Alabama may opt out of federal marijuana rescheduling. What happens next?

Alabama’s official objection to the Trump administration’s federal medical marijuana rescheduling push is raising questions about 280E tax relief, interstate shipping rights and whether a state can simply say no to a federal scheduling change.

The answer, according to legal experts, is complicated. However, the issue shouldn’t affect the ongoing rollout of Alabama’s medical cannabis market.

Under federal law, state-licensed medical cannabis has been a Schedule 3 drug since an April 23 Justice Department final order. But in Alabama, where medical marijuana sales finally launched in June after years of stumbles and legal wrangling, state health officials triggered an official review process a few weeks before the first sale.

Eric Berlin, a partner at law firm Dentons, said the objection is a legal technicality, rather than an attempt to “opt out” of federal rescheduling.

“All that’s happened is the state health official has filed an objection,” Berlin told MJBizDaily. “Reports interpreting as opting out of rescheduling – that’s not exactly accurate.”

What is Alabama doing in response to Trump marijuana rescheduling?

Alabama law dictates that a federal reclassification of drugs is adopted automatically at the state level unless the State Committee of Public Health objects within 30 days. And the committee objected May 21, triggering a review process that led to a July 22 hearing.

An ADPH spokesperson told MJBizDaily the agency is not offering interviews or providing statements until a final decision is announced. That will be sometime after a public comment period ends on August 5.

However, during a May meeting, State Health Officer Scott Harris said the department “fully intends” to implement the change, the Alabama Reflector reported.

“We’re not saying Alabama’s not going to do this,” said Harris, who framed the move as a way to buy “time to figure this out with all of our other stakeholders,” according to the Reflector.

State public health officials cited Alabama’s medical cannabis framework,where a licensing process was beset by legal challenges following legalization in 2021, noting it needed more time to evaluate whether federal rescheduling would alter that system.

And as legal experts told MJBizDaily, it should not.

How will Alabama’s existing cannabis operators be affected?

For most operators, rescheduling’s most consequential business effect is tax relief. Section 280E of the federal tax code, which blocks cannabis companies from deducting ordinary business expenses and can push effective tax rates far above those of any other legal industry, does not apply to Schedule 3 drugs.

Tax relief flows from the federal reclassification, not from any decision Alabama may make.

So even if Alabama declines to change state law, “(i)t should have no impact… because Alabama has already legalized medical cannabis in their own way – that will remain legal,” Berlin said.

Where the state’s decision bites is expansion.

Keeping marijuana at Schedule 1 under state law wouldn’t erase the existing MMJ program, Berlin said, but it could stand in the way of growth.

Can Alabama ban out-of-state cannabis shipments under marijuana interstate commerce?

That include scenarios with interstate commerce. In such a future, the central legal question is the U.S. Constitution’s dormant commerce clause, said Jason Adelstone, a Denver-based attorney with national law firm Harris Sliwoski.

A constitutional doctrine that’s come up before in cannabis questions – and recently triggered a restart of adult-use retail licensing in Rhode Island – the dormant commerce clause generally prohibits states from blocking imports from other states to protect local businesses.

A state that prohibits a substance outright stands on firmer ground than one shielding local operators from competition, Adelstone told MJBizDaily.

“As long as they have a medical program, then they are going to face dormant commerce clause concerns if interstate transport is allowed and they prohibit out-of-state operators from participating in the local program,” he said.

“They can, however, restrict the products to those currently permitted under state law.”

If Alabama declines to let out-of-state companies ship products in, Adelstone expects litigation from registrants with the U.S. Drug Enforcement Administration looking to shop into the state or patients wanting greater access within the state.

“This issue could only arise after DEA starts issuing registrations and allows interstate transport,” Adelstone said.

For multistate operators, the takeaway is that federal rescheduling won’t translate uniformly across every market, and each state demands its own legal interpretation.

Are states required to adhere to federal rescheduling?

Alabama isn’t alone in objecting to federal marijuana rescheduling, though it is the only state with legal cannabis access to take this route.

In July, Wyoming Attorney General Keith Kautz said federal reclassification of medical marijuana does not apply in his state, one of the few remaining with no legal cannabis access.

And on the same day the Justice Department issued the final order reclassifying medical marijuana to Schedule 3 in April, Tennessee Republican Gov. Bill Lee signed a state bill that effectively keeps prohibition in place. Tennessee, too, has no legal cannabis access.

Federal action doesn’t automatically dictate state outcomes, Berlin observed. After all, adult-use cannabis violates the Controlled Substances Act.

“The states have these programs up and running, and they’re not preempted,” he said.

Adelstone compared the dynamic to alcohol, where states retained the power to permit or prohibit the substance regardless of the federal position.

“States have the autonomy to allow the substances or not,” he said. “They’re not just going to follow what the federal government is doing.”

Who is opposed to rescheduling medical marijuana in Alabama?

Conservative activists dominated public testimony. Just one operator attended the meeting.

Wagon Trail Med-Serv President and CEO Joey Robertson warned that not following what is happening on the federal level could result in distrust between patients and doctors and the state, according to the Reflector.

“This is a controlled program in the state of Alabama that has nothing to do with children outside of those that qualify for those medications,” he said. “This has nothing to do with the illicit market, which will grow no matter what, and really does not care if the federal government or Alabama reschedules from Schedule 1 to Schedule 3.”

But Berlin said such arguments have gained little traction outside of Idaho and Kansas and are unlikely to sway Alabama.

The public comment period closes Aug. 5, after which officials will weigh how the federal change interacts with state law and Alabama’s medical cannabis program.

“They certainly have legitimate reasons for putting it on pause,” Berlin said. “If they do it in the proper way, they will conclude that medical cannabis should be rescheduled.”

Margaret Jackson can be reached at margaret.jackson@mjbizdaily.com.