U.S. Department of Health and Human Services recommends moving marijuana from Schedule I to Schedule III

On August 30, 2023, the U.S. Department of Health and Human Services (HHS) transmitted a landmark 252-page scientific and medical evaluation to the Drug Enforcement Administration (DEA), formally recommending that cannabis be reclassified from Schedule I to Schedule III of the Controlled Substances Act. It marked the first time since the CSA was enacted in 1970 that federal health authorities concluded botanical cannabis has a “currently accepted medical use in treatment in the United States.”

What the FDA and HHS 8-factor analysis found

Conducted in response to President Biden’s October 2022 directive, the Food and Drug Administration (FDA) evaluated data from millions of patients participating in state-licensed medical cannabis programs across 38 states:

• Currently accepted medical use: Applying a two-part test examining widespread clinical experience under state-authorized programs, HHS concluded that credible scientific support exists for using cannabis to treat anorexia related to a medical condition, nausea and vomiting, and pain.
• Lower abuse potential than Schedule I or II: Comparing epidemiological data on cannabis against heroin, fentanyl, oxycodone, cocaine, and alcohol, HHS determined that cannabis carries a physical and psychological dependence profile lower than Schedule I and II substances, matching Schedule III (which includes ketamine, Tylenol with codeine, and anabolic steroids).

Why Schedule III matters for taxes and research

• Ending the Section 280E tax penalty: Internal Revenue Code Section 280E bars businesses trafficking in Schedule I or II substances from deducting ordinary business expenses (such as payroll, rent, and utilities) on their federal taxes, often creating effective tax rates of 60% to 70%. Section 280E does not apply to Schedule III substances.
• Next steps: Under the Controlled Substances Act, HHS’s scientific and medical findings are binding on the DEA. In May 2024, the Justice Department published a formal Notice of Proposed Rulemaking (89 Fed. Reg. 44597) to move marijuana to Schedule III, drawing more than 43,000 public comments ahead of administrative hearings and the 2025–2026 implementation orders.

Photo: Adobe Stock. Contextual stock: a computer screen displaying the DEA website; capture date unspecified, not a photograph of the 2023 HHS recommendation.