Article by: Raza Lawrence and Ivy Perez-Bader

Federal cannabis rescheduling has been widely discussed as a tax, banking, and criminal law inflection point. Far less attention has been paid to what may ultimately be its most consequential effect: a re-centering of federal food and drug law in an industry that has largely developed outside of it. For businesses accustomed to navigating state licensing regimes, Schedule III raises a deeper and more consequential question: whether the cannabis market is gradually being pulled toward a pharmaceutical regulatory model—one that many existing operators are structurally unprepared to navigate effectively. This regulatory uncertainty exists alongside the removal of § 280E tax penalties, creating a bifurcated landscape in which financial relief may coincide with increased regulatory exposure. A central question for operators, investors, and product developers is how FDA authority will manifest under this new schedule, and what that could mean for product development, manufacturing, and distribution across state and federal lines.

Why Schedule III Restructures the Industry

Although the FDA has statutory authority under the Federal Food, Drug, and Cosmetic Act (FDCA) to regulate drugs, that authority was largely dormant under Schedule I because the Controlled Substances Act prohibited commercial cannabis activity. Schedule III creates, for the first time, a realistic pathway for lawful commercial cannabis activity under federal law via FDA-approved drug channels—thereby activating regulatory regimes, particularly the FDA’s, which had previously been largely dormant due to the statutory prohibition on commerce. At the core of this shift there are important distinctions among legal authority, practical enforceability, and policy discretion. Enforcement discretion allows regulators to decide when, where, and how to act, even when statutory authority exists. Schedule III now makes that authority operationally meaningful, creating new choices for regulators and new obligations for industry participants.

FDA Jurisdiction, Scheduling, and Intended Use

The FDA regulates products based on intended use, as determined by labeling, marketing, and consumer perception. When a product is intended for the diagnosis, cure, mitigation, treatment, or prevention of disease, it is deemed a “drug” under the FDCA and must comply with the FDA’s drug approval framework. This principle has applied most clearly to isolated or synthetic cannabinoids developed as drugs, which is why federally lawful products such as Epidiolex, Marinol/Syndros, and Cesamet exist only after completing the FDA approval process—even while plant-derived cannabis itself remained a Schedule I substance. Schedule III status reinforces this paradigm by formally recognizing accepted medical use at the federal level, but it does not create a regulatory pathway for cannabis products sold outside FDA-approved medical uses or state medical programs. To understand how Schedule III changes practical obligations for the industry, it helps to review what it means under federal law.

What Schedule III Really Means Under Federal Law

Under federal law, Schedule III substances for human use may be sold to consumers only as FDA-approved prescription drugs, dispensed pursuant to valid prescriptions through DEA-registered channels. Manufacturing must occur at registered facilities operating in compliance with current Good Manufacturing Practices, and distribution must proceed through authorized wholesalers, pharmacies, and other registered handlers. In effect, Schedule III situates cannabis within the conventional pharmaceutical supply chain.

State-licensed dispensaries, direct-to-consumer sales models, and over-the-counter cannabis products do not fit within this structure absent FDA approval and prescription-based access. As a result, the dominant state-legal cannabis retail model has no clear analogue under federal Schedule III law. For much of the existing industry, compliance would require not incremental adjustments, but a fundamental redesign of product development, manufacturing, distribution, and patient access.

What Federal Enforcement Could Mean for the Industry

If federal law were enforced as written, the implications for today’s cannabis industry would be profound. The FDA drug approval process is lengthy, capital-intensive, and uncertain. It typically requires extensive preclinical research, multiple phases of human clinical trials, rigorous chemistry and manufacturing controls, and formal review of safety and efficacy data. For most state-licensed cannabis operators—particularly those producing flower, concentrates, or multi-cannabinoid products—the cost and complexity of obtaining FDA approval would be prohibitive. FDA approval is also product-specific, formulation-specific, and indication-specific, meaning that even widely sold products would need to be fundamentally redesigned to qualify as approved drugs.

Research, Capital, and a Widening Regulatory Divide

At the same time, Schedule III reclassification is likely to accelerate research and investment in pharmaceutical cannabinoids. By reducing administrative barriers that have historically constrained cannabis research, rescheduling makes it easier for universities, biotech companies, and pharmaceutical firms to study cannabis-derived compounds under traditional drug development models. This shift is likely to increase clinical trials, licensing agreements, and institutional investment focused on cannabinoid therapeutics. Rather than collapsing regulatory differences, this dynamic is likely to widen the divide between FDA-approved cannabinoid drugs and state-regulated cannabis products, placing added pressure on operators whose business models rely on non-pharmaceutical distribution channels.

Why State-Legal Cannabis Still Conflicts With FDA Law

From the FDA’s perspective, many cannabis products currently sold in state markets do not fit comfortably within existing federal categories. The agency has consistently taken the position that cannabinoids cannot simply be added to foods or marketed as dietary supplements under current law, particularly where the active ingredient has already been approved or authorized for investigation as a drug. Schedule III status does not resolve this issue: it neither authorizes ingestible cannabis products nor provides a statutory safe harbor for state-licensed businesses whose products remain unlawful under the FDCA.

Enforcement Discretion: The Quiet Backbone of Federal Cannabis Policy

Despite this legal mismatch, the FDA has historically relied heavily on enforcement discretion rather than broad-based enforcement actions against state-compliant cannabis businesses. Enforcement discretion allows the agency to prioritize violations based on public health risk, resource constraints, and broader policy considerations. In practice, this has meant a focus on products making explicit medical claims, products posing safety concerns, or products marketed in ways that implicate vulnerable populations. This approach may continue post-rescheduling, particularly for businesses operating transparently within robust state regulatory systems, even if they remain technically noncompliant with federal law. This reliance on discretion underscores the contingent nature of federal authority in practice, which leads directly to questions of legal hierarchy and state-federal tension.

Federal Supremacy and What Comes Next for the Cannabis Industry

Under the Supremacy Clause of the U.S. Constitution, federal law prevails over conflicting state law as a matter of legal doctrine, even where federal agencies have chosen not to enforce that law aggressively. State cannabis legalization therefore does not eliminate federal illegality; it reflects a policy choice by states operating in the shadow of federal supremacy and sustained, to date, by federal enforcement discretion.

This distinction matters because discretion is inherently contingent. While FDA and other federal agencies may continue to de-prioritize enforcement against businesses that comply with robust state regulatory systems, that posture is neither permanent nor legally binding. Changes in leadership, public health priorities, or congressional direction could rapidly and unevenly recalibrate enforcement across the industry.

Looking ahead, increased FDA influence may take the form of guidance documents, targeted warning letters, or coordination with other federal agencies such as the DEA, NIH, and USDA, rather than immediate market-wide enforcement. Whether federal regulators move toward gradual alignment with state markets or toward sharper regulatory conflict will depend largely on congressional action. Without new legislation creating a cannabinoid-specific regulatory framework, FDA remains constrained by statutes enacted long before modern cannabis markets existed.

For now, cannabis businesses should assume heightened scrutiny of product claims, manufacturing practices, and labeling. The more a product resembles a therapeutic intervention, the more likely it is to attract FDA attention. Schedule III status is a milestone, but it does not resolve the fundamental tension between state cannabis legalization and federal drug and food laws. Understanding these dynamics is critical for operators and investors seeking to navigate the evolving federal landscape and to make informed decisions regarding capital allocation, business valuation, and strategic positioning in anticipation of eventual federal alignment.

Selected Sources:

National Center for Complementary and Integrative Health (NCCIH). Cannabis (Marijuana) and Cannabinoids: What You Need to Know.

https://www.nccih.nih.gov/health/cannabis-marijuana-and-cannabinoids-what-you-need-to-know

U.S. Food and Drug Administration. FDA Regulation of Cannabis and Cannabis-Derived Products, Including Cannabidiol (CBD).

https://www.fda.gov/news-events/public-health-focus/fda-regulation-cannabis-and-cannabis-derived-products-including-cannabidiol-cbd

Congressional Research Service. Legal Effect of Marijuana Rescheduling on FDA’s Regulation of Cannabis (Legal Sidebar, LSB11227, Sept. 16, 2024).

https://www.congress.gov/crs-product/LSB11227