Following the federal government’s reclassification of state-licensed medical cannabis as a Schedule III substance, lawyers are parsing what the change means in practice, particularly its impact on Section 280E tax exposure, federal enforcement risk, compliance obligations under the Controlled Substances Act and existing contracts. The U.S. Department of Justice issued the order under Acting Attorney General Todd Blanche, following years of groundwork that included a 2023 recommendation from the U.S. Department of Health and Human Services and a December 2025 executive order from President Donald Trump.
To understand the implications for Colorado, Law Week Colorado spoke with Mara Sheldon, a Denver-based senior policy advisor at Holland & Knight.
Law Week Colorado: What changed for a licensed cannabis operator the moment rescheduling was announced? What hasn’t changed at all?
Sheldon: For state-licensed medical cannabis operators, the federal posture changed immediately: DOJ placed FDA-approved marijuana products and marijuana products subject to a qualifying state medical license into Schedule III. That is meaningful for tax, research and federal recognition. But this is not federal legalization. Adult-use cannabis remains federally constrained, interstate commerce is not open, banking is not fully fixed and operators still need to comply with state licensing, DEA controls and any future federal guidance.
LWC: Why now?
Sheldon: The administration is tying this to President Trump’s December 2025 executive order on medical marijuana and CBD research. DOJ also appears to be trying to resolve the stalled Biden-era process by creating a narrower immediate action for medical cannabis while restarting a broader expedited hearing process for Schedule III rescheduling. It’s a win for the industry and the Trump administration.
LWC: How transformative is relief from 280E in practical terms?
Sheldon: For affected medical operators, it is potentially transformative. Section 280E has prevented cannabis businesses dealing in Schedule I or II substances from deducting ordinary business expenses.The U.S. Department of the Treasury says rescheduling generally removes 280E as a bar for businesses that no longer traffic in Schedule I or II substances because of the final order. That can change a company’s cash flow, valuation, hiring capacity and survival prospects — not just its tax bill.
LWC: Will this disproportionately benefit established operators in Colorado?
Sheldon: In the near term, yes. Established Colorado operators with strong compliance systems, separate medical licensing, clean records and sophisticated tax counsel are best positioned to benefit first. But over time, it could also help smaller operators if tax relief improves margins and lenders or investors become more comfortable with the sector.
LWC: Does this validate Colorado’s approach?
Sheldon: Colorado built a state-regulated framework around licensing, inventory tracking, testing, patient access, inspections and enforcement. DOJ’s order expressly recognizes state medical licensing regimes and says state systems restrict cultivation, manufacturing and distribution to licensed entities with ongoing oversight. That validates the basic Colorado premise: Cannabis is better managed through regulated markets than through prohibition.
LWC: Does this clarify or blur the medical/recreational divide?
Sheldon: It sharpens the divide legally. Medical cannabis gets a new federal pathway; adult-use cannabis does not. But commercially, it may blur the line because many operators serve both markets. Dual-license operators will need to be very careful about separating inventory, accounting, personnel and compliance practices.
LWC: Do you expect this to trigger a wave of investment or consolidation as companies suddenly become more financially viable?
Sheldon: Yes, but probably in a disciplined way. Investors will look first at operators that can clearly benefit from 280E relief and demonstrate medical-market compliance. Consolidation is likely because stronger balance sheets and improved valuations may give larger operators more ability to acquire distressed or undercapitalized competitors.
LWC: Are there any misconceptions you’re seeing about this rescheduling?
Sheldon: The biggest misconception is that this legalizes cannabis federally. It does not. It also does not automatically legalize interstate commerce, solve banking, protect every adult-use operator or erase all federal risk. It is a major step, but it is a targeted medical cannabis step plus a process for broader rescheduling.
LWC: What are the next two or three policy moves that would most meaningfully reshape the cannabis industry?
Sheldon: The next most meaningful moves would be: IRS/Treasury guidance on 280E and transition rules, federal banking legislation or regulatory clarity, and completion of the broader DEA rescheduling process. Longer term, Congress still needs to address the state-federal conflict directly.
This is the first time federal policy is really acknowledging the regulatory sophistication of state medical cannabis programs. For Colorado, that matters. The state has spent more than a decade proving that licensed, tracked regulated cannabis markets can function — and now federal policy is beginning to catch up.