From Hemp to Schedule III: How Federal Cannabis Policy Is Forcing a State-by-State Reset

In rapid succession, the federal government initiated two cannabis policy changes that, taken together, represent the most consequential realignment of the industry in more than half a century.

First, federal law redefined hemp, tightening allowable THC thresholds for consumable products and restricting certain synthetic cannabinoids, with an effective date set for November 2026. Shortly thereafter, the administration directed federal agencies to begin the formal process of reclassifying marijuana from Schedule I to Schedule III under the Controlled Substances Act.

Viewed independently, each development is significant. Viewed together, they reflect a deeper shift in federal posture. Cannabis policy is no longer operating in parallel lanes for hemp and marijuana. Instead, federal action is pushing toward a more unified, compliance-driven cannabinoid framework, one in which states, not Washington, will determine which markets remain viable and which business models survive the transition.

For operators across hemp, medical cannabis, adult-use cannabis, and adjacent industries, the next 12–18 months will not be defined by federal headlines. They will be defined by state law mechanics, political timing, and strategic positioning in a converging regulatory ecosystem.

A Federal Pivot Toward Managed Regulation

The hemp redefinition and the move toward Schedule III rescheduling are often discussed as separate initiatives. In practice, they are complementary.

The hemp change tightens the consumer cannabinoid lane, narrowing what qualifies as lawful hemp products and reducing tolerance for intoxicating formulations that proliferated under prior interpretations of federal law.

Schedule III rescheduling, by contrast, legitimizes the medical cannabinoid lane by formally ending the federal position that marijuana has no accepted medical use, even though full federal legalization remains out of reach.

Together, these actions reflect a consistent federal posture. Intoxicating cannabinoids will no longer be tolerated in a regulatory vacuum. Medical cannabis is no longer treated as legally fictitious. States are expected to regulate cannabinoids through defined, enforceable systems rather than informal carve-outs.

This is not deregulation. It is regulatory consolidation.

This shift is not about loosening controls, but about clarifying them. As my partner Cory Parnell, CPA at BGM, recently observed:

“This is not a moment of deregulation, it’s a moment of definition. Cannabinoids are moving out of ambiguity and into formal systems, and that transition will expose which markets were built on policy and which were built on assumptions.”

The Emergence of a Federal Medical Cannabinoid Lane

Alongside rescheduling, federal agencies have been directed to explore medical cannabis pilot programs within federally administered healthcare systems. While details remain limited, the purpose of these pilots is not market expansion but data generation.

These programs are intended to evaluate cannabinoid-based therapies under controlled conditions, with an early focus on seniors and other vulnerable populations. The emphasis is on safety, dosing, outcomes, and comparative effectiveness, particularly where cannabinoids may serve as alternatives or complements to higher-risk pharmaceuticals.

Importantly, these pilots are not designed to displace existing state medical cannabis programs in the near term. Instead, they represent a parallel federal effort to build clinical evidence and institutional familiarity with cannabinoids inside traditional healthcare systems. Over time, the data generated through these programs is likely to influence physician education, standards of care, and future federal policy decisions.

For now, they should be understood as infrastructure-building exercises rather than a shortcut to federal legalization.

Compounding Pharmacies in a Schedule III Environment

Within this emerging framework, compounding pharmacies warrant attention.

As entities already accustomed to handling controlled substances under physician oversight, compounding pharmacies are structurally aligned with a Schedule III environment focused on medical supervision and standardized delivery methods. In the context of pilot programs, they may play a limited but meaningful role in developing non-smokable, dosage-controlled cannabinoid formulations suitable for clinical evaluation.

This does not imply broad retail access, nor does it suggest that state dispensaries become pharmacies. It reflects how federal medical systems traditionally engage with controlled substances during early-stage evaluation and research.

CBD, Medicare, and Incremental Normalization

One of the clearest signals in current federal policy discussions is the distinct treatment of CBD relative to other cannabinoids.

Federal directives accompanying rescheduling efforts have emphasized preserving access to non-intoxicating, full-spectrum CBD while restricting intoxicating products that pose public health risks. In healthcare settings, CBD is often viewed as the most administratively and politically feasible entry point for cannabinoid-based therapies.

Any future consideration of Medicare coverage is likely to follow this incremental approach. Rather than broad reimbursement for cannabis products, early federal efforts, if pursued, would almost certainly focus on CBD formulations used under medical supervision for specific indications.

In this sense, CBD functions as a policy bridge, connecting hemp, medical cannabis, and federal healthcare systems without forcing immediate resolution of more complex issues surrounding THC, adult-use markets, or interstate commerce.

Why State Law Will Decide the Outcomes

Despite the significance of federal action, outcomes will not be uniform nationwide. As has long been true in cannabis policy, state law, not federal announcements, will determine whether cannabinoid businesses can legally operate.

Each state maintains its own Controlled Substances Act, and the way those statutes interact with federal scheduling changes varies considerably. In the context of hemp redefinition, states generally fall into three categories:

• Automatic-trigger states, where federal scheduling changes are adopted by default unless affirmatively blocked.
• Rulemaking or legislative states, where state action is required to conform to federal changes.
• Discretionary adoption states, where alignment with federal law is optional.

In automatic-trigger states, failure to act before the federal hemp changes take effect in 2026 could result in the sudden loss of existing hemp protections, potentially reclassifying products overnight. In discretionary states, the same federal change may have little immediate effect.

The same principle applies to Schedule III. Rescheduling does not convert state dispensaries into federally lawful pharmacies, nor does it authorize interstate commerce. Instead, it alters the policy and risk calculus under which states operate.

In both cases, timing matters. States with short legislative sessions, slow rulemaking processes, or politically divided governments face heightened risk of unintended disruption simply because they fail to act in time.

Hemp and Marijuana Are No Longer Separate Conversations

Perhaps the most consequential implication of these developments is conceptual. Hemp and marijuana are now part of the same regulatory conversation.

States are increasingly viewing cannabinoids as a single policy category rather than two unrelated industries. As a result, hemp products that no longer qualify under revised definitions may be redirected into licensed cannabis systems or prohibited entirely. Hemp operators may be forced to evaluate medical or adult-use licensing as a survival strategy. States without adult-use cannabis may rely more heavily on medical programs as the only lawful cannabinoid pathway.

In practical terms, hemp businesses are inheriting cannabis-style compliance risk, while cannabis businesses are inheriting hemp-style competition and consumer expectations. The regulatory distance that once separated the two is closing.

Business Implications Are Already Material

This convergence is not theoretical. It is already reshaping day-to-day business realities across the cannabinoid economy.

Operators across hemp and cannabis markets are experiencing increased banking scrutiny, heightened contractual risk, intellectual property constraints, and growing pressure to adopt state-specific operating models rather than national distribution strategies.

A Note on 280E

One of the more tangible consequences of Schedule III, once finalized, will be the elimination of Internal Revenue Code §280E for plant-touching cannabis businesses. While this will materially improve after-tax cash flow for many operators, it also introduces a period of structural reassessment. Business models and entity structures designed for a punitive tax regime may no longer be optimal in a post-280E environment.

Here again, state-level tax conformity and implementation timing reinforce the importance of jurisdiction-specific planning rather than one-size-fits-all assumptions.

Strategic Paths Forward

There is no single playbook for navigating this transition. Strategy will depend on jurisdiction, product mix, capitalization, and risk tolerance.

What is clear is that inaction is itself a strategic choice, and often the riskiest one.

The Bottom Line

The federal government has sent a clear signal. Cannabinoids will be regulated, not ignored. Hemp redefinition, Schedule III rescheduling, federal pilot programs, and emerging CBD policy all point toward a more structured and less forgiving regulatory environment.

For businesses that understand their state’s legal mechanics, engage early, and plan deliberately, the transition can be managed. For those that assume current protections will persist by default, the risk is not incremental disruption but sudden loss of legal footing in core markets.

Next Steps

These developments will not affect every business the same way. Their impact depends on where you operate, how your products are regulated today, and how quickly your state moves over the next 12–18 months.

If you would like to discuss how these federal shifts intersect with your business or market strategy, you are invited to schedule a conversation with Peter M. Prevot, CPA to assess options before critical state-level decisions are made.

This article, “Federal Cannabis Policy Is Forcing a State-by-State Reset,” by Peter Prevot, CPA, was originally published by Bridge West Consulting and is republished with permission.