Cannabis operators are navigating some of the most consequential federal policy shifts in the industry’s history, and Morgan Fox, political director of NORML, wants them to avoid acting on assumptions about federal rescheduling that could prove legally or financially risky.
The warning comes as cannabis operators face a federal rescheduling process that’s far from settled.
“People think Schedule 3 does more than it really does,” Fox told MJBizDaily. “Making your business plan around what the expectation of moving to Schedule 3 is premature.”
At the same time, intoxicating hemp beverages are drawing interest from one of the country’s most established distribution networks: the alcohol industry.
Although the two sectors face different regulatory challenges, both must navigate shifting federal policies while making decisions about investment, compliance and growth.
The developments raise a common question: How do businesses adapt when the rules keep changing?
MJBizCon puts that question center stage Dec. 1-4 at the Las Vegas Convention Center, where Fox, Dawson Hobbs of Wine & Spirits Wholesalers of America and Eric Brewer of Total Wine & More will share their perspectives and preview the issues taking shape for 2027.
Are cannabis operators expecting too much from rescheduling?
The federal government moved qualifying state-licensed medical marijuana and FDA-approved marijuana products to Schedule 3 in April, but adult-use cannabis remains classified as Schedule 1. A separate DEA proceeding will determine whether marijuana should be rescheduled more broadly.
That distinction matters for operators evaluating the potential financial and regulatory benefits.
A final U.S. Drug Enforcement Administration ruling on broader rescheduling could take time, and opponents could challenge the outcome in court, Fox said.
“Basically, everything is unresolved,” he said.
Regulators aren’t getting much guidance, either. The DEA has offered little direction on separating medical and adult-use programs. That gap is especially challenging in states like Washington and Missouri, where the two markets are combined.
Fox said many operators expect more from rescheduling than it delivers:
- Section 280E: Qualifying medical marijuana businesses can benefit from relief under the federal tax provision that prohibits standard business deductions for Schedule 1 and 2 substances. However, adult-use operators remain subject to the restriction, and the IRS is developing additional guidance on how the changes apply.
- Banking: More financial institutions may work with cannabis companies, but “not to the level it needs to bank the entire industry.”
- Federal illegality: Rescheduling doesn’t resolve the conflict between state and federal law or broadly legalize adult-use marijuana.
Federal registration presents another consideration. Qualifying medical marijuana businesses must meet DEA requirements, including security, recordkeeping and inventory controls. State licensure alone does not automatically confer federal registration.
The DEA announced Oct. 30 that it was moving forward with initial federal registrations for more than 900 qualifying medical marijuana dispensaries, marking a significant step in implementing the new framework.
Fox also cautioned that potential legal challenges could create uncertainty for businesses sharing information with federal regulators.
And if a legal challenge succeeds, “businesses don’t get any benefits and the DEA has all the information they need to pursue action against them,” Fox said.
Rescheduling also offers an intangible benefit: Politicians can no longer use Schedule 1 as an excuse to shut down conversations about state reform.
Still, Fox calls it “much more of a symbolic victory.” He argues that only descheduling would end the state-federal conflict, remove research barriers and open the door to criminal justice reform.
Those efforts have stalled in Congress, but debates over hemp cannabinoids and states’ rights, along with the midterm election results, could help advance legislation in the next congressional session.
His advice for operators?
“It’s incumbent upon businesses to be proactive, not reactive, to the federal government and its opaque method of doing things,” Fox said.
That means getting politically involved beyond banking and taxes and considering what customers need, including protection from arrest, he said.
Are hemp beverages the next distribution opportunity?
While marijuana operators weigh the limits of rescheduling, hemp beverage companies face a different challenge: preserving access to a growing consumer market as federal restrictions threaten much of the category.
Alcohol companies didn’t chase hemp beverages. Customers brought the category to them.
“This is all customer driven,” Brewer said. “Our No. 1 priority is making sure our shelves reflect the reality of the marketplace.”
That reality is shifting. Brewer said the past few years have redefined the term “adult beverage,” with low-dose THC drinks and nonalcoholic options claiming space alongside wine, beer and spirits.
Hobbs tells a similar story from the wholesale tier. Retailers approached distributors because consumers kept asking for THC drinks, and retailers wanted help finding the right products at the right doses.
“We have a system that works for adult beverages,” Hobbs said.
Both men see the three-tier system, established after alcohol prohibition ended, as the right home for intoxicating hemp beverages.
But the category faces a significant federal obstacle. Changes to the definition of hemp, scheduled to take effect Dec. 11, would exclude finished hemp-derived cannabinoid products containing more than 0.4 milligrams of total THC per container from the federal definition of legal hemp. The restrictions would affect many intoxicating hemp beverages unless Congress intervenes.
Against that backdrop, Hobbs and Brewer argue that the alcohol industry’s existing distribution and regulatory infrastructure offers a model for overseeing the products rather than prohibiting them.
Brewer called it “the strongest system in the world for protecting public health and safety when it comes to consuming adult beverages.”
Or, as Hobbs put it, “We have the plumbing in place. We just have to hook up another pipe.”
Here’s what they say the model delivers:
- Traceability: Retailers can track a batch number through the supply chain and quickly identify and remove affected products during a recall.
- Balance: Separating the tiers helps prevent market concentration, which Hobbs credits for craft beer’s success.
- Compliance: State regulators oversee licensed participants throughout the alcohol distribution system.
- Clear licensing and taxes: Hobbs wants the Alcohol and Tobacco Tax and Trade Bureau to license producers and distributors, along with an appropriate federal excise tax to discourage illicit sales.
Testing is the missing piece.
Brewer said Total Wine buyers evaluate product chemistry, manufacturing processes and consistency when working with suppliers. States with established rules make it easier to confirm that products meet testing standards.
Who should regulate intoxicating hemp beverages?
Both Hobbs and Brewer stressed that state control is key. For example, Nevada and Utah share a border but regulate alcohol very differently, reflecting each state’s approach to the market. Texas, Tennessee, Kentucky and Louisiana have developed their own THC beverage regulatory approaches based on state priorities.
For businesses, that patchwork underscores the importance of understanding individual state requirements, even as the industry seeks a more consistent federal framework.
In Brewer’s view, prohibition would push demand into the shadows, but regulation needs safeguards, from restricting sales to adults 21 and older to prohibiting branding that mimics national brands popular with children.
“We do not think prohibition is a good choice for the future,” Brewer said. “We think regulation is the smartest way to ensure public health and safety.”
For marijuana operators and hemp beverage businesses alike, the message is similar: Regulatory changes may create opportunities, but companies must understand the limits of those changes before building their strategies around them.
You can hear Fox, Hobbs and Brewer live at MJBizCon and head into 2027 with a plan built for whatever comes next.
Margaret Jackson can be reached at margaret.jackson@mjbizdaily.com.
