$MSOS $TLRY $CGC $ACB: After the DEA Hearing, the Cannabis Trade Moves Into the Shadows

The doors of the DEA hearing room have closed. The witnesses have gone home. The lawyers are no longer exchanging objections beneath the fluorescent lights of a federal building in Arlington.

And yet, in some ways, the most important part of the cannabis rescheduling story may only now be beginning.

For more than two weeks, the market watched an unusual administrative proceeding unfold inside Drug Enforcement Administration headquarters. The federal government defended a proposal to move marijuana more broadly from Schedule I to Schedule III, while the seven outside participants selected for the hearing came from organizations, states and professionals generally critical of the proposal.

There was no televised testimony, no live stream and no dramatic vote at the end. Mobile phones and recordings were prohibited inside the courtroom. Information emerged through official orders, accounts from reporters and attorneys who attended, legal commentary and the fragmentary rhythm of social media.

That environment was almost designed to produce rumors.

Cannabis traders are accustomed to rumors. The sector has spent years moving on anonymous political claims, half-read agency documents, misunderstood congressional language and hopeful interpretations of procedural deadlines. But the present situation is different. Beneath the chatter are three developments with genuine legal and financial weight.

The first is an approaching battle over Section 280E and the tax guidance promised by Treasury and the IRS.

The second is a federal appeals-court challenge that could test whether the administration’s first medical-marijuana rescheduling action was lawful.

The third is the possibility—still only an outside legal scenario, not an official signal—that the hearing could produce something other than the binary outcome the market expects.

None of these developments means the broader rescheduling effort has failed. None establishes that Schedule III is about to be completed. What they show is that the cannabis trade has entered a quieter and potentially more dangerous phase, where the next major headline may not come from the DEA hearing at all.

It could come from the IRS.

It could come from the D.C. Circuit.

Or it could arrive inside a recommendation whose wording changes the market’s understanding of the entire proceeding.

The hearing ended, but the decision did not arrive

The formal evidentiary hearing ran from June 29 through July 15, 2026. Its purpose was to build a record on the proposed transfer of marijuana from Schedule I to Schedule III under the Controlled Substances Act.

That distinction matters. The hearing was not a legalization vote. It was not a referendum on whether cannabis is harmless. It was not a mechanism for automatically opening interstate commerce, solving cannabis banking or moving plant-touching U.S. operators onto the Nasdaq or New York Stock Exchange.

It was an administrative proceeding designed to determine whether the evidence supports a different federal drug classification.

The government entered the room as the formal proponent of Schedule III. The seven outside interested parties selected by the DEA included drug-testing interests, law-enforcement representatives, anti-rescheduling organizations, opposing states, physicians and impaired-driving advocates. The official list contained no outside organization supporting the proposed change.

That created a proceeding that appeared upside-down.

The DEA, an agency historically associated with strict enforcement of federal marijuana law, was required to support a less restrictive schedule. The outside participants were largely there to explain why it should not.

When testimony concluded, Chief Administrative Law Judge Derek C. Julius did not issue a ruling. Instead, he ordered the designated parties to submit any proposed transcript corrections and post-hearing briefs by August 17, 2026.

Those briefs may contain proposed findings of fact, conclusions of law, closing arguments and responses to issues raised by the tribunal. Each brief is generally limited to 50 pages. The submissions are optional, but they represent the first formal opportunity for the parties to transform days of testimony into a coherent legal argument.

After the briefs arrive, Judge Julius must evaluate the testimony, exhibits and legal arguments. At some point, he is expected to issue a recommended decision. That recommendation will carry weight, but it will not itself be the DEA’s final agency action.

There is no publicly guaranteed date for the recommendation.

There is also no rigid countdown requiring the DEA Administrator to produce a final answer within a specified number of days after receiving it.

The cannabis market has a calendar. The administrative system has a process. Those two things are not always compatible.

The courtroom is quiet—and the information vacuum is filling rapidly

Silence is rarely neutral in a speculative sector.

When a biotechnology company approaches a PDUFA date, investors at least know the agency is evaluating a defined application against a defined statutory deadline. Cannabis rescheduling offers no such luxury.

The evidence phase is finished, but the corrected public transcript has not yet become the market’s definitive reference. The parties have digital daily transcripts, while the tribunal is still allowing corrections for transcription errors. The DEA has said a finalized and corrected version will be published following completion of that process.

Until then, the market is attempting to reconstruct the hearing from partial accounts.

That has created two competing narratives.

The bullish narrative says the administration already supports Schedule III and used the hearing to expose the opposition’s strongest arguments before issuing a rule designed to survive judicial review.

The bearish narrative says the DEA mounted an unexpectedly restrained defense, leaving a lopsided record that could support a negative recommendation or strengthen a later legal challenge.

Both narratives contain a plausible element.

Neither has been proven.

And that is precisely why the weeks between the hearing and the written briefs may become more volatile than they initially appear.

Was the one-sided hearing actually designed to protect Schedule III?

The decision to select only parties opposed to the proposed rule generated immediate criticism. Cannabis companies, policy advocates and medical-marijuana supporters were excluded from the formal outside participant list, even though many had asked to take part.

At first glance, the structure looked ominous. A room filled with Schedule III opponents hardly appeared to be the setting for a favorable result.

But two attorneys from Goodwin Procter offered a more constructive interpretation.

Because the DEA itself was supporting the proposed rule and carried the burden of proof, they argued, allowing opponents to present their strongest objections could ultimately make a Schedule III decision more durable. If the agency openly considered the contrary evidence and then explained why the record still justified rescheduling, it would be harder for challengers to argue that their concerns had been ignored.

This is not an exotic legal theory. Agencies frequently build records with judicial review in mind. A final rule cannot survive merely because the administration likes the policy. It must show that the agency considered the relevant evidence, answered significant objections and connected the factual record to its conclusion.

From this perspective, the strange composition of the hearing was not proof of an anti-cannabis ambush.

It may have been an attempt to place the opposition’s arguments inside the official record, where the government could address them directly in its post-hearing brief and any eventual final rule.

That is the optimistic interpretation.

The hearing was not a trial in which the cannabis industry needed equal speaking time. It was a stress test for a policy the administration had already chosen to pursue.

But the theory depends upon one critical assumption: that the government actually built a sufficiently strong record in response.

And this is where the media accounts become less comfortable.

The troubling counter-narrative: DEA barely fought

Attorneys and journalists following the hearing have questioned whether the DEA defended Schedule III as forcefully as supporters expected.

Jason Adelstone of Harris Sliwoski described reports from people inside the room as notably more skeptical than the enthusiasm circulating through the cannabis industry. According to his account, the government presented two witnesses on the opening day, while opposition participants controlled much of the remaining hearing. He also noted reports of relatively few government objections and limited cross-examination of several opposition witnesses.

That does not prove the DEA lost.

A quiet courtroom strategy can be deliberate. The agency may believe that the foundational work completed by the Department of Health and Human Services is sufficient. It may have concluded that marijuana’s accepted medical use and comparative risk profile were already supported, making an aggressive confrontation unnecessary.

The government may also have wanted to avoid turning every public-safety claim into a prolonged spectacle. Cross-examining victims, law-enforcement witnesses or physicians too aggressively can create emotional and political risk without materially improving the legal record.

But there is another possibility.

The DEA’s institutional culture has not historically been enthusiastic about marijuana reform. The agency may formally be the proponent of the rule while some of the personnel executing the case remain less committed to the policy.

There is no official evidence of sabotage, and it would be irresponsible to suggest one.

The answer may not become clear until the government’s August brief appears.

The Schedule II scenario nobody wants to price

Most cannabis traders view the outcome as binary.

If the government succeeds, marijuana moves to Schedule III.

If the government fails, it remains in Schedule I.

Administrative law does not necessarily have to respect that market framework.

One legal commentator who followed the hearing has raised a third possibility: Judge Julius could recommend Schedule II as a compromise. That suggestion has not come from the judge, the DEA or an official filing. It is an outside legal interpretation and must be treated as such.

But it is not procedurally absurd.

Schedule I is reserved for substances considered to have no currently accepted medical use in treatment in the United States, along with a high potential for abuse and an absence of accepted safety under medical supervision.

Schedule II recognizes medical use while maintaining stringent controls because of abuse and dependence concerns.

Schedule III also recognizes medical use, but reflects a lower abuse potential than substances in Schedules I and II and a more limited dependence profile.

If the judge concludes that the record clearly defeats the “no accepted medical use” basis for Schedule I, but remains uneasy about the broader Schedule III standard, Schedule II could theoretically appear to offer institutional middle ground.

Again, this is commentary—not evidence that Judge Julius is actually leaning in that direction.

There has been no verified leak suggesting a Schedule II recommendation.

There is no official Schedule II proposal pending before the market.

There is no reason to present it as the base case.

But ignoring the scenario entirely would be equally careless. Cannabis investors have repeatedly suffered by treating complex administrative processes as clean yes-or-no events.

The real near-term financial catalyst may be sitting at the IRS

While the cannabis market debates the judge’s eventual recommendation, Treasury and the Internal Revenue Service are working on something with potentially more immediate financial consequences.

In April, the Justice Department placed FDA-approved marijuana products and marijuana products subject to qualifying state-issued medical licenses into Schedule III, while leaving other categories in Schedule I. That narrower action did not complete the broader rescheduling proposal being considered in the hearing, but it changed the legal treatment of covered medical activities.

Treasury and the IRS then announced plans to issue guidance on the federal tax consequences.

The agencies specifically said that moving qualifying activities out of Schedules I and II generally removes Section 280E as a barrier to deductions and credits for those activities. They also said the expected guidance would address businesses conducting multiple types of activity, including how expenses should be allocated between portions still subject to 280E and portions no longer covered by it.

That may sound technical. For cannabis operators, it is not.

Section 280E prevents businesses trafficking in Schedule I or II controlled substances from deducting ordinary operating expenses. Rent, payroll, marketing, administrative costs and numerous other expenses that a conventional company would normally deduct can become unavailable for federal tax purposes.

For years, that provision has distorted cannabis income statements, cash flow and capital allocation. A company can appear operationally viable and still be crushed by a tax bill calculated on something much closer to gross profit than normal taxable income.

The Treasury announcement therefore matters independently of the hearing.

And one sentence has become the source of the newest speculation.

The “retroactive relief” rumor—and what Treasury actually said

Treasury said the expected guidance should include a transition rule under which rescheduling would generally be considered to apply for the business’s full taxable year containing the effective date of the final order, but only for activities that no longer involve Schedule I or II substances because of that order.

For a calendar-year taxpayer, that language could allow qualifying medical activity to receive the new treatment across the full 2026 tax year rather than only from the order’s spring effective date onward.

That is meaningful.

It is not the same as unlimited retroactive relief.

Social-media conversations have sometimes stretched the Treasury language into something much larger: the idea that cannabis operators might recover years of prior 280E payments, erase historical liabilities or receive a sweeping federal tax reset.

Nothing in the Treasury announcement promises that.

The announced transition rule concerns the full taxable year containing the order’s effective date. It does not state that closed prior years will automatically be reopened. It does not eliminate 280E for adult-use activity that remains connected to Schedule I marijuana. It does not guarantee that a vertically integrated operator can simply label its entire cost structure “medical” and deduct everything.

The unresolved allocation rules may prove exceptionally important.

Many cannabis businesses operate across medical and adult-use markets. Some use shared cultivation facilities, employees, brands, distribution systems, real estate and corporate services. Separating the Schedule III portion from the Schedule I portion may be straightforward on paper and deeply complicated in practice.

That is why the eventual IRS guidance could influence the sector before the broader DEA recommendation does.

It will help determine not merely whether relief exists, but how much of the business can actually claim it.

As of the IRS’s 2026-31 Internal Revenue Bulletin, published July 24, the promised cannabis-specific guidance was not visible among the published rulings and procedures.

The absence does not mean the guidance is delayed indefinitely. It means the market is still waiting.

And waiting creates room for rumor.

The first court decision may arrive before the DEA recommendation

A second federal process is now moving beside the hearing.

The administration’s April medical-marijuana order is being challenged in the U.S. Court of Appeals for the D.C. Circuit. Multiple petitions have attacked the legal pathway used by the Justice Department, including its reliance on treaty-related authority under the Controlled Substances Act.

The challengers argue, among other things, that the government moved too far without following the ordinary rulemaking process and that the administration exceeded the authority provided by the statute.

The government disputes those claims.

A request to stay the April order adds urgency.

A stay would not necessarily resolve the entire case. It would determine whether the order should remain operative while litigation continues. Before reaching the merits, the court may also need to address whether the challengers have standing and whether they have shown the type of irreparable injury required for emergency relief.

The case creates an unusual collision.

Inside the DEA process, the government is considering whether to broaden Schedule III.

Inside the D.C. Circuit, opponents are asking whether the government’s first, narrower Schedule III action was lawful in the first place.

The two proceedings are legally distinct, but the political and market narratives overlap.

A court decision leaving the April order intact could strengthen confidence that the administration’s architecture is holding.

A stay would not automatically kill broader rescheduling, but it could create immediate uncertainty around registration, tax treatment and the durability of the medical framework.

A later ruling invalidating the order could force the administration to defend or reconstruct parts of the policy.

This is why the next truly price-sensitive cannabis headline may carry the name of a federal court rather than the DEA.

Schedule III may be politically desired without being legally guaranteed

Within cannabis circles, one persistent rumor says the outcome is already decided.

Under this theory, the administration wants Schedule III, considers the policy politically useful and intends to complete it regardless of the theater inside the hearing room.

Several facts give the theory some credibility.

The executive branch explicitly directed the Attorney General to pursue rescheduling expeditiously. The Justice Department already adopted a narrower medical Schedule III framework. The DEA entered the hearing as the proponent of the broader rule. The process was placed on a compressed calendar.

The administration is not behaving like an institution searching for a policy from scratch.

It is behaving like an institution trying to complete and defend a policy direction.

But political intent is not the same as administrative certainty.

A final agency action must explain the evidence. The judge’s recommendation can complicate the narrative even if the DEA is not legally bound to adopt every conclusion. The D.C. Circuit can test the administration’s legal authority. Opponents can challenge a final broader rule after it is published.

Even a predetermined policy preference must pass through institutions that leave records, demand explanations and create opportunities for review.

The “done deal” theory may therefore be partly true and still dangerously incomplete.

Schedule III can be the desired destination without the road being secure.

Congress is telling a completely different cannabis story

As the DEA weighs whether marijuana belongs in Schedule III, several senators have revived legislation that would remove cannabis from the Controlled Substances Act altogether.

On July 16—one day after the hearing ended—Senators Cory Booker, Chuck Schumer and Ron Wyden reintroduced the Cannabis Administration and Opportunity Act. The proposal would end the federal prohibition through descheduling, establish a broader regulatory structure and address issues far beyond the limited scope of the DEA proceeding.

The timing produced a striking contrast.

Inside the administrative system, lawyers are debating whether cannabis satisfies the technical criteria for Schedule III.

Inside Congress, lawmakers are again proposing to remove it from federal scheduling entirely.

In court, opponents are arguing that even the narrower medical action exceeded the government’s authority.

Three branches of the federal system are therefore moving through three different versions of cannabis reform:

This fragmentation is one reason cannabis policy can appear to advance and stall simultaneously.

A positive development in one arena does not automatically resolve the others.

What this means for the cannabis stocks

The distinction between direct economic exposure and headline exposure remains critical.

For U.S. plant-touching operators, the Section 280E question can materially affect cash flow, taxable income and the ability to reinvest. Broader Schedule III treatment would potentially carry far greater economic significance than a symbolic policy headline.

The market often trades the ticker before reading the rule.

That creates opportunity for volatility, but also substantial misunderstanding.

A positive D.C. Circuit headline could lift the entire sector even if the ruling is narrow.

An IRS clarification could benefit qualifying medical operations unevenly.

A Schedule II recommendation could initially be misread as a historic victory before traders realize that 280E applies to Schedule II as well as Schedule I.

A Schedule III recommendation could trigger a sharp move even though the DEA Administrator, final publication and judicial review would still remain ahead.

The first price reaction will not necessarily be the correct interpretation.

The documents that now matter

The bottom line: the cannabis trade has entered its most deceptive phase

The easiest part of the story was the hearing calendar.

June 29: testimony begins.

July 15: testimony ends.

August 17: written briefs are due.

The next part has no clean timetable.

The government must turn an unusually structured and contested hearing record into a legally defensible argument. Opponents will attempt to transform every uncertainty into a reason to preserve Schedule I, support a different classification or challenge the broader process in court.

Treasury and the IRS must explain how 280E relief works when a single cannabis business operates simultaneously inside two different federal schedules.

The D.C. Circuit must decide whether the administration’s first medical-marijuana action can withstand challenge.

And the market must distinguish among policy intent, legal authority, tax treatment and the economic reality of individual companies.

The courtroom may be silent, but the cannabis story is not waiting peacefully for August 17.

It has moved into briefs, tax offices, appellate filings and private conversations among attorneys who disagree about what they just witnessed.

The constructive case remains intact. The administration is still pursuing Schedule III. The hearing did not produce an official defeat, and the existing medical framework has already created a path toward meaningful tax relief for qualifying activity.

But certainty would be premature.

The bullish interpretation is that the government allowed opponents to build their strongest case so that a future Schedule III rule could survive appeal.

The bearish interpretation is that the DEA allowed those opponents to dominate the record and may now face an unfavorable recommendation or a more difficult judicial defense.

Between those two narratives sits the wildcard the market barely discusses: Schedule II.

And somewhere outside the hearing room, the IRS or a federal appeals court may deliver the next important cannabis catalyst first.