. Even where courts reject such claims, documented agency statements can become focal points in later legal disputes if an applicant argues that it relied on an agency's assurance, interpretation, or apparent approval.

To add even more complexity to these substantial constraints, cannabis rescheduling and registration remain subjects of ongoing DOJ and DEA rulemaking, which further restricts staff from making interpretive statements during pendency. The absence of interpretive detail preserves the agency’s position that the form is only requesting information, not committing the DEA to a particular interpretation or outcome.

The Impact of Pending Litigation

Many of these registration questions may be resolved by litigation rather than agency guidance, potentially before the market receives any meaningful practical direction. On May 5, 2026, Smart Approaches to Marijuana and the National Drug and Alcohol Screening Association filed a petition in the D.C. Circuit seeking review of, and relief from, the April 23, 2026 rescheduling order. According to the petition as described publicly, the challengers contend the order violated the Administrative Procedure Act, exceeded the Attorney General’s authority under the Controlled Substances Act, and was otherwise arbitrary and capricious.

If that challenge gains traction, at least some of the considerations discussed above may prove short-lived or academic. That is especially true because the Department of Justice has separately announced a new administrative hearing process, beginning June 29, 2026, to consider broader marijuana rescheduling. For now, the legal framework is moving, but it is not yet settled.

Advising Through Regulatory Uncertainty

For operators, investors, and advisors navigating this shifting terrain, the lack of clarity underscores the importance of careful, jurisdiction-specific analysis before acting. Dickinson Wright’s Cannabis Practice Group is actively tracking developments at the DEA, DOJ, various states, and in the courts, and advising clients on how evolving federal rules intersect with state licensing, compliance obligations, and tax exposure. As this framework continues to evolve, we are available to help assess risk, evaluate registration strategies, and position businesses to adapt as clearer guidance or judicial review emerges.