Mehdi Sinaki
Senior Associate
Michelman & Robinson, LLP
Phone: (909) 730-5375
Email: msinaki@mrllp.com
On April 22, 2026, Acting Attorney General Todd Blanche signed a final order, announced the following day and effective upon Federal Register publication on April 28, placing two narrow categories of marijuana into Schedule III of the Controlled Substances Act: FDA-approved drug products containing marijuana and marijuana subject to a qualifying state-issued medical marijuana license. Adult-use cannabis was left untouched. Anything outside those two categories, including the recreational market, unlicensed bulk material and synthetically derived tetrahydrocannabinols such as delta-10, remains in Schedule I.
The order bypassed conventional notice-and-comment rulemaking, instead invoking the attorney general's treaty-based authority under 21 U.S.C. § 811(d)(1), grounded in U.S. obligations under the 1961 Single Convention on Narcotic Drugs. That maneuver is already drawing scrutiny under the Administrative Procedure Act, particularly because the DEA simultaneously terminated the Biden-era rulemaking proceedings pending since 2024. A separate, expedited DEA hearing beginning June 29, 2026, will address whether all marijuana, including adult-use, should move to Schedule III through the conventional process.
For qualifying medical operators, the near-term benefits are concrete. Because Section 280E of the Internal Revenue Code applies only to trafficking in Schedule I or II controlled substances, state-licensed medical operators are no longer subject to its punishing deduction disallowance. Treasury and the IRS have indicated that a forthcoming transition rule will apply the relief to the entire taxable year containing the order's effective date, and the order encourages Treasury to consider retrospective relief for prior years. The order also opens new research pathways and an expedited DEA registration framework under 21 C.F.R. Part 1301.
In California, however, the implications are more nuanced than the headlines suggest.
The order does not convert dispensaries into pharmacies, transform recommendations into prescriptions or fold cannabis into the FDA approval and prescription drug framework. But it does something subtler, and arguably more important: it reframes how cannabis-related activities can be evaluated by regulators, plaintiffs and counterparties, increasingly through the lens of traditional healthcare law.
For multi-state operators, recommending clinicians, healthcare-focused investors and the management services organizations (MSOs) that increasingly support them, the implications are immediate. In a state with one of the country's most strictly enforced corporate practice of medicine (CPOM) doctrines, reinforced in 2024 by SB 351, that shift in perspective matters.
A framework built on distinction
California's medical cannabis regime has long depended on a deliberate distinction. Physicians recommend cannabis; they do not prescribe it. Dispensaries operate under a licensing structure separate from pharmacies and outside the conventional healthcare delivery system. This architecture, rooted in the Compassionate Use Act of 1996 and refined through SB 420 (2003) and SB 643 (2015), has allowed the industry to develop without being absorbed into the regulatory frameworks governing traditional medical care.
Federal reclassification, at least for state-licensed medical products, blurs the conceptual boundary between cannabis and other regulated therapeutics. AB 710 (Wood, 2018) anticipated this convergence, authorizing California physicians, pharmacists and other healing arts licensees to prescribe, furnish or dispense cannabidiol once it was removed from federal Schedule I or approved by the FDA. The April 2026 order has now pulled that statutory trigger for FDA-approved cannabidiol products, and the same logic may invite closer scrutiny of how state-licensed medical cannabis businesses interface with physicians and patients.
Three areas of potential exposure
1. Clinical independence and the risk of lay influence
California's CPOM doctrine is grounded in a core principle: medical judgment must remain in the hands of licensed physicians, free from undue influence by non-physicians. The doctrine flows from Business and Professions Code Sections 2052 and 2400, decades of case law, longstanding Medical Board guidance, and SB 351, which took effect Jan. 1, 2025 and prohibits private equity firms, hedge funds and MSOs from controlling clinical decision-making. In the cannabis context, this raises questions about arrangements in which dispensaries, affiliated telehealth platforms or recommendation-mill operations interact closely with recommending physicians.
Coordinated referral pathways, protocols aligning recommendations with product availability, telehealth platforms whose throughput or scripting may shape clinical output, and business models that tightly coordinate clinical and retail functions through common ownership all warrant fresh scrutiny. With federal classification shifting and SB 351 sharpening enforcement tools, regulators and counterparties will increasingly examine whether such structures encroach on physician independence.
2. Financial relationships and BPC Section 650
Separate from CPOM, California Business and Professions Code Section 650 prohibits licensed professionals from offering, delivering, receiving or accepting any rebate, commission or other consideration as compensation or inducement for patient referrals. The statute is broadly construed and has been enforced across a wide range of healthcare settings. BPC Section 650.01 separately restricts physician self-referrals to entities in which the physician (or an immediate family member) has a financial interest, subject to limited exceptions.
Often overlooked in cannabis deal practice is that the Legislature has already plugged cannabis arrangements into this framework. Under Health and Safety Code Section 11362.7 et seq. and SB 643, physicians recommending cannabis are subject to the "financial interest" definition in BPC Section 650.01 and prohibited from accepting, soliciting or offering remuneration from or to a licensed dispenser, producer or processor in which the physician or an immediate family member holds a financial interest. The Medical Board has flagged this as an enforcement priority and adopted Guidelines for the Recommendation of Cannabis for Medical Purposes to inform standard-of-care expectations.
Cannabis business models frequently involve direct or indirect economic relationships between dispensaries (or their MSOs) and recommending physicians: marketing tied to patient flow, compensation correlated with recommendation volume and cross-referrals among affiliated entities. Not all are impermissible, but in a post-rescheduling environment, they may now be evaluated alongside analogous healthcare arrangements, where regulators have drawn clear lines against fee-splitting and referral-based compensation. A first conviction can carry up to one year in county jail or a $50,000 fine, with felony exposure for repeat conduct, and California regulators have shown sustained willingness to challenge structures that link clinical activity to financial incentives.
3. The recommendation/prescription tension
A more structural issue lies in the continued reliance on a recommendation model within a federal landscape that increasingly treats state-licensed medical cannabis as a therapeutic substance. California physicians may still recommend cannabis for qualifying patients, provided they comply with applicable standards, including the good-faith prior examination identified by the Medical Board as an enforcement priority under SB 643. That framework remains unchanged; what has shifted is the context. As DEA registration becomes a condition of lawful commercial activity, questions will emerge around the sufficiency of recommendation-based documentation, evolving standard-of-care expectations, the treatment of telehealth recommendations under the Ryan Haight Act framework, and possible alignment between California's recommendation regime and a federal classification more closely resembling prescription-drug treatment. Adult-use operators remain in an unresolved position pending the June 29 hearing and any resulting litigation.
A practical path forward
For operators, clinicians, MSOs and investors, the appropriate response is neither alarm nor complacency, but measured alignment with established healthcare compliance principles, adapted to the cannabis context. Existing arrangements with recommending physicians should be reassessed against both the longstanding CPOM doctrine and SB 351, with compensation tied to patient volume or product utilization mapped against the Health and Safety Code's direct application of BPC Section 650.01.
Separating clinical and commercial functions, both structurally and in practice, remains the most reliable risk-mitigation strategy; the friendly-PC and MSO model is a useful template, but it must be implemented with discipline rather than as a paper exercise. The new federal layer requires equal attention. Operators wishing to take advantage of rescheduling must apply for DEA registration through the Medical Marijuana Dispensary Registration Portal, which opened on April 29, 2026, at $794 per location annually; applicants who file by June 26, 2026, receive priority review and may continue operating under their state licenses while pending. Schedule III recordkeeping, security, labeling and biennial inventory requirements under 21 C.F.R. Parts 1301, 1308 and 1317 will also apply.
The June 29 hearing, anticipated APA challenges, forthcoming Treasury guidance and enforcement signals from California regulators will collectively shape how these issues develop, and the next 12 to 18 months will likely produce more legal change in this space than the previous decade.