What Is a Schedule 3 Drug? Everything Cannabis Users Need to Know

President Trump signed an executive order on December 18, 2025, directing federal agencies to reclassify marijuana from Schedule I to Schedule III, marking the most significant shift in federal cannabis policy in over 50 years. For cannabis users who have heard conflicting reports about what this means, understanding the federal drug scheduling system has never been more important. This guide breaks down exactly what Schedule III classification means, how it differs from Schedule I, and what cannabis consumers can expect as the policy takes effect.

• Schedule III drugs are defined as substances with moderate to low potential for physical and psychological dependence, accepted medical uses, and lower abuse potential than Schedule I or II
• Common Schedule III substances include Tylenol with codeine, ketamine, anabolic steroids, and testosterone
• Marijuana has been classified as Schedule I alongside heroin and LSD since 1970 under the Controlled Substances Act
• Reclassification does not legalize marijuana—possession remains a federal offense under the Controlled Substances Act
• Cannabis businesses will finally escape IRS Code Section 280E, which currently prevents deducting standard operating expenses
• The shift could save the cannabis industry billions annually by allowing deductions for payroll, rent, and utilities
• Research barriers will drop significantly, potentially accelerating FDA-approved cannabis treatments
• 64% of U.S. adults believe marijuana use should be legal, according to November 2025 Gallup polling

The Drug Enforcement Administration classifies controlled substances into five distinct schedules based on three primary factors: accepted medical use in the United States, relative abuse potential, and likelihood of causing dependence. Understanding this framework is essential for grasping why marijuana’s reclassification matters so much.

Schedule I represents the most restrictive category, reserved for substances the federal government considers to have no currently accepted medical use and a high potential for abuse. This category includes heroin, LSD, peyote, ecstasy, and—until the reclassification takes effect—marijuana. The classification has long been controversial because it places cannabis alongside drugs with documented fatal overdose risks.

Schedule II includes substances with high abuse potential but recognized medical applications, such as fentanyl, oxycodone, methamphetamine, and cocaine. These drugs require prescriptions and face strict dispensing requirements.

Schedule III, where marijuana is heading, encompasses drugs with moderate to low potential for physical and psychological dependence and accepted medical uses. The distinction between Schedule I and III isn’t primarily about relative danger—it’s fundamentally about whether the federal government recognizes medical value.

Schedule III substances share specific characteristics that distinguish them from more restrictive categories. According to the Controlled Substances Act, drugs must meet three criteria for Schedule III placement:

• Abuse potential less than Schedule I and II drugs
• Currently accepted medical use in treatment in the United States
• Abuse may lead to moderate or low physical dependence or high psychological dependence

The DEA lists numerous Schedule III drugs that cannabis will soon join:

• Products containing less than 90 milligrams of codeine per dosage unit (Tylenol with codeine)
• Ketamine
• Anabolic steroids
• Testosterone
• Buprenorphine (used in opioid addiction treatment)

These substances can be prescribed by physicians, though they remain controlled and regulated. Pharmacists must have DEA authorization to fill Schedule III prescriptions, and patients can receive a maximum of five refills with quantities not exceeding 90 units each.

Cannabis wasn’t placed in Schedule I based on rigorous scientific evaluation. In 1970, President Nixon signed the Comprehensive Drug Abuse Prevention and Control Act, establishing the modern five-schedule system. Marijuana’s classification was intended as provisional, pending review by a presidentially appointed commission.

Roger O. Egeberg, the Assistant Secretary of Health at the time, recommended temporary Schedule I placement while acknowledging considerable gaps in scientific knowledge about the plant’s effects. The 1972 Shafer Commission, appointed to study cannabis, actually recommended decriminalization—a recommendation Nixon rejected.

The political climate of the early 1970s War on Drugs cemented marijuana’s Schedule I status, where it remained largely unchanged for over 50 years despite mounting scientific evidence of therapeutic applications and growing state-level legalization.

Trump’s executive order directs Attorney General Pam Bondi to expedite completion of the rescheduling process, moving marijuana to Schedule III under the Controlled Substances Act. The president was explicit about limitations: “It doesn’t legalize marijuana in any way, shape or form, and in no way sanctions its use as a recreational drug.”

• Research barriers drop significantly. Schedule I status imposed logistical and regulatory barriers that hindered large-scale clinical research. Moving to Schedule III aligns cannabis with other medically accepted substances, easing security and administrative requirements for clinical trials.
• Tax treatment normalizes. Cannabis businesses will no longer face Section 280E restrictions, which prohibited deducting ordinary business expenses like rent, utilities, and payroll. This provision has produced effective federal tax rates exceeding 60% for many cannabis retailers.
• Medical recognition becomes official. For the first time, the federal government formally acknowledges that cannabis has accepted medical uses—a significant shift from the Schedule I designation stating it has none.

• Possession remains illegal. Anyone possessing marijuana remains subject to arrest under federal law. The executive order does not decriminalize cannabis.
• Recreational use stays prohibited. Trump specifically stated, “It’s never safe to use powerful controlled substances in a recreational manner.” The order focuses exclusively on medical applications.
• State laws still govern access. Rescheduling doesn’t create a national adult-use market. State regulatory frameworks continue to control cultivation, distribution, and retail operations.

For state-licensed cannabis businesses, the most immediate impact involves IRS Code Section 280E. This provision was enacted in 1982 following a tax court ruling that allowed a convicted cocaine trafficker to deduct ordinary business expenses—Congress responded by prohibiting deductions for businesses trafficking in Schedule I or II substances.

Under current law, cannabis companies can only reduce gross receipts by cost of goods sold before calculating taxable income. They cannot deduct expenses like advertising, rent, or employee salaries. Some operators face effective tax rates as high as 80%.

Schedule III classification removes cannabis from 280E’s scope entirely. The notice of proposed rulemaking explicitly states that “280E will no longer serve as a statutory bar to claiming deductions” for cannabis businesses.

The financial impact could be transformative:

• Improved cash flow allowing reinvestment in operations
• Lower cost of capital as lenders reassess risk profiles
• More attractive valuations for investors
• Billions in potential annual savings industry-wide

For the average cannabis user purchasing from dispensaries in legal states, reclassification brings both immediate and longer-term implications.

• Prices may decrease. As businesses escape crushing 280E tax burdens, some cost savings could flow to consumers through lower prices. Operators will have more flexibility in pricing strategies once they’re taxed like normal businesses.
• Product selection could expand. With pharmaceutical companies likely entering the space to pursue FDA-approved cannabinoid medicines, consumers may see more standardized, clinically-tested products alongside traditional offerings.
• Banking access improves. Financial institutions have avoided cannabis businesses due to federal legal concerns. Schedule III status may encourage more banks to engage openly, potentially improving payment options and reducing cash-only operations.

• Medical research accelerates. The FDA will be able to study cannabis for medical purposes more freely, potentially leading to approved treatments for chronic pain, seizure disorders, and other conditions Trump specifically mentioned.
• CBD Medicare coverage begins. The executive order includes provisions for seniors to receive up to $500 annually for CBD products through Medicare starting April 1, 2026.
• Quality standards rise. Industry leaders expect cannabis to move toward pharmaceutical-grade standards, which could mean more consistent potency, better testing, and improved safety protocols.

The executive order does not automatically reschedule cannabis. There will be a 30-day public comment period, and opponents are expected to challenge the reclassification through the courts. The rescheduling process initiated under the Biden administration remains technically ongoing, with Trump’s order directing completion “in the most expeditious manner in accordance with Federal law.”

Key milestones to watch:

• Attorney General Bondi must publish a final rule completing the rescheduling process
• DEA registration requirements will apply to plant-touching businesses
• IRS guidance on 280E effective dates will determine when tax benefits begin
• Congressional action on CBD definitions could expand hemp-derived product access

Reclassification doesn’t resolve the fundamental tension between federal prohibition and state-level legalization. As of 2025, 38 states have legalized medical marijuana, and numerous states permit recreational adult use. Yet cannabis will remain a controlled substance requiring DEA registration for anyone producing or distributing it.

State-licensed dispensaries still operate in a legal gray area. While Schedule III status reduces some federal conflict, it doesn’t provide the comprehensive reform many advocates seek. Interstate transport remains illegal, and employers can still enforce drug-free workplace policies.

For consumers in legal states, the practical advice remains unchanged: follow your state’s regulations, purchase from licensed sources, and understand that federal law continues to prohibit marijuana possession regardless of scheduling.

Patients using medical cannabis may see meaningful improvements in access and affordability. Schedule III classification opens potential pathways for:

• Insurance coverage discussions (though not guaranteed)
• Physician prescriptions rather than state-specific recommendations
• Pharmacy dispensing options long-term
• More clinical data supporting specific treatment protocols

The executive order specifically mentions patients “suffering from extreme pain, incurable diseases, aggressive cancers, seizure disorders, neurological problems and more, including numerous veterans with service-related injuries.”