Marijuana rescheduling survives court challenge as Mom-and-Pop cannabis businesses hang in the balance
The cannabis industry and medical marijuana patients were given a small glimmer of hope today when a federal appeals court rejects bid to block marijuana rescheduling. The federal government’s cannabis effort survived another major legal challenge Wednesday when the U.S. Court of Appeals for the District of Columbia Circuit rejected a request to temporarily block the current administration’s Schedule III order.
“Petitioners have not satisfied the stringent requirements for a stay pending court review,” the court ruled.
The decision is an important development for the industry, but it does not mean the larger legal fight over rescheduling is finished. The underlying challenges to the government’s April 2026 order remain before the D.C. Circuit.
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The immediate dispute involves the National Drug & Alcohol Screening Association (NDASA), a trade association representing the drug-testing industry, and MMJ International Holdings, a pharmaceutical company developing cannabinoid-based medicines. The groups asked the court to put the government’s Schedule III order on hold while their broader legal challenge proceeds.
The immediate challenge came from the National Drug & Alcohol Screening Association, a trade association representing the drug-testing industry, and MMJ International Holdings, a pharmaceutical company developing cannabinoid-based medicines. The groups had asked the court to put the administration’s order on hold while their legal challenge proceeded. The Justice Department opposed the request.
The administration’s April order moved state-licensed medical marijuana and certain FDA-approved marijuana products into Schedule III. The broader question of whether marijuana generally should be moved from Schedule I to Schedule III is still being addressed through the federal administrative process.
For cannabis businesses, however, the biggest potential impact is financial.
Moving marijuana out of Schedule I would have major consequences under Section 280E of the federal tax code. The provision prevents businesses dealing in Schedule I and II substances from taking many ordinary business deductions.
For cannabis operators, it can mean paying federal taxes on money conventional businesses would use to cover payroll, rent, advertising, security and other operating costs.
Whitney Economics estimates cannabis businesses paid approximately $2.24 billion in excess federal taxes in 2025 because of 280E. Since 2018, the firm estimates the industry has paid more than $27 billion in federal taxes, including roughly $15 billion attributable to excess 280E taxation.
This is where the story gets particularly important for America’s mom-and-pop cannabis businesses.
The legal marijuana industry isn’t made up exclusively of large, well-capitalized companies. Thousands of locally owned dispensaries, cultivators, manufacturers and other operators are trying to survive under an expensive combination of federal taxation, state taxes, licensing fees and regulatory requirements.
For a small operator, eliminating or reducing the 280E burden could mean the difference between closing the doors and having enough cash to make payroll, pay the rent, hire another employee or invest back into the business.
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States also have a significant economic interest in what happens next.
Legal adult-use cannabis generated more than $4.57 billion in state tax revenue in 2025, bringing the cumulative total since 2014 to more than $28.4 billion, according to the Marijuana Policy Project. Seven states collected more than $200 million last year, while California alone topped $1 billion. In a time of tariff wars, widely fluctuating oil prices and concerns about a recession, this can make a difference in state budgets.
This makes a review of state cannabis tax policy increasingly important.
Federal tax relief could make legal operators healthier, but high state tax rates can still squeeze businesses and make legal products less competitive with illicit-market alternatives. States may therefore need to consider whether their current tax structures are maximizing long-term revenue — or simply maximizing the amount collected from businesses who are already struggling.
For state governments, a thriving legal cannabis industry can mean more than tax receipts. It means jobs, commercial real estate, payroll taxes and thousands of small businesses remaining part of the formal economy. More than 412,000 people are currently employed full-time by state-licensed cannabis businesses, according to industry data cited by NORML.
Wednesday’s ruling doesn’t settle marijuana’s ultimate federal status. But it removes an immediate attempt to stop the administration’s current Schedule III order and keeps the rescheduling process moving.
For the nation’s cannabis entrepreneurs, the question is increasingly straightforward: Will federal and state policymakers give legal cannabis businesses enough tax relief to survive — and grow — or continue taxing an industry still fighting to reach profitability?
