For years, the gap between state and federal cannabis law has created persistent uncertainty for businesses, investors, and entrepreneurs operating in states where cannabis is legal. Federal prohibition under the Controlled Substances Act has shaped everything from banking access to federal tax treatment, limiting how cannabis businesses can operate even in states with well-established regulated markets. Recent legislative and regulatory developments suggest the federal landscape may be shifting — though the pace and full scope of that shift remain subjects of ongoing policy debate.
Mandelbaum Barrett PC’s attorneys track federal cannabis law developments closely, as changes at the federal level have direct implications for cannabis businesses and investors operating in New Jersey and across the country. The firm’s corporate law and cannabis-related practice areas advise clients in this regulated industry on the legal and structural issues that arise as the law continues to evolve.
Rescheduling and the DEA Review Process
One of the most significant potential changes to federal cannabis law involves the Drug Enforcement Administration’s ongoing review of cannabis scheduling under the Controlled Substances Act. Cannabis is currently classified as a Schedule I controlled substance, meaning it is treated under federal law as having no accepted medical use and a high potential for abuse. The Department of Health and Human Services recommended rescheduling cannabis to Schedule III in 2023, and the DEA subsequently initiated a formal rulemaking process to consider that recommendation.
Rescheduling cannabis to Schedule III would not legalize it at the federal level, but it would remove some of the most burdensome restrictions on the industry. Among the most significant: rescheduling would eliminate the application of Internal Revenue Code Section 280E to cannabis businesses. Section 280E currently prohibits cannabis businesses from deducting ordinary business expenses on their federal tax returns, creating a substantial tax burden that most industries do not face.
Financial Access and the SAFER Banking Act
Access to banking services has been one of the most persistent obstacles for cannabis businesses operating legally under state law. Because cannabis remains a Schedule I controlled substance under federal law, federally regulated financial institutions have been reluctant to provide accounts and services to cannabis businesses, leaving many to operate primarily in cash. The SAFER Banking Act — a bipartisan bill that has advanced through Congress in various forms — would provide safe harbor for financial institutions that serve state-legal cannabis businesses.
According to the 118th Congress, the SAFER Banking Act passed the Senate Banking Committee with bipartisan support, though it has not yet been enacted into law. Even partial progress on banking access would represent a meaningful change for cannabis businesses that currently operate outside the mainstream financial system.
What These Developments Mean for New Jersey Cannabis Businesses
New Jersey legalized adult-use cannabis through the New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act, and the state’s regulated adult-use market has been operational since 2022. Businesses and investors in New Jersey’s cannabis market are directly affected by federal restrictions on banking, taxation, and interstate commerce. Federal reforms — whether through rescheduling, SAFER Banking, or other legislation — would meaningfully change the operational and financial landscape for these businesses.
Contact Mandelbaum Barrett PC for Cannabis Business Guidance
If you are a cannabis business, operator, or investor navigating the intersection of state and federal law in New Jersey or New York, the team at Mandelbaum Barrett PC can help you structure your operations for compliance and position your business for what lies ahead as this area continues to evolve.
Reach out through our contact page to speak with our team. We are here to help you understand how federal developments in cannabis law affect your business.