The Supreme Court May Decide if Cannabis-Related Residency Requirements are Unconstitutional

We have been waiting for this.

On September 10^th, a Michigan man asked the U.S. Supreme Court to resolve a circuit split on whether states can discriminate against non-residents in their cannabis licensing programs. This is a fascinating legal question we’ve been mulling on the blog since at least 2015. It’s pure law, and it warrants final resolution.

Background on the case, and the circuit split

The petitioning Michigander, Kenneth Gay, and his company, Peridot Tree, were denied access to Washington State’s cannabis program, second oldest in the country. Peridot was also denied access to licensure in Sacramento, California. Both denials were based upon Gay’s non-resident status. So he sued.

Peridot’s argument is that these denials were unconstitutional under the U.S. Constitution’s dormant Commerce Clause. The California litigation was filed in 2022, and the Washington litigation in 2023. In the interim, other cases were filed by other plaintiffs in other jurisdictions, also challenging residency requirements for cannabis licensure.

Peridot lost both of his cases. Federl district courts in Washington and California each held that the dormant commerce clause does not apply to marijuana-related commerce, due to the plant’s Schedule I status under the Controlled Substances Act. In January of this year, the Ninth Circuit Court of Appeals affirmed those decisions. My colleague Elijah Hartman covered that ruling here. He explained:

The Ninth Circuit parted ways with a First Circuit decision and a Second Circuit decision, both of which held that state cannabis residency requirements violate the dormant commerce clause, despite the federal illegality of marijuana. The Ninth Circuit instead aligned itself with a growing body of district court decisions (and with dissents from other circuits) emphasizing that illegal markets are constitutionally different in kind.

Put differently: there is no implied constitutional right to engage in illegal interstate commerce according to the Ninth Circuit.

What is the dormant commerce clause?

The dormant commerce clause is a Constitutional doctrine, judicially derived. It prohibits states from enacting protectionist policies to favor in-state businesses, or which “unduly burden” interstate commerce. Although the dormant commerce clause is a Constitutional doctrine, you won’t find it printed anywhere on the actual parchment. As Elijah explained:

The Constitution gives Congress the power to regulate interstate commerce. From that affirmative grant, the Supreme Court has long inferred a negative corollary: states generally may not enact laws that discriminate against or unduly burden interstate commerce, even when Congress is silent….

At its core, the doctrine is anti‑protectionist. States may not tilt the economic playing field to favor in‑state actors over out‑of‑state competitors. Laws that explicitly discriminate against interstate commerce are frequently per se invalid.

But the Dormant Commerce Clause is also controversial. It is judge‑made, not textually explicit, and the Supreme Court has repeatedly warned that courts must exercise “extreme caution” before using it to invalidate democratically enacted state laws.

Will the Court take the case?

It might. The Supreme Court only grants about 1% of all petitions for certiorari in a given term… but it might.

The current Court is actively engaged with the dormant commerce clause. The most recent case, National Pork Producers Council v. Ross (2023) addressed the dormant commerce clause in the context of another California law, requiring out-of-state sellers to comply with California standards to sell pork within the state. The Court declined to invalidate California’s law. This is arguably not a great precedent, but these are also very different facts, with no federal illegality overlay, and the Court issued a splintered, 5-4 ruling.

One thing that bodes very well for Peridot is the fact that Erwin Chemerinsky submitted the petition. Chemerinsky is widely regarded as one of the most prominent Constitutional law scholars in the U.S. Among his prolific output is, in my opinion, the most important law review article ever on state-legal marijuana programs. That piece was written in 2015 but is relevant today.

(Note: Chemerinsky is joined by two other attorneys on the Peridot Tree petition. I don’t mean to shortchange them and I’m sure they are also brilliant; I just don’t recognize those names.)

What happens if residency requirements are invalidated for state-legal cannabis?

A lot. Marijuana-related residency requirements remain the law in many states, including Oklahoma, New Jersey, Washington, Montana, Massachusetts, and probably more. They also apply in various cities and counties—sometimes in specialized contexts such as social equity programs. If Peridot wins, all of these jurisdictions would be forced to tear down the walls.

It’s not just cannabis programs at issue, either. Many states have consumer and patient rules regarding who is allowed to purchase medical marijuana, or grow plants at home. A Peridot victory would presumably upend those restrictions as well. (Schedule III for state-legal medical marijuana does nothing to change this analysis, regardless of the Peridot outcome.)

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Watch this space. For more on cannabis and the dormant commerce clause, check out the following:

• Dormant Commerce Clause Meets Cannabis: Residency Requirements, Federal Illegality, and What Comes Next
• Oregon Federal Court Lawsuit Filed: Seeking Interstate Cannabis Sales
• Federal Appeals Court Rejects Preferences for In-State Cannabis Applications
• New York Cannabis: The Variscite Injunction is Lifted
• Breaking: New York Federal Judge Blocks CAURD Licensing in Five Jurisdictions
• Federal Court: Cannabis Licensee Residency Requirements (Which are Dumb) are Probably Unconstitutional
• Cannabis Residency Requirements: Are They Unconstitutional?
• Washington Marijuana: Is the Residency Requirement Doomed?

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A $31.8 million cannabis-related verdict that a federal court wouldn’t enforce

A Michigan cannabis grower proved its case. A jury found that the buyer breached its supply agreement and awarded the grower $31.8 million in damages. But the grower still walked away without an enforceable verdict.

In Hello Farms Licensing MI, LLC v. GR Vending MI, LLC, the U.S. Court of Appeals for the Sixth Circuit reversed the judgment because the contract required the parties to engage in conduct prohibited by the federal Controlled Substances Act (“CSA”). The court held that a federal court could not enforce the agreement, despite Michigan law authorized the underlying cannabis activity.

The September 10, 2026, decision is not binding on California state courts or federal courts in the Ninth Circuit. Nevertheless, it offers an important warning for cannabis operators nationwide: A contract that is valid under state law may still be unenforceable in federal court.

The contract and breach

Hello Farms is a licensed Michigan cannabis cultivator. In November 2020, it entered into an output contract with GR Vending MI, LLC and CURA MI, LLC, both subsidiaries of Curaleaf Holdings, Inc. GR Vending agreed to purchase all cannabis grown by Hello Farms during its 2020 and 2021 harvests, while CURA MI guaranteed GR Vending’s obligations.

When the parties signed the agreement, Hello Farms held licenses to grow medical cannabis. GR Vending held both medical and adult-use retailer licenses.

The parties expected Hello Farms’ 2020 harvest to yield between 12,000 and 15,000 pounds of cannabis. GR Vending also agreed to pay a $2.2 million deposit, subject to refund under specified circumstances.

The agreement contained detailed testing requirements. Hello Farms had to test each 50-pound batch for THC potency and contaminants such as pesticides and heavy metals. Importantly, the contract required the marijuana to satisfy state and local recreational cannabis testing requirements.

Hello Farms ultimately produced approximately 16,300 pounds in 2020. The cannabis passed the required testing, and GR Vending accepted an initial shipment of roughly 2,000 pounds.

Then market prices fell.

GR Vending refused to accept additional deliveries. Hello Farms sold the remaining 2020 harvest to another buyer at lower prices. It also expanded its cultivation operation for 2021, obtained adult-use cultivation licenses, and sold that year’s production to the same alternative buyer.

From state court to federal court

Hello Farms sued for breach of contract in Michigan state court in February 2021. The defendants were able to move the case to the U.S. District Court for the Eastern District of Michigan based on diversity jurisdiction.

That procedural move would become critical.

The defendants asserted that the agreement was illegal under federal law and therefore unenforceable. The district court rejected that defense at summary judgment, and the case proceeded to trial.

The jury found that the defendants breached the contract and awarded Hello Farms $31.8 million. The defendants renewed their request for judgment as a matter of law, but the district court again rejected the federal-illegality defense.

The district court reasoned that the agreement concerned medical cannabis and that the Rohrabacher-Farr appropriations rider reflected a federal policy of tolerating state-compliant medical cannabis activity. The defendants appealed.

Why the verdict became unenforceable

The Sixth Circuit reversed.

As the court explained, federal courts generally apply state substantive law when exercising diversity jurisdiction. But the effect of illegality under a federal statute is a question of federal law. A federal court must therefore determine whether enforcing an agreement would enforce the precise conduct that Congress made unlawful.

That principle proved fatal to Hello Farms.

In the Court’s view, the agreement required Hello Farms to possess cannabis with the intent to distribute that cannabis to GR Vending and enable GR Vending to possess it for further distribution or sale. Each step implicated conduct prohibited by the CSA unless federally authorized.

The court distinguished between a lawful economic transaction that contains an incidental illegal provision and a contract whose central performance is itself federally prohibited. Hello Farms’ agreement fell into the second category because the purchase and distribution of cannabis were the core of the bargain.

The court consequently refused to enforce the defendants’ promise to pay for that performance. It reversed the district court’s denial of judgment as a matter of law, eliminating the prior verdict and Hello Farms’ recovery.

Money damages were no solution

Hello Farms argued that it was not asking the court to order anyone to grow, deliver, or purchase cannabis. The company sought money damages for a transaction that should have occurred years earlier.

The Sixth Circuit found that distinction unpersuasive.

Hello Farms’ lost profits arose from, and were measured by, the defendants’ promise to purchase cannabis. Awarding damages would therefore give Hello Farms the economic benefit it expected from the federally prohibited transaction.

According to the court, federal illegality is not limited to cases seeking specific performance. A court also may refuse to award expectation damages when the plaintiff’s claimed recovery depends on enforcement of the unlawful bargain itself.

This is one of the decision’s most significant lessons. Simply drafting a monetary remedy does not necessarily insulate a cannabis agreement from federal illegality. If the damages represent the profits expected from cannabis cultivation or sales, a federal court may conclude that awarding those damages would indirectly enforce the prohibited performance.

The opinion does not, however, resolve every potential claim involving a cannabis business. It does not hold that federal courts must reject every dispute involving consulting services, intellectual property, real estate, equipment, loans, restitution, or other obligations connected to the industry. The closer the claim is to direct cultivation, possession, purchase, or distribution, the greater the apparent risk under the Sixth Circuit’s reasoning.

Marijuana rescheduling didn’t save the contract

The fact the federal government moved state-legal medical marijuana to Schedule III earlier this year also failed to rescue Hello Farms’ verdict.

The Sixth Circuit explained that the federal change occurred years after the parties entered the contract. Nothing in the rescheduling rule made the change retroactive or transformed the parties’ 2020 agreement into a federally lawful transaction.

The court also noted that Schedule III does not eliminate federal regulatory requirements. State-licensed medical-cannabis businesses may still need DEA registration and applicable FDA approval to cultivate, distribute, or introduce cannabis products into interstate commerce lawfully.

Rescheduling therefore does not mean that every state-licensed cannabis transaction is now federally legal. Whether a particular agreement is enforceable may still depend on when it was executed, the products and markets it covers, the parties’ registrations, and the federal rules applicable to performance.

What California operators should do

The Sixth Circuit’s opinion is not controlling precedent in California or the Ninth Circuit. California courts may analyze contract illegality and public policy differently, and the enforceability of any agreement will depend on its terms, claims, remedy, and forum.

Still, the decision relies heavily on U.S. Supreme Court authority governing the power of federal courts to enforce federally prohibited agreements. California operators should not assume the risk stops at the Sixth Circuit’s boundaries.

The takeaway

Hello Farms convinced a jury that the defendants breached their agreement. It proved substantial damages and obtained a $31.8 million verdict. None of that was enough once the federal appellate court concluded that enforcing the verdict would enforce a federally illegal bargain.

The case does not establish that every cannabis-related agreement is unenforceable. But it does reinforce a basic reality that cannabis contracts must be drafted not only for commercial performance and state regulatory compliance, but also for the court or tribunal that may eventually be asked to enforce them.

In cannabis contracting, a strong damages provision matters, but only if the chosen forum is willing and legally able to enforce the underlying bargain.

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For more updates on recent marijuana legislation, including rescheduling and the DEA rulemaking process, please check out these recent posts:

• What California Medical Operators Must Do After Rescheduling: DEA Registration, License Operation, and 280E
• The Quietest Fight of DEA’s Life: Reflections on the Marijuana Rescheduling Hearing
• Law and Politics: Why Marijuana Rescheduling’s One-Sided Hearing Matters
• Would Cannabis Rescheduling Help Businesses in Unified Markets? Washington Weighs In
• The Motion to Stay DEA’s Schedule III Rule: Strong Enough to Stick?
• Standing Is Everything: Three States Join the Medical Marijuana Rescheduling Fight
• Medical Marijuana Rescheduling Q&A: Cutting Through the Noise
• A Calculated Bet: DEA Registration is Open, and the Clock is Ticking
• Marijuana Rescheduling and Income Tax
• The U.S. Opens Its Medical Marijuana Market to Global Trade (For Now); Broader Marijuana Rescheduling on Deck

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Canna Country #26 in Southern Humboldt: The Ocimene Queen of Canna Country Farms

We head to Canna Country Farms in Humboldt for Legendary Strains to discover the Ocimene Queen herself, Canna Country #26.

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Jason Adelstone Moderates Federal Cannabis Policy Discussion at IgniteIt Denver

The federal conversation around hemp and cannabis is entering a pivotal new phase. On September 18 in Denver, Harris Sliwoski partner Jason Adelstone will moderate One Plant, One Policy, a fireside discussion at IgniteIt Denver Spotlight focused on the future of federal hemp regulation.

From cannabinoids and product standards to enforcement and consumer safety, policymakers are weighing how a single plant should be regulated in the years ahead. The decisions made at the federal level could significantly reshape the regulatory landscape for hemp and the businesses operating within it.

Jason will lead a discussion with Howard Lee, CEO of SōRSE Technology; Jordan Wellington, Managing Partner at Strategies 64; and Priyanka Sharma, Co-Founder and Co-CEO of Kazmira Therapeutics about the path toward a more coherent federal framework. The conversation will explore what meaningful reform could look like, where federal policy may be headed, and what a more unified approach could mean for the industry.

The panel will also consider the practical implications for operators. As federal policy evolves, businesses may face new compliance requirements and regulatory challenges, along with new opportunities. Understanding the direction of the conversation will be increasingly important for companies preparing for what comes next.

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The 11 best weed pipes of 2026

The best weed pipes of 2026 are reviewed and tested by the Leafly Picks team of expert tokers to help you find the perfect pipe for you.

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Medical Marijuana in Schedule III Survives Its First Major Challenge

On September 9th, the United States Court of Appeals for the District of Columbia denied a motion to stay filed by SAM, Inc. and the National Drug and Alcohol Screening Association, Inc. (collectively, “SAM”). The motion sought to stay (pause) the Attorney General’s final order placing state legal medical marijuana into Schedule III of the Controlled Substances Act (“CSA”). While this ruling merely maintains the status quo, it is still a significant victory for state legal medical marijuana operators.

This decision does not mean that medical marijuana will ultimately survive the litigation. What it does show, however, is that the Attorney General is likely to receive a fair hearing before the D.C. Circuit. Had the stay been granted, it would have been a devastating blow to the industry and almost certainly would have signaled defeat following a full hearing. The court’s decision, at least, suggests that it is taking the case seriously and considering the issues without prejudice.

Quick note on standing

Apparently, in an earlier blog post, I got the process backwards. I assumed the court would address standing first and then determine whether a stay was warranted. Instead, the court addressed the stay first, while standing will be addressed through the parties’ briefs.

Based on the court’s decision, this makes sense. Since the court denied the stay, there was no need to determine standing at this stage. Had the court granted the stay, standing likely would have needed to be addressed first and, given the outcome, presumably would have been established.

As I have discussed in several blog posts, but primarily in this one, I believe that standing is everything in this litigation. Despite the court’s denial of petitioners’ motion for a stay, I still believe that if petitioners are found to have standing, the Schedule III final order will ultimately be overturned. I hope I am wrong but based on a plain reading of 21 U.S.C. 811(d)(1) and some poor drafting in the final order, I do not see how the final order survives.

Motion to Intervene and Amicus Curiae

In its order, the court also denied the motion of two medical marijuana companies to intervene in the litigation. MedPharma Iowa, LLC and TriMountain Pure, LLC, through their attorney Shane Pennington, sought to intervene on the grounds that the Attorney General could not adequately represent the interests of businesses affected by the final order. They argued that medical marijuana operators should therefore have the opportunity to represent their own interests in the litigation.

The court ultimately denied the motion but is allowing the medical marijuana operators to participate as amici curiae. This is important because it will still allow the operators (i.e. Shane Pennington) to present their arguments for the court’s consideration.

The court also granted attorneys David Sergi, David Holland, Robert Hoban, and Tyson Daniel leave to participate as amici curiae.

What’s next in the litigation

The court set a 30-day deadline for the parties to submit proposed formats for briefing the cases. The court strongly urged SAM et al. (which includes SAM, the National Drug and Alcohol Screening Association, the states of Nebraska and Indiana, New Directions Addition Recovery Services, Elizabeth Stuyt, Cannabis Industry Victims Educating Litigators, MMJ International Inc., MJ BioPharma Cultivation Inc., MJ Biopharma Labs, Inc., and Kenneth Finn) to submit joint proposals, reminding the parties that “the court looks with extreme disfavor on repetitious submissions.”

The court further stated that it “will, where appropriate, require a joint brief of aligned parties with total words not to exceed the standard allotment for a single brief.” If Sam et al. believe separate briefs are necessary, they “must provide detailed justifications for any request to file separate briefs or to exceed in the aggregate the standard word allotment.”

After reviewing the parties’ proposed briefing formats, the court will set a briefing schedule. D.C. Circuit Rule 31 provides that SAM et al. must then file and serve their initial brief within 40 days. The Justice Department will then have 30 days to file its response brief. Finally, Sam et al. will then have 21 days to file and serve their reply brief.

Importantly, all of these timeframes remain subject to the court’s discretion. The court can expedite or extend the filing deadlines as it deems appropriate. Assuming no changes to these timelines and that the court issues a briefing schedule quickly, the timeline could look something like this.

1. October 9, 2026 – The parties submit their proposed briefing formats.
2. October 16, 2026 – The court issues its briefing schedule. This is, of course, an estimate since we do not know how long the court will take to issue the schedule.
3. November 25, 2026 – SAM et al.’s initial brief is due. (I checked, as of now the court is open on the day before Thanksgiving.)
4. December 24, 2026 – The Justice Department’s response brief is due. (The court currently appears to be open Christmas Eve, but closed last year on the 24. So, filing could be pushed to the 28th.)
5. January 14, 2027 – SAM et al.’s reply brief is due.

Typically, the final brief, which in this case would be SAM’s reply brief, will be due at least 45 days before oral argument. Assuming the timeline above, oral argument could occur around late February or early March 2027.

That means we may not know whether medical marijuana survives this challenge until at least March 2027. Assuming DEA sticks to its six-month goal for processing applications submitted during the early application period, those registrations could start being issued next month. Once DEA registrations are issued, the program becomes operational, making a reversal that much more disruptive. That is not to say the court would consider those practical consequences dispositive, but they are important realities.

What this means for state medical marijuana licensees

Because it appears the DEA registration program will become operational before the litigation concludes, licensed operators should be very careful about how they proceed and what language they include in their contracts. If the final order is overturned next year, any agreement involving interstate or international trade under the new framework may need to cease immediately upon the court issuing its order. If the final order survives, however, operators that begin operations quickly could secure a meaningful first mover advantage.

If you are an operator that submitted a DEA registration and would like guidance on how best to proceed, our international attorneys are here to help. Please do not hesitate to reach out for a free consultation.

For more on marijuana rescheduling and the DEA rulemaking process, please check out these recent posts:

• Medical Marijuana Schedule III Litigation: The D.C. Circuit's First Major Test
• The Quietest Fight of DEA’s Life: Reflections on the Marijuana Rescheduling Hearing
• Law and Politics: Why Marijuana Rescheduling’s One-Sided Hearing Matters
• Would Cannabis Rescheduling Help Businesses in Unified Markets? Washington Weighs In
• The Motion to Stay DEA’s Schedule III Rule: Strong Enough to Stick?
• Standing Is Everything: Three States Join the Medical Marijuana Rescheduling Fight
• Medical Marijuana Rescheduling Q&A: Cutting Through the Noise
• A Calculated Bet: DEA Registration is Open, and the Clock is Ticking
• Marijuana Rescheduling and Income Tax
• The U.S. Opens Its Medical Marijuana Market to Global Trade (For Now); Broader Marijuana Rescheduling on Deck

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How to Acquire a Colorado Cannabis License

Colorado regulates marijuana businesses through the state Marijuana Enforcement Division (MED), while local jurisdictions retain separate licensing and regulatory authority over marijuana businesses within their boundaries. The current Colorado Marijuana Rules are codified at 1 CCR 212-3 (version effective January 5, 2026). Because state rules, forms, fee schedules, and local ordinances can change, applicants should confirm relevant requirements before filing or closing a transaction.

Who regulates marijuana licensing in Colorado?

The MED administers Colorado’s state marijuana licensing framework under the Colorado Marijuana Code and the Colorado Marijuana Rules. A regulated marijuana business may not operate until it has the state and local approvals or licenses required for its business and location. Colorado’s rules expressly condition state business licensing on relevant local approval. The also allow local jurisdictions to impose separate requirements concerning the time, place, and manner of marijuana businesses.

What types of marijuana business licenses are available?

Colorado maintains medical and retail marijuana business license categories that include stores, cultivation facilities, products manufacturers, testing facilities, transporters, and retail business operators. Colorado also recognizes a medical marijuana research and development facility license, and retail hospitality license types--including marijuana hospitality businesses and retail marijuana hospitality and sales businesses. In addition, Colorado’s licensing framework includes accelerator licenses associated with the social equity program. A separate state application is required for each license type.

Is Colorado accepting applications for new marijuana licenses?

Colorado law permits applications for regulated marijuana business licenses, but the availability of a particular license at a particular site depends in part on the local jurisdiction. Colorado rules allow a local jurisdiction to prohibit a regulated marijuana business license type, or to impose separate local licensing requirements. Accordingly, an applicant should confirm that the proposed jurisdiction and premises can support the intended license before making substantial site or transaction commitments.

What is the Colorado marijuana license application process?

The MED’s Regulated Marijuana Business License Application is Form DR 8548. As of July 1, 2026, applicants can now file a unified application for identical controlling beneficial owners who are applying for multiple licenses in the state.

The marijuana application requires disclosure information, a main application, authorization forms, and an affirmation of reasonable care, with additional addenda required for specified applicant structures or license types. The application materials address ownership and investment categories that include controlling beneficial owners and, where applicable, passive beneficial owners, qualified institutional investors, qualified private funds, and other interests addressed by Colorado law and MED rules.

The MED may require additional information or documents to process and investigate an application. Applicants may not operate the regulated marijuana business before obtaining all necessary state and local approvals or licenses.

What ownership and financial-interest categories does Colorado require applicants to understand?

Colorado does not treat every investor, lender, fund, or economic participant in a marijuana business the same. The Colorado Marijuana Rules divide ownership and financial interests into categories that determine what must be disclosed and, in some cases, who must be licensed or found suitable.

What is a Controlling Beneficial Owner (CBO)? A Controlling Beneficial Owner generally includes a person or entity that, acting alone or in concert, owns or acquires at least 10% of the owner’s interest in a regulated marijuana business; an affiliate that controls the business, including a manager; or another person or entity that is otherwise in a position to control the business. A Qualified Institutional Investor is generally treated as a CBO only when it owns or acquires more than 30% of the owner’s interest. CBO status is important because controlling beneficial owners are subject to the owner-licensing and disclosure framework in the MED rules.

What is a Passive Beneficial Owner (PBO)? A Passive Beneficial Owner is a person or entity that holds an ownership interest below the controlling-beneficial-owner threshold and is not otherwise in a position to control the regulated marijuana business. The rules distinguish passive ownership from control, but PBOs remain within the regulatory ownership framework and may be subject to disclosure or additional MED review, including reasonable-cause disclosure.

What is a Qualified Institutional Investor (QII)? A Qualified Institutional Investor is a specifically defined institutional investor, including certain regulated banks, bank holding companies, insurance companies, registered investment companies, employee benefit or pension plans, government pension plans, and qualifying groups of such institutions. The QII category matters because Colorado applies a different controlling-ownership threshold and disclosure treatment to qualifying institutional investors.

What is a Qualified Private Fund (QPF)? A Qualified Private Fund is generally a private investment fund that would be an investment company under the federal Investment Company Act of 1940 but for the exclusions in sections 3(c)(1) or 3(c)(7), is advised or managed by a properly registered investment adviser, and satisfies the additional requirements stated in the Colorado Marijuana Rules. When a QPF is a controlling beneficial owner, the MED requires organizational disclosure concerning persons who control the fund’s investment in, or management or operations of, the marijuana business.

What is an Indirect Financial Interest Holder (IFIH)? An Indirect Financial Interest Holder is a person with a financial or economic relationship to the regulated marijuana business who is not an affiliate, CBO, or PBO. The category can encompass specified debt, commercially reasonable royalties associated with intellectual property, and other economic arrangements recognized by the rules. Certain IFIHs receive heightened disclosure treatment, including a person who holds two or more indirect financial interests, is also a PBO, or provides previously undisclosed debt financing exceeding 50% of the business’s operating capital.

Why do these categories matter in an application or acquisition? The classification affects the scope of the MED’s disclosure, licensing, and suitability review. Colorado requires specified disclosures for controlling beneficial owners and certain indirect financial interest holders and authorizes additional disclosure of specified owners, affiliates, and financial interests. Applicants should therefore analyze not only the cap table, but also management and control rights, financing, royalties, fund structures, and other economic arrangements before filing or closing a change-of-ownership transaction.

What is a finding of suitability, and who may need one?

Colorado’s rules use findings of suitability as part of the licensing and ownership-review process for persons and entities that fall within specified ownership or investment categories. Controlling beneficial owners are subject to the owner-licensing requirements in the Colorado Marijuana Rules, and passive beneficial owners may elect or be required in specified circumstances to be subject to disclosure or licensure. Suitability and owner-license requirements therefore depend on the person’s or entity’s status under the current ownership provisions rather than on a single ownership-percentage rule applied to every investor.

What is required at the local level for Colorado marijuana licensing?

Local governments may impose licensing requirements separate from the MED’s state process. Those local requirements may address the proposed premises, zoning or land use, local application materials, inspections, hearings, and other locally imposed licensing conditions. In Denver, for example, the municipal code requires specified inspections and permits before issuance of a local marijuana license and requires a corresponding state license.

Do owners and employees need individual MED licenses or badges?

Colorado distinguishes Owner Licenses and Employee Licenses, and the rules provide for identification badges associated with those licenses. A natural person who is required by the rules to obtain an Employee License must obtain that license before beginning activities that require an Employee License. Controlling beneficial owners are subject to the Owner License provisions of the rules, while the required credential for any particular individual depends on that person’s ownership and operational role. The MED uses Form DR 8517 for the Marijuana Employee License Application.

How much does a Colorado marijuana business license cost?

Colorado does not impose one uniform state application-and-license fee across all regulated marijuana business license types. The current Colorado Marijuana Rules contain separate fee schedules by license category, and cultivation fees vary by tier or class. Under the current rules, the first payment is submitted with the application and the second payment is generally due at least twelve months before the license expiration date. Local jurisdictions may charge additional application, license, transfer, change-of-location, or other fees under local law.

How long are Colorado marijuana business licenses valid?

Senate Bill 24-076, which became law in 2024, extended initial state regulated-marijuana business license and renewal periods from one year to two years. The legislation permits local licensing authorities to determine whether local licenses are issued for one-year or two-year terms.

How long does the licensing process take?

The cited state materials do not establish a universal processing period for every new regulated marijuana business license. The application process requires state review, local approval, ownership and suitability review, payment of applicable fees, and satisfaction of premises-specific local requirements. A transaction timetable should therefore be based on the particular license type, ownership structure, premises, and local jurisdiction rather than on a single statewide processing estimate.

What special rules apply to new marijuana licenses in Denver?

Denver’s municipal code reserves applications for specified new marijuana business licenses to social equity applicants, subject to stated exceptions. The current Denver code provides that this social-equity exclusivity provision is repealed effective July 1, 2027. Denver separately imposes a moratorium on applications for new medical marijuana store and new medical marijuana cultivation facility licenses. Denver’s code also contains proximity, location, hearing, inspection, permit, and other local requirements that can affect whether a proposed premises is licensable.

Can a non-social-equity buyer acquire an existing Denver marijuana license before July 1, 2027?

Denver permits transfers of marijuana business ownership subject to approval by the local licensing authority and the requirements of its municipal code.

Before July 1, 2027, a license held by a social equity applicant may be transferred to social-equity or non-social-equity applicants only if at least fifty-one percent of the license remains held by one or more social equity applicants. A non-social equity applicant, however, may transfer its license to a non-social equity applicant without any additional social equity restrictions.

After July 1, 2027, Denver’s code states that licenses held by social equity applicants may be transferred to social-equity or non-social-equity applicants upon approval by the manager. A purchaser should therefore determine whether the target license is subject to Denver’s social-equity transfer restriction before structuring the acquisition.

Who qualifies as a Colorado social equity marijuana licensee?

The current Colorado Marijuana Rules implement the statutory social-equity framework and require applicants to establish qualification under the criteria applicable to their application. The rules include evidentiary provisions addressing qualification based on residence during the relevant period, receipt of specified government assistance, and marijuana-related arrests or convictions involving the applicant or specified family members. The rules also contain ownership requirements applicable to regulated marijuana businesses held by social equity licensees. Because those criteria have been amended over time, applicants should ensure they are using the current version of the rules and the current statutes rather than relying on older summaries of the program.

What mistakes should an applicant avoid?

• Do not assume that a state-level license category is available at a particular location without confirming the local jurisdiction’s rules and the site’s eligibility.
• Do not use an outdated ownership chart or incomplete financial-interest disclosure where the current MED application and rules require additional ownership or investment information.
• Do not assume that every owner and worker requires the same individual credential. Owner License, Employee License, and identification-badge requirements depend on the role and status addressed by the rules.
• Do not budget only for state fees, because local jurisdictions may impose separate fees and licensing requirements.

Are the Colorado rules subject to change?

Yes. In fact, the MED just concluded a rulemaking session in preparation for a rule change. We will keep you posted on these changes when they are finalized and published.

What is the bottom line?

A Colorado marijuana business must satisfy the state licensing framework and the requirements of the relevant local jurisdiction before operating. The applicable license type, ownership structure, individual-license requirements, fees, and local-site restrictions should be analyzed under the current MED rules and the current local code for the proposed premises. For Denver transactions, the social-equity exclusivity and transfer provisions remain applicable through a sunset date of July 1, 2027.

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Fast Buds breaks awards record at the 2026 Autoflower World Cup

Discover the strains that propelled Fast Buds to the winners circle at the 2026 Autoflower World Cup

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The Intoxicating Hemp Products Ban Was Delayed a Month. Now What?

Earlier this week, the House passed a short-term funding bill that postpones the federal ban on hemp-derived THC products. President Trump signed the ban into law last year; it was scheduled to take effect November 12^th. This Wednesday, however, Trump signed off on the Congressional extension, pushed by his Administration, which means the ban is now scheduled for December 11^th.

The extension begs three primary questions for me. The first is whether Congress will pass legislation relevant to intoxicating hemp products (i.e. regulating them), prior to December 11^th. The second is whether Congress will extend the deadline again, if legislation fails to coalesce. The third is whether enforcement will follow, if a ban takes effect. I’ll answer these and a few more in FAQ format.

Will we see legislation around intoxicating hemp products prior to December 11^th?

We hear a lot of scuttlebutt from Capitol Hill and industry players on this topic. The general sentiment is that comprehensive legislation to regulate intoxicating hemp products is unlikely to coalesce prior to December 11^th. There are just too many disparate interests, too many ideas, and not enough time.

That conclusion was buttressed for me yesterday morning, when Speaker Johnson announced cancellation of all votes for the last two weeks of September. This leaves a very small window before midterms. After midterms, things become even less certain.

Note: the current composition of Congress fully supported the ban, and hardline conservatives have vocally supported it. If Democrats take majorities, we may see a more “regulated market” approach.

Will we see another extension to the December 11th ban on intoxicating hemp products?

This is possible. The Trump Administration has signaled that it will not seek another extension beyond December 11. The Administration had also talked of implementing regulations over the extension period, for whatever it’s worth. More recently, we’ve heard talk of a second extension to the ban, through March. Again, much depends on the midterms.

Who benefits from an extension? Who suffers?

The primary beneficiaries are going to be sellers of unregulated, intoxicating hemp products, from Trump aides on down. Our impression is that many operators in the space aren’t planning carefully, or planning much at all. It’s also fair to say that a lot of hemp products sellers will keep doing whatever they’re doing, or attempt to, regardless of any federal law.

State-legal cannabis sellers are on the other side of this equation, which is a complicating policy factor—including for proponents of an “agnostic” or “one source” bill. The sale of intoxicating hemp products in adult-use cannabis states, including at gas stations etc., competes with these regulated businesses’ sales.

The alcohol lobby is another complicating factor. Major drink producers are pushing to restrict or ban hemp-derived beverages, while wholesalers and retailers would like to see regulation. All of these competing interests, plus the confusion around cannabis regulation more generally, create a true morass.

Will there be enforcement against sellers of intoxicating hemp products, if the ban takes hold?

I wrote a piece about this last December, after the first ban was scheduled. In relevant part, I opined:

At the federal level, I wouldn’t expect a coordinated crackdown by DEA and U.S. attorneys. That would be too expensive, too unwieldy. Instead, I think targeted enforcement of select larger players—perhaps including warning letters next summer—is the most likely path. In that scenario, the chilling effect I mentioned for service providers would be magnified, and it’s likely that many operators would also stand down.

I also think states will continue to get on the prohibition bandwagon, as I explained to MJ BizDaily last month. Some already are, but you’d see more of this in an environment where the feds throw their backs into it, enforcement-wise, and where de jure prohibition is not the whole picture.

I don’t have much to add at this point, other than any business operating under perpetually looming bans, deadlines, enforcement threats, etc., is operating in a dicey milieu. The money must be good!

Big picture

For a long time, I’ve been on record opposing intoxicating hemp products. This is not simply a public health objection to unregulated, chemically synthesized, frequently contaminated products (which are often for sale to minors). As a legal matter, our law firm concluded: 1) the “Farm Bill loophole” does not exist, 2) that most intoxicating hemp products are marijuana or other controlled substances, 3) that most of these products clearly violate the FD&C Act in addition to the Controlled Substances Act, and 4) that most states lack a regulatory framework for these sales (while others outright prohibit them.) I reiterate all of this here, as context for the opinions above.

I do continue to believe that we need a wholistic U.S. policy for the cannabis plant. As far as the pending ban on intoxicating hemp products and seed sales, let’s see what happens leading up to the midterms, and before December 11^th.

__________

For related posts, check out the following:

• Notes on the Federal Prohibition of Intoxicating Hemp
• Will the Feds Enforce the Ban on Intoxicating Hemp Products, and Seed Sales?
• Hemp Companies Have One Year to Get Marijuana Genetics Into or Out of the U.S… But a Loophole May Still Exist
• Federal Cannabis Policy is More Confusing Than Ever
• What Happened to Hemp?
• So Long for THCA Products
• Bad News for Intoxicating Hemp Products
• Is it Legal, Or Not? What to Make of All These DEA “Position” Letters
• Thoughts on THCA, Interstate Sales…. and Oregon
• FDA and FTC Target Delta-8 Products
• More Bad News for Intoxicating Hemp (California, Missouri, New Jersey)
• Intoxicating Hemp Products: The Future Isn’t Bright
• Can I Import Marijuana Seeds to the U.S.?

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Star signs and cannabis strains: September 2026 horoscopes

Your September 2026 horoscope invites a shift from summer's fast pace into a season of reflection, renewal, and intentional growth.

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Oregon Cannabis Roundup: Fall 2026

It’s been a while since we wrote a round-up post on Oregon cannabis. Here are some items of note, as we head into the fall. Gather ‘round!

Proposed THC cap and packaging requirements

On August 19th, the Oregon Capital Chronicle ran an article featuring a renewed push by Sen. Lisa Reynolds (D-Portland) to cap individual edibles at 10 milligrams of THC. This would be a reprisal of failed Senate Bill 1548, which we covered in February at the start of the 2026 legislative session. SB 1548A passed the Oregon Senate, but died in the House Committee on Economic Development, Small Business and Trade, following industry opposition.

Related to the THC cap, SB 1548A contained newly restrictive packaging proposals (i.e., a requirement for individually packaged servings; added warnings). The packaging component likely did more damage to the bill’s chances than the actual serving limits, seeing as non-medical THC is already capped at 10mg THC/serving. As I explained in February, “the industry argument here is that cannabis packaging requirements generate tremendous waste, and are an affront to sustainability. It’s a good argument.”

It’s worth noting that SB 1548A contained an additional public health prong, restricting dispensary siting requirements. I wouldn’t be surprised to see this provision removed on re-introduction, because the big target here is serving limits. But it’s hard to say at this point. As I explained in March, “SB 1548A could always pop up again next session, as a stand-alone bill or in some other format.”

Reynolds did say that she will be hiring a lobbyist this time around. We’re also scheduled for a six-month session beginning in February (as opposed to the 35-day session of 2026), which means Reynolds’ proposal will get a real look.

Bottom line: this isn’t going away, and industry will need to gear up for another fight.

Tax Enforcement

Portland’s Willamette Week ran a story on August 23rd, titled “Owner of La Mota Issued $7.9 million in liens.” The story describes five tax liens issued to Aaron Mitchell “and dozens of his LLCs” for unpaid taxes going back to 2020.

A client sent me this story, and asked how Mitchell and La Mota are still running around in the OLCC space. I directed him to what I wrote back in December of 2024: “The answer is simple: La Mota probably reached a deal on payment plan with the Department of Revenue.”

If those payment plans are also now in default, with liens assessed, the jig may finally be up for Mitchell and La Mota. Or, maybe not! According to a 2023 story in the same publication, by the same reporter, Michell, his partner “and the many companies they control have been issued over $1.8 million in tax liens in recent years by the state.”

Elsewhere, OLCC and DOR do continue to enforce the tax payment rules caused by the far-reaching La Mota scandal. That is to say, retailers must obtain a certificate of tax compliance in order to renew or transfer a license, showing they are current on state taxes or operating under an approved DOR payment plan.

New CTS protocols

Compliance Education Bulletin CE2-2601 takes effect next week, on September 1st, 2026. The bulletin defines a new CTS process for entering compliance test results in Metrc on secondary lab sample packages. This development succeeds from the 2024 crackdown on THC inflation and testing labs. (In all, we still have 10 licensed labs, down from 11 when this story broke.)

CE2-2601 is not a rule per se, but licensees need to comply with the bulletin. OLCC emphasizes that “failure to adhere to the new process after September 1, 2026 will result in missing test results for the source package.” No one wants that, obviously.

Dreary forecast for industry growth

Two days ago, on August 26^th, Oregon’ Chief Economist released the state’s Q3 Economic and Revenue Forecast. A key takeaway includes “marijuana forecast profile revised substantially,” and not for the better. The forecast includes a $14 million reduction in tax revenue in the current biennium (two-year period), as compared to last quarter’s forecast for the same period.

As I’ve highlighted in successive “State of the State” posts, marijuana sales revenues have dropped each year from 2022 to 2025. This means less tax collected. The state is predicting this trend will continue, with lower prices and stagnant demand. This means more squeeze on producers, which means more diversion activity, probably. It also means less money for schools, police, public health, cities and counties. We would love to see this trend reverse, or even just relent. There are no easy answers, unfortunately.

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Five Bills Every California Cannabis Operator Needs to Track in 2026

Five Bills Every California Cannabis Operator Needs to Track in 2026: AB 1826, AB 1965, AB 2249, AB 2532, and AB 2537

Five separate bills are moving through the California legislature at the same time, and together they touch nearly every part of a licensee's compliance program; (1) how the Department of Cannabis Control (the “DCC”) investigates and penalizes violations, (2) what gets tested and disclosed at retail, and (3) what a products can look like on the shelf.

As of mid-August 2026, AB 1826 and AB 2537 remain in the Senate Appropriations suspense file, while AB 1965, AB 2249, and AB 2532 have advanced further along the legislative process. None of these bills exist in a vacuum, and operators who wait until they finally pass to start adjusting internal procedures will be playing catch-up.

AB 1826: due process for recalls, embargoes, and destruction

Under the current framework, the DCC has broad authority to issue recall and embargo notices, and licensees have limited formal rights to contest the underlying findings before product must be destroyed. AB 1826 changes that dynamic in several ways.

The bill would create a new "administrative error" category so that certain technical issues—such as nonconforming labeling, track-and-trace clerical mistakes, or minor potency variances—no longer automatically count as adulteration or misbranding. It would also require the DCC to include supporting documentation with any notice of adulteration, misbranding, or embargo, rather than a bare conclusion.

Perhaps most significantly, AB 1826 would require the DCC to offer licensees a mandatory meet-and-confer opportunity within five business days of a notice, and would prohibit destruction of the product until that process concludes or the licensee declines to participate. The bill sets firm timelines throughout: a final determination within 15 calendar days of the informal conference, embargo tag removal shortly after a no-violation finding, and an expedited hearing process for perishable products such as flower and live plants. It also bars the DCC from conditioning any relief, corrective plan approval, or embargo removal on a licensee waiving its right to a hearing or appeal.

For operators, this means building internal protocols now for responding within these compressed timelines, training compliance staff to demand supporting documentation the moment a notice arrives, and factoring the new hold-don't-destroy framework into inventory and cash-flow planning during any dispute.

AB 2537: a risk-based enforcement framework

AB 2537, the Cannabis Enforcement Accountability and Public Health Prioritization Act, requires the DCC to adopt a risk-based enforcement framework starting January 1, 2028, prioritizing material threats over minor technical or administrative violations. The DCC would be required to publish an enforcement policy explaining exactly how it plans to triage violations by risk level.

The bill is not purely about leniency, however. It also extends the statute of limitations for MAUCRSA citations to three years after the violating act and adds a right to an informal hearing tied to citations. Operators should read this as a philosophical shift toward proportionality at DCC, paired with a longer window during which historical compliance gaps remain exposed. Risk-based enforcement is not an excuse to relax recordkeeping discipline.

AB 1965: testing, quality assurance, and retail disclosure

AB 1965 focuses on what happens in the lab and at the point of sale. It requires cannabis products to be tested and retested in their final consumable form, and changes how DCC selects batches for that testing. Retailers and other retail-authorized licensees must provide a certificate of analysis to a customer on request, and DCC must be able to obtain off-the-shelf product for unmodified lab testing. The bill also clarifies that onsite quality-control testing does not substitute for certified lab compliance testing, and requires labs to cooperate with DCC evaluation requests.

Retailers need point-of-sale or back-office systems capable of producing a COA on demand without delay. Manufacturers and distributors—particularly those working with edibles or other infused products—should expect closer scrutiny of final-form testing. This is an area that has historically created gaps when formulations change after initial testing.

AB 2249 and AB 2532: a packaging and labeling overhaul

Two separate bills would reshape packaging and labeling requirements, and operators need to track both to avoid falling through the gap between them.

AB 2249 prohibits cannabis products, packaging, or labeling that is "attractive to children" under a newly defined standard. It requires DCC to adopt, by July 1, 2027, a standardized rubric identifying prohibited design elements, along with a voluntary pre-clearance process that lets licensees obtain a written determination on proposed packaging or labeling before bringing it to market. Industry groups have already pushed back on proposed amendments that would restrict vape cartridge labels referencing flavors or strain names, arguing the language is overbroad, so the final scope of the rubric remains in flux. This bill was passed by the Assembly and is currently sitting on Gov. Newsom's desk to be signed into law.

AB 2532 takes a more direct approach, establishing uniform, mandatory packaging and labeling requirements across the board: tamper-evident and child-resistant packaging, resealable packaging for multi-serving products, and a DCC-issued unique identifier on every package. It sets detailed label content rules covering government warning language, product type, packaging date, cannabinoid content per serving and per package, allergen warnings, and net weight for dried flower. Edibles would be limited to generic food names rather than fanciful branding on ingredient lists, and vape cartridges could not claim to be disposable or suggest disposal in the trash. The bill also contains a built-in trigger that if the U.S. Attorney General formally determines cannabis is no longer a Schedule I substance. At that point, the required Schedule I warning statement would automatically drop from labels.

Because AB 2249 works through a rubric and pre-clearance process while AB 2532 imposes a hard content mandate, a packaging design that satisfies one bill will not necessarily satisfy the other. Design and compliance teams should build in lead time for DCC's 2027 rubric rollout and plan to use the voluntary pre-clearance process once it becomes available.

How these five bills fit together

AB 1826 and AB 2537 reform how DCC investigates and penalizes violations. AB 1965 changes what gets tested and disclosed. AB 2249 and AB 2532 change what a product can look like on the shelf. A licensee could be fully compliant with every packaging requirement and still face an embargo over a testing or track-and-trace discrepancy, which means compliance programs need to treat these five bills as interlocking pieces of one system, rather than five separate checklists.

Operators that start adapting now, rather than waiting for final enactment and DCC's inevitable emergency rulemaking, will be far better positioned when these changes take effect.

_____________

For more updates on recent marijuana legislation, including rescheduling and the DEA rulemaking process, please check out these recent posts:

• What California Medical Operators Must Do After Rescheduling: DEA Registration, License Operation, and 280E
• The Quietest Fight of DEA’s Life: Reflections on the Marijuana Rescheduling Hearing
• Law and Politics: Why Marijuana Rescheduling’s One-Sided Hearing Matters
• Would Cannabis Rescheduling Help Businesses in Unified Markets? Washington Weighs In
• The Motion to Stay DEA’s Schedule III Rule: Strong Enough to Stick?
• Standing Is Everything: Three States Join the Medical Marijuana Rescheduling Fight
• Medical Marijuana Rescheduling Q&A: Cutting Through the Noise
• A Calculated Bet: DEA Registration is Open, and the Clock is Ticking
• Marijuana Rescheduling and Income Tax
• The U.S. Opens Its Medical Marijuana Market to Global Trade (For Now); Broader Marijuana Rescheduling on Deck

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Bring your next smoke sesh into the future with the fully automatic dry herb combustion device, the EZ-UP Aurora

Cannabis technology has come a long way from rolling papers and hand-packed bowls. Edibles, vapes, and dosed beverages have already proven that consumers want options that fit their lifestyle, not just tradition for tradition’s sake. But until now, that innovation has largely bypassed dry herb. Enter the EZ-UP Aurora from Boston-based Spark Perceptions Technology: The […]

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California Cannabis Contracts After Rescheduling: Why Your Contracts Need a Second Look

Rescheduling did not just change tax treatment and licensing options for cannabis operators. It also changed the assumptions baked into thousands of existing cannabis contracts. Supply agreements, licensing arrangements, and investment documents drafted before April 2026 were built around a world where cannabis was federally illegal in every respect. That world no longer exists for qualifying medical activity, and many of those older contracts were never written to handle the change.

This creates a quiet, but serious, risk. A contract that looked airtight eighteen months ago may now contain gaps, outdated assumptions, or ambiguous triggers that leave one party exposed. Before signing a new deal or relying on an old one, California operators should take a hard look at how rescheduling, DEA registration, and DCC license restructuring interact with their existing contracts.

Why legacy California cannabis contracts are suddenly at risk

Most cannabis agreements were negotiated under the premises that cannabis is a Schedule I substance. Representations, warranties, and compliance covenants were built around that reality, focused almost entirely on state-law compliance because federal legality was never on the table.

Rescheduling changes that baseline for qualifying medical activity, and DEA registration and DCC license restructuring add new categories of regulatory status that many contracts never anticipated. A supply agreement that only asks a counterparty to comply with "all applicable state cannabis laws" may be silent on whether that counterparty is DEA-registered, whether its license structure supports a medical channel, or whether its own upstream suppliers meet that same standard. The result is a contract that technically still applies, but no longer captures full risk exposure.

Supply agreements: where the biggest exposure is hiding

Supply agreements deserve close look, because they sit at the center of the medical versus adult-use distinction discussed in earlier posts on this blog; HERE and HERE.

Representations tied to old premises.

Many supply contracts include reps and warranties drafted narrowly around state-law compliance, without addressing DEA registration status at all. If a counterparty becomes DEA-registered, or fails to, the existing language may not say anything meaningful about that fact, leaving a gap exactly where the parties need protection.

Sourcing and counterparty registration.

If an operator's restructuring and Schedule III compliance depends on sourcing from suppliers with a distinct medical license structure or DEA registration, existing supply contracts should require and verify that status, not just assume it. Without a specific covenant and audit right, an operator has no reliable way to confirm that its supply chain actually supports the medical positioning it is relying on for tax or regulatory purposes.

Change-in-law and force majeure clauses.

Many agreements include change-in-law provisions that were drafted with vague, future hypotheticals in mind. Rescheduling is no longer hypothetical. Operators should review whether these clauses were written broadly enough to address rescheduling, new DEA rules, or DCC license restructuring, and whether triggering them now would produce the outcome the parties desire, such as renegotiation, termination, or price adjustment.

Licensing agreements: aligning contracts with DCC license restructuring

DCC's rules allowing license designation changes and A/M splits outside the renewal cycle creates new possibilities for operators, but they also create blind spots in existing licensing agreements, brand licensing deals, and management agreements.

Operators should ask a few direct questions about every active licensing contract:

• Does the agreement assume a specific license type, such as adult-use only or a combined A/M structure, that may now change?
• Does the agreement say who bears the cost, delay, or risk if one party decides to pursue a license conversion?

If the answers are unclear or silent, that silence is not neutral. It usually means the party with less leverage will absorb the cost of any future conversion dispute. Proactive amendments, even short ones, are far cheaper than resolving that ambiguity in litigation later.

Investment and M&A agreements: new risks and new opportunities

Deal documents deserve particular attention because they tend to rely heavily on defined terms and broad references to "applicable law."

Representations about regulatory status.

Purchase agreements, subscription agreements, and credit agreements often include representations about compliance with applicable law that were treated as boilerplate in a Schedule I world. Post-rescheduling, that phrase carries more weight. Diligence checklists should now expressly cover DEA registration status, supply-chain registration, and how a target company is positioning itself for I.R.C. 280E purposes.

Valuation and earnout provisions.

If 280E relief materially changes a company's effective tax rate for medical activity, historical financials used to calculate earnouts or purchase price adjustments may need a second look. Deals negotiated before rescheduling could produce disputes if one side argues the numbers should be recalculated to reflect the new tax reality, while the other side insists the original figures control.

Indemnification and escrow considerations.

Existing indemnification baskets and survival periods were built to cover a narrower set of known risks. New deals should include specific indemnities addressing DEA registration compliance, license conversion missteps, and supply-chain misrepresentations, rather than relying on generic compliance language to catch issues it was never designed to catch.

Common pitfalls to avoid with California cannabis contracts

Operators often make three mistakes when updating cannabis contracts. First, they rely on outdated template language without addressing what has actually changed since rescheduling. Second, they update contracts in isolation, without coordinating with parallel efforts around license restructuring or DEA registration, which creates inconsistencies between what the paperwork says and what the business is actually doing. Third, they assume counterparties will voluntarily disclose changes in their own registration or compliance status, when in reality that disclosure needs to be a contractual obligation, not a courtesy.

Action checklist

• Add or strengthen DEA registration and supply-chain compliance covenants in supply agreements.
• Review licensing agreements for silence on license conversion or A/M split scenarios, and amend where necessary.
• Update M&A and investment diligence checklists and deal documents to reflect new tax and regulatory realities.
• Treat contract review as part of the same strategy as DEA registration, license conversion, and 280E planning, not a separate project handled after the fact.

_____________

For more on marijuana rescheduling and the DEA rulemaking process, please check out these recent posts:

• What California Medical Operators Must Do After Rescheduling: DEA Registration, License Operation, and 280E
• The Quietest Fight of DEA’s Life: Reflections on the Marijuana Rescheduling Hearing
• Law and Politics: Why Marijuana Rescheduling’s One-Sided Hearing Matters
• Would Cannabis Rescheduling Help Businesses in Unified Markets? Washington Weighs In
• The Motion to Stay DEA’s Schedule III Rule: Strong Enough to Stick?
• Standing Is Everything: Three States Join the Medical Marijuana Rescheduling Fight
• Medical Marijuana Rescheduling Q&A: Cutting Through the Noise
• A Calculated Bet: DEA Registration is Open, and the Clock is Ticking
• Marijuana Rescheduling and Income Tax
• The U.S. Opens Its Medical Marijuana Market to Global Trade (For Now); Broader Marijuana Rescheduling on Deck

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Breaking Point in Phoenix: Inside Grow Sciences’ desert wonderland

Lindsay MaHarry visits Grow Sciences in Phoenix to get an inside look at Breaking Point, a standout hybrid bringing gas to the coffee shop.

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Texas government outlaws THC—confuses country, consumers, and themselves

The Lone Star mess gives us a preview of the upcoming nationwide hemp ban, with a long-stalled ruling effectively banning hemp THC in the state.

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DCC license conversions after rescheduling: how and when to split A/M licenses in California

When obtaining a California cannabis licenses, operators had to decide whether to operate under an adult-use license, a medicinal license, or a combined A/M structure. However, what once looked like a routine licensing question with a simple answer now affects tax planning, federal compliance, and supply-chain viability. For some businesses, converting or splitting licenses may help align their operations with Schedule III medical activity and better 280E positioning. For others, rushing into a conversion could create new compliance problems.

Why license structure matters now

The federal government’s April 2026 rescheduling action created a path for qualifying medical cannabis activity to move outside the full reach of Internal Revenue Code Section 280E. Adult-use activity, however, remains subject to the same punitive tax treatment. That makes the distinction between medical cannabis and adult-use cannabis more important than before.

Many businesses have treated A, M, and combined A/M designations as mostly administrative. After rescheduling, those choices may affect whether a company can credibly position part of its business as medical, whether it can support a future DEA registration, and whether its books and records can sustain a defensible allocation between medical and adult-use activity.

What changed under the DCC rules

As mentioned in our prior post, the DCC’s 2026 emergency regulations allow operators to revisit license designations outside the annual renewal cycle and restructure existing operations more easily. For businesses holding combined A/M licenses, that creates an opportunity to separate adult-use and medicinal activity more clearly and efficiently.

In the right case, a cleaner split can support better accounting, stronger compliance controls, and a more coherent medical-only posture.

Why some operators should consider conversion or splitting

The strongest reason is tax planning. If a meaningful part of the business may qualify as medical under the new federal framework, a clearer medicinal structure may help support that position. That does not guarantee 280E relief, but it puts the operator in a better position than a business trying to claim medical treatment while maintaining a blurred structure.

Operators considering DEA registration should be asking whether their business actually looks like a medical operation. A separate medicinal license, distinct inventory controls, and medical-specific procedures can bolster your position.

A distinct medicinal structure may also help with patient branding, financings, or sale transactions where buyers want cleaner separation between medical and adult-use operations.

The supply-chain issue operators cannot ignore

If a retailer wants to truly create a split between its medical and adult-use operation, the same logic should apply upstream: cultivators, manufacturers, and distributors should also have an isolated medical license or a medical operation clearly separate from adult-use activity. A strategy for a medicinal retailer is harder to defend if the product moves through businesses that blur medical and adult-use operations at every step along the supply chain.

This creates a chain-wide segregation issue. A retailer may split its licenses, but if cultivators, distributors, or manufacturers do not separate medical product, maintain distinct records, and structure their licenses accordingly, the medical model may exist only at the point of sale. That weakens both the compliance and the tax posture as a medical-only operation.

For California businesses, conversion analysis should include a full supply-chain audit. Before restructuring around a medical-only strategy, operators should identify which partners down the supply chain can support a separate medical channel and which cannot. If the answer is very few, a premature conversion may create complexity without much benefit.

Common pitfalls

The first mistake is treating conversion as purely a tax move. Yes, 280E matters, but weak operations can turn a good theory into audit risk. The second mistake is assuming a medicinal license alone solves the DEA issue. It does not; federal alignment depends on how the business actually operates and how product moves through the supply chain.

Another common problem is failing to align local permits, leases, and vendor contracts with the new structure.

Who should move now, and who should wait

Operators with real medical patient volume, serious interest in DEA registration, and a supply chain that can align with the medical only framework are the strongest candidates for immediate action. The same is true for businesses preparing for financing, sale, or restructuring.

By contrast, purely adult-use retailers with little medical demand may be better off waiting. So may businesses whose suppliers lack medical operations, and businesses that lack the internal systems needed to support clean separation of medical and adult-use activity.

Practical next steps

Before pursuing a conversion or split, licenses California cannabis businesses should ask:

• Does the business have enough genuine, medical cannabis activity to justify a medicinal strategy?
• Can accounting, inventory, and SOPs support a defensible separation between medical and adult-use activity?
• Is the supply chain capable of moving toward medical cannabis only?
• Do local permits, leases, and contracts support the proposed change?

If the answers are favorable, a conversion may be worth pursuing now. If not, prepare first and file later. Businesses most likely to benefit from rescheduling will treat licensing, tax, and supply-chain analysis as one strategy.

_____________

For more on marijuana rescheduling and the DEA rulemaking process, please check out these recent posts:

• What California Medical Operators Must Do After Rescheduling: DEA Registration, License Operation, and 280E
• The Quietest Fight of DEA’s Life: Reflections on the Marijuana Rescheduling Hearing
• Law and Politics: Why Marijuana Rescheduling’s One-Sided Hearing Matters
• Would Cannabis Rescheduling Help Businesses in Unified Markets? Washington Weighs In
• The Motion to Stay DEA’s Schedule III Rule: Strong Enough to Stick?
• Standing Is Everything: Three States Join the Medical Marijuana Rescheduling Fight
• Medical Marijuana Rescheduling Q&A: Cutting Through the Noise
• A Calculated Bet: DEA Registration is Open, and the Clock is Ticking
• Marijuana Rescheduling and Income Tax
• The U.S. Opens Its Medical Marijuana Market to Global Trade (For Now); Broader Marijuana Rescheduling on Deck

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