Federal Cannabis Laws 2026: §280E, DEA Schedule III, Farm Bill Hemp Rules

Federal Regulators

Drug Enforcement Administration (DEA): The DEA enforces the Controlled Substances Act and maintains the scheduling of controlled substances, including cannabis. The agency determines whether cannabis remains Schedule I (currently) or moves to a different schedule, controls manufacturing quotas for research, and investigates illegal distribution and trafficking of cannabis products.

Food and Drug Administration (FDA): The FDA regulates the safety, efficacy, and marketing of cannabis-derived drug products, including prescription medications like Epidiolex. The agency also oversees cannabis and cannabinoid products marketed with therapeutic claims, evaluates health and safety data for rescheduling decisions, and issues guidance on the use of CBD and other cannabinoids in food, dietary supplements, and cosmetics.

Department of Health and Human Services (HHS): HHS conducts scientific and medical evaluations of cannabis and cannabinoids to inform scheduling decisions, provides recommendations to the DEA on whether substances should be rescheduled, and oversees public health research through the National Institutes of Health (NIH) into cannabis's therapeutic potential and health risks.

Internal Revenue Service (IRS): The IRS enforces tax compliance for cannabis businesses operating under state law, including application of Internal Revenue Code §280E, which prohibits businesses trafficking in Schedule I or II controlled substances from deducting ordinary business expenses. The agency audits cannabis businesses and ensures all income is reported, regardless of the substance's federal illegality.

Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF): ATF enforces federal firearms laws that prohibit cannabis users from possessing firearms, as cannabis remains federally illegal. The agency regulates form 4473 background checks, which ask about unlawful controlled substance use, and investigates violations involving firearms possession by individuals engaged in cannabis-related activities.

United States Department of Agriculture (USDA): The USDA oversees the domestic hemp production program established under the 2018 Farm Bill. The agency approves state and tribal hemp production plans, maintains testing and regulatory standards for THC content (ensuring hemp contains no more than 0.3% delta-9 THC on a dry weight basis), and provides guidance on cultivation, handling, and processing of legal hemp.

Key Federal Statutes & Rules

Controlled Substances Act Schedule I (21 U.S.C. §§ 801 et seq.; 21 C.F.R. § 1308.11): Cannabis remains classified as a Schedule I controlled substance under federal law, meaning the federal government considers it to have a high potential for abuse, no currently accepted medical use, and a lack of accepted safety for use under medical supervision. This classification makes cultivation, distribution, possession, and use of cannabis a federal crime, regardless of state legalization. Schedule I status subjects cannabis businesses to significant legal and financial constraints, including banking difficulties and tax penalties.

Internal Revenue Code § 280E (26 U.S.C. § 280E): This provision prohibits businesses engaged in "trafficking" Schedule I or II controlled substances from deducting ordinary and necessary business expenses when calculating federal taxable income. Cannabis businesses can only deduct cost of goods sold (COGS), but cannot deduct rent, salaries, marketing, utilities, or other operational expenses. This creates effective tax rates that can exceed 70% of gross income, significantly impacting profitability for state-legal cannabis operators.

2018 Farm Bill (Agricultural Improvement Act of 2018, Pub. L. 115-334, 7 U.S.C. § 1639o): This legislation removed hemp—defined as cannabis plants and derivatives containing no more than 0.3% delta-9 tetrahydrocannabinol (THC) on a dry weight basis—from the Controlled Substances Act. Hemp and hemp-derived products, including CBD, are now legal to cultivate, process, and sell under federal law, provided they comply with USDA regulations and do not exceed the THC threshold. This created a legal distinction between hemp and marijuana based solely on THC concentration.

DEA Proposed Schedule III Rescheduling: In 2024, following an HHS recommendation, the DEA published a notice of proposed rulemaking to move cannabis from Schedule I to Schedule III of the Controlled Substances Act. Schedule III substances are defined as having accepted medical use, lower potential for abuse than Schedule I or II, and moderate to low potential for physical or psychological dependence. If finalized, this change would not legalize cannabis for recreational use but would eliminate IRC § 280E penalties for state-legal cannabis businesses and ease research restrictions.

FDA Cannabis-Derived Product Guidance: The FDA has issued guidance documents clarifying its regulatory approach to cannabis and cannabinoid products. The agency has approved cannabis-derived pharmaceutical drugs (like Epidiolex for epilepsy) through the standard drug approval process. For CBD and other cannabinoids in foods and dietary supplements, the FDA maintains that these products cannot be marketed without agency approval because CBD was first studied as a drug ingredient. The agency continues to issue warning letters to companies making unsubstantiated health claims about cannabis products.

Federal vs. State: Who Has Authority?

Under the Supremacy Clause of the U.S. Constitution (Article VI, Clause 2), federal law takes precedence over conflicting state laws. The Controlled Substances Act establishes cannabis as a Schedule I substance, making its possession, distribution, and cultivation federal crimes throughout the United States, regardless of state law. However, the federal government lacks the resources to enforce cannabis prohibition everywhere and has historically relied on state and local law enforcement to prosecute most drug offenses.

States retain sovereign authority under the Tenth Amendment to decline to enforce federal cannabis prohibition and to create their own regulatory frameworks for cannabis within their borders. As of 2026, most states have legalized cannabis for medical use, adult recreational use, or both. State legalization does not create a safe harbor from federal prosecution, but federal enforcement priorities have generally focused on large-scale trafficking, violence, interstate commerce, and sales to minors rather than individuals or businesses complying with robust state regulatory systems.

The federal government sets the floor for what remains criminal nationwide, but states can choose not to criminalize cannabis under state law, expunge past convictions, and license businesses to operate within state borders. States may also impose stricter regulations than federal law requires in areas where federal law is permissive—for example, states can ban hemp products or impose more restrictive THC limits than the federal 0.3% threshold.

Banking and interstate commerce remain federal prerogatives. The Bank Secrecy Act and federal anti-money-laundering statutes make financial institutions hesitant to serve cannabis businesses, even when state-legal, because they fear federal prosecution for handling proceeds from federally illegal activity. Interstate transport of cannabis remains illegal even between two states where cannabis is legal, because the Controlled Substances Act governs interstate commerce and prohibits cannabis transportation across state lines.

This dual-sovereignty framework creates complex compliance obligations: businesses must satisfy state licensing and regulatory requirements while remaining aware that federal enforcement, civil asset forfeiture, tax penalties, and criminal prosecution remain legal possibilities until Congress changes the Controlled Substances Act or the DEA finalizes rescheduling.

Pending Federal Legislation

Congress typically considers multiple categories of cannabis reform legislation during each session. Common legislative proposals include full descheduling or decriminalization bills that would remove cannabis entirely from the Controlled Substances Act, treating it similarly to alcohol or tobacco with an excise tax and regulatory framework. Banking reform measures aim to protect financial institutions serving state-legal cannabis businesses from federal penalties, allowing banks to provide checking accounts, loans, and payment processing without fear of money laundering prosecution or loss of federal deposit insurance.

Medical cannabis research bills seek to facilitate clinical studies by reducing DEA restrictions on research-grade cannabis cultivation and streamlining the approval process for scientists seeking to study therapeutic applications. Veterans' access legislation would allow Veterans Affairs physicians to recommend medical cannabis in states where it is legal and protect veterans from losing federal benefits due to cannabis use. Expungement and social equity provisions appear in many bills, aiming to clear federal cannabis convictions and create grant programs supporting communities disproportionately harmed by prohibition.

Tax reform proposals specifically target IRC § 280E, seeking to allow cannabis businesses to deduct ordinary business expenses like other legal enterprises. Some bills propose modest reforms like the SAFE Banking Act, while others like comprehensive legalization measures would restructure the entire federal approach to cannabis. Because legislative text, sponsorship, committee assignments, and floor votes change frequently, readers should consult an updated tracker linked to Congress.gov for current bill status rather than relying on static snapshots.

Frequently Asked Questions

Can I legally operate a cannabis business if my state has legalized it?

You can operate under state law, but cannabis businesses remain federally illegal as long as cannabis is a Schedule I controlled substance. This means federal criminal prosecution is technically possible, though unlikely if you comply strictly with state regulations and avoid triggering federal enforcement priorities (such as diversion to minors, interstate trafficking, or violence). You will face significant practical challenges including limited banking access, inability to deduct ordinary business expenses under IRC § 280E, restrictions on bankruptcy protection, and potential civil asset forfeiture. Many operators successfully run compliant businesses by maintaining meticulous records, working with specialized attorneys and accountants, and following all state requirements, but federal risk cannot be eliminated until Congress or the DEA changes cannabis's legal status.

Does the proposed Schedule III rescheduling make cannabis legal nationwide?

No. Rescheduling cannabis to Schedule III would not legalize recreational cannabis or create a federal right to use, cultivate, or sell cannabis. Cannabis would remain a controlled substance requiring prescriptions for legal use, similar to anabolic steroids or ketamine, which are also Schedule III. The primary benefits of Schedule III rescheduling are eliminating IRC § 280E tax penalties for cannabis businesses, easing research restrictions, and acknowledging accepted medical use. States would retain authority to maintain their own prohibition or legalization frameworks. Recreational possession and use would remain federal crimes, though enforcement discretion would likely continue. Only Congress can fully deschedule cannabis or create a legal adult-use market at the federal level.

What is the difference between hemp and marijuana under federal law?

The only federal distinction between hemp and marijuana is THC concentration. The 2018 Farm Bill (7 U.S.C. § 1639o) defines hemp as cannabis plants and derivatives containing no more than 0.3% delta-9 THC on a dry weight basis. Hemp is legal to grow, process, and sell under federal law, subject to USDA regulation. Any cannabis plant or product exceeding 0.3% THC is classified as marijuana and remains a Schedule I controlled substance, subject to all federal prohibitions. This is a legal distinction, not a botanical one—the plants are the same species (Cannabis sativa). Products marketed as "hemp-derived" or "CBD" must be tested to ensure THC content stays below the legal threshold; otherwise, they are federally illegal marijuana products.

Can cannabis businesses access traditional banking services?

Access remains severely limited but not impossible. Because cannabis is federally illegal, most banks refuse to serve cannabis businesses due to concerns about federal money laundering prosecution (18 U.S.C. §§ 1956-1957), Bank Secrecy Act violations (31 U.S.C. § 5318), and potential loss of FDIC insurance or federal banking charters. Some credit unions and smaller banks work with cannabis businesses under FinCEN guidance issued in 2014, which outlined due diligence expectations for financial institutions choosing to serve the industry. These institutions typically charge higher fees, impose strict compliance requirements, and may terminate relationships if federal policy shifts. Many cannabis businesses operate largely in cash, creating security risks and accounting challenges. Pending federal banking legislation could provide explicit safe harbor protections for financial institutions serving state-compliant cannabis businesses.

What federal licenses or permits do I need to operate a cannabis business?

Currently, no federal agency issues licenses or permits for commercial cannabis cultivation, processing, or retail sales because these activities remain federally illegal for Schedule I cannabis. Your licensing requirements are entirely state-based; you must obtain appropriate permits from your state's cannabis regulatory authority and comply with state and local regulations. If the DEA finalizes Schedule III rescheduling, businesses would likely need to register with the DEA as handlers of controlled substances and comply with manufacturing, distribution, and recordkeeping requirements under 21 C.F.R. Part 1301. For hemp operations, you must comply with your state's USDA-approved hemp production plan or operate under the USDA domestic hemp production program if your state lacks an approved plan. No other federal permits currently apply to cannabis businesses specifically, though standard business registrations (EIN from IRS, for example) remain necessary.

State-by-State Guides

Federal law sets the floor — but every state layers its own rules on top. Find your state's specifics:

• Alabama
• Alaska
• Arizona
• Arkansas
• California
• Colorado
• Connecticut
• Delaware
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Montana
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New Mexico
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Oregon
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Texas
• Utah
• Vermont
• Virginia
• Washington
• West Virginia
• Wisconsin
• Wyoming

Pending Federal Cannabis Legislation

Live data from Congress.gov. Updated daily. Pending = introduced and not yet enacted, vetoed, or signed into law.

HR 5384 (119th Congress)

What it does: MORE Act.

Latest status: Referred to the House Committee on Ways and Means. (2025-09-16)

HR 4963 (119th Congress)

What it does: Marijuana 1-to-3 Act of 2025.

Latest status: Referred to the Committee on Energy and Commerce, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned. (2025-08-12)

HRES 489 (119th Congress)

What it does: Providing for consideration of the bill (H.R. 884) to prohibit individuals who are not citizens of the United States from voting in elections in the District of Columbia and to repeal the Local Resident Voting Rights Amendment Act of 2022; providing for consideration of the bill (H.R. 2056) to require the District of Columbia to comply with federal immigration laws; providing for consideration of the bill (H.R. 2096) to restore the right to negotiate matters pertaining to the discipline of law enforcement officers of the District of Columbia through collective bargaining, to restore the statute of limitations for bringing disciplinary cases against members or civilian employees of the Metropolitan Police Department of the District of Columbia, and for other purposes; and providing for consideration of the bill (S. 331) to amend the Controlled Substances Act with respect to the scheduling of fentanyl-related substances, and for other purposes.

Latest status: Motion to reconsider laid on the table Agreed to without objection. (2025-06-10)

HR 966 (119th Congress)

What it does: Veterans Cannabis Use for Safe Healing Act.

Latest status: Referred to the Subcommittee on Health. (2025-03-06)

HR 1430 (119th Congress)

What it does: No CBDC Act.

Latest status: Referred to the House Committee on Financial Services. (2025-02-18)

S 464 (119th Congress)

What it does: No CBDC Act.

Latest status: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs. (2025-02-06)

HRES 93 (119th Congress)

What it does: Providing for consideration of the bill (H.R. 27) to amend the Controlled Substances Act with respect to the scheduling of fentanyl-related substances, and for other purposes.

Latest status: Motion to reconsider laid on the table Agreed to without objection. (2025-02-05)

Source: Congress.gov. Data refreshes daily — verify with the linked bill page before relying on it.