DC Circuit Declines To Halt DOJ's Cannabis Rescheduling

Court Denies Emergency Motion

The D.C. Circuit rejected an emergency petition seeking to pause the DEA's rescheduling process, preserving the current administrative hearing schedule. According to Law360, the three-judge panel issued a brief order Wednesday evening declining to grant the stay motion. Administrative Law Judge John Mulrooney will continue presiding over the formal rulemaking hearing that began in late 2025.

Petitioners said the rescheduling should be halted pending resolution of underlying legal challenges to the DEA's authority and process. The court didn't issue a written opinion explaining its reasoning. Just a one-line denial.

Rescheduling Timeline Remains Intact

The ruling preserves the Justice Department's target to finalize the Schedule III reclassification by early 2027. The DEA published its Notice of Proposed Rulemaking in May 2024, following an August 2023 recommendation from the Department of Health and Human Services that cannabis met the criteria for Schedule III classification. The NPRM triggered a formal comment period that drew more than 43,000 public submissions—the most in DEA rulemaking history.

The administrative hearing phase began in December 2025 and is expected to run through early 2026. Key issues under review include:

• Whether cannabis has currently accepted medical use in treatment in the United States
• The drug's abuse potential relative to Schedule I and II substances
• Evidence of physical or psychological dependence liability
• International treaty obligations under the 1961 Single Convention

What Schedule III Means for Operators

Rescheduling to Schedule III would eliminate the 280E tax burden that currently blocks cannabis businesses from deducting ordinary business expenses. Under Internal Revenue Code Section 280E, businesses trafficking in Schedule I or II controlled substances can't claim federal tax deductions for rent, payroll, marketing, or other operating costs—only cost of goods sold. Multi-state operators report effective federal tax rates exceeding 70% as a result.

Schedule III classification would allow standard business deductions, potentially saving the industry billions annually. But it wouldn't legalize cannabis federally. Possession, distribution, and sale would remain federal crimes without a DEA registration, which the agency has never issued for plant-touching cannabis operations.

The tax relief is real, but the regulatory framework remains a patchwork: state-legal programs operating in tension with federal prohibition that simply costs less to navigate.

Legal Challenges Still Pending

Multiple parties have filed petitions challenging the rescheduling on procedural and substantive grounds, but none have succeeded in pausing the process. Opponents include prohibitionist groups saying cannabis doesn't meet Schedule III medical-use criteria, and legalization advocates contending the drug should be descheduled entirely rather than reclassified. Several state attorneys general have also intervened, raising federalism concerns about the impact on state regulatory programs.

The D.C. Circuit's refusal to grant a stay suggests the court sees no immediate irreparable harm from allowing the administrative process to continue. Substantive legal challenges will proceed on a separate track. They could still result in the final rule being vacated or remanded, but not until after it's issued.

What Happens Next

The DEA is expected to issue a final rule by Q2 2027, following the conclusion of the ALJ hearing and a review period for the agency's final decision-maker. Once the final rule is published in the Federal Register, it'll take effect 30 days later unless a court grants a stay at that stage. For context on the full rescheduling process and timeline, see the CannIntel topic hub on DEA rescheduling.

Next major milestone: the ALJ's recommended decision, expected in late Q1 2026. That recommendation will go to the DEA Administrator, who has final rulemaking authority. Political variables remain. A new administration in 2025 could direct the DOJ to withdraw or modify the proposal, though no such signal has emerged.

We'll be watching enforcement patterns during the interim period. State-licensed operators continue to face federal criminal exposure, and banks remain wary of serving cannabis clients absent explicit safe-harbor legislation.