“The AG rescheduled a programme, not a drug.”

It’s a flaw that Jason Adelstone, cannabis attorney at Harris Sliwoski, believes could put the entire Schedule III ruling at risk.

On April 28, Acting Attorney General Todd Blanche signed an order moving state-licensed medical cannabis from Schedule I to Schedule III. For US operators, it appeared to open the door to DEA registration and remove the Section 280E tax burden that has cost the industry hundreds of millions of dollars.

But three legal challenges, now consolidated into a single case at the DC Circuit, are seeking to overturn the rule. One petitioner is MMJ Holdings, a clinical-stage pharmaceutical company developing cannabinoid-based medicines.

The dominant industry view is that these are long-shot challenges from prohibitionist opponents, and that operators should continue pursuing registration regardless.

Adelstone is not so sure. “If someone gets standing, I think it is more likely than not that the Schedule 3 final rule is overturned,” he told Green Queen C-Suite.

Before a court considers the legal arguments, it asks one question:

Why is this your problem?

Standing means that a petitioner has to show they are directly and personally harmed by the rule they are challenging. Without that, the case is dismissed before the substance is heard, and Schedule III survives by default.

SAM Inc., the main prohibitionist group in the case, has already failed this test once this year. In May, a DC court threw out a separate SAM lawsuit over a Trump administration hemp and Medicare programme after the court determined it was not SAM’s case to bring.

Firstly, the state attorneys general from Indiana, Nebraska, and Louisiana have a stronger claim than a lobby group. But Nebraska and Louisiana have both recognised medical cannabis through legislation or voter approval, making it harder to argue that a federal rule supporting those programmes harms them. Louisiana has already moved to withdraw from the case.

Indiana has the clearest state argument. As a total prohibition state, it can claim federal recognition of medical cannabis increases access against its will. But it’s MMJ International Holdings, a pharmaceutical cannabinoid developer, that may have the strongest standing argument of all. Adelstone says MMJ has “a better chance of standing than, especially SAM.”

If any petitioner clears the standing bar, the case moves to the merits. That’s where Adelstone's assigns a greater than 50% overturn probability. 

The AG used a specific provision of the Controlled Substances Act, 21 USC 811(d)(1), to make the rescheduling order. That provision allows the AG to reschedule a drug if doing so would bring the US into better compliance with its international treaty obligations. 

The problem, Adelstone argues, is that "the attorney general didn't reschedule a drug. He rescheduled a programme." 

Rather than identify a specific drug or substance, the April 28 order moved every state-licensed medical cannabis programme in the country into Schedule III simultaneously. That distinction, between rescheduling a drug and rescheduling a licensing programme, is likely outside the authority granted by 811(d)(1). 

The FDA’s absence compounds the problem. Federal law gives the agency responsibility for medical determinations, yet it played no meaningful role in the rulemaking. In effect, the government issued a medical classification without the body legally responsible for making one.

The most likely player to clear the standing requirement is also a somewhat unlikely opponent to rescheduling. MMJ International Holdings, isn’t an alcohol conglomerate trying to protect its monopoly on the legal high, or a prohibitionist group opposing on policy grounds. 

Instead, the cannabinoid developer argues that the rule rewards operators that bypassed the FDA pathway while penalising those that tried to follow it.

MMJ’s DEA registration application has been pending since 2018. After spending nearly a decade and more than $10 million pursuing FDA-approved medicines for Huntington’s disease and multiple sclerosis, the company’s objection is that the April 28 order gives state-licensed dispensaries a six-month fast-track registration route, while pharmaceutical applicants remain stuck in limbo.

“They’re pretty pissed off that they’ve been trying to go through the proper channels and DEA has done nothing,” Adelstone said.

Crucially, MMJ rejects any idea that its challenge is “anti cannabis”. The company says it supports cannabinoid medicines, but only when they are developed through the FDA pathway with known chemistry, stability testing, manufacturing controls, and clinical evaluation.

Its position is that patients deserve scientifically validated cannabinoid products, not a system that rewards operators for “bypassing the standards pharmaceutical developers are required to meet.”

Large operators: The overturn probability is higher than most are pricing in. Adelstone is on record at greater than 50% if standing is established. Have counsel document what happens to 280E positions already taken and DEA registrations already filed if the April order falls.

Medium-sized operators: Standing is the variable to watch, not the merits. If no petitioner establishes it, the case is dismissed and your registration proceeds normally. If standing is established, the picture changes quickly. File before June 22, document your 280E cost allocation clearly, and watch the DC Circuit. 

Small businesses: The registration calculus still favours filing despite the legal risk. "You're kind of buying a lottery ticket,” Adelstone admits. “But, you do have much better odds than the actual lottery".