Three Republican AGs Sued Trump's DOJ to Undo Rescheduling. Operators' 280E Relief Is the Collateral.

On May 29, Todd Rokita, the attorney general of Indiana, put out a statement explaining why he had joined a federal lawsuit to block the reclassification of marijuana. The argument was procedural: the U.S. Department of Justice, Acting Attorney General Todd Blanche, and the Drug Enforcement Administration, Rokita said, "did not follow proper procedure in making the rule change."

There was a wrinkle. The Justice Department that signed the order is run by the Trump administration. Rokita is a Republican. So are the two attorneys general who filed alongside him. The lawsuit is, in effect, three Republican state lawyers asking a federal court to overturn a deregulatory action taken by a Republican president's Justice Department.

Indiana is one of roughly ten states with no legal cannabis program of any kind — no adult-use market, no medical card, nothing to protect or expand. Rokita's interest is not in his own operators, because Indiana has none. It is in the principle, and in the precedent the rest of the country is about to inherit.

Rokita, Nebraska Attorney General Mike Hilgers, and Louisiana Attorney General Liz Murrill filed a 15-page petition for review in the U.S. Court of Appeals for the District of Columbia Circuit on May 22. It asks the court to "declare unlawful and vacate" the order that, on April 23, moved state-licensed medical cannabis and FDA-approved cannabis products from Schedule I to Schedule III of the Controlled Substances Act. On May 27, the petition was consolidated with a parallel challenge from Smart Approaches to Marijuana and a drug-testing industry association. (S1, S2, S6)

What hangs on the outcome is not abstract. Schedule III is the line that ended the reach of Section 280E into state-licensed medical operators. That tax provision had barred cannabis companies from deducting ordinary business expenses, pushing effective tax rates toward 70%. The relief showed up almost immediately in first-quarter earnings. If the D.C. Circuit vacates the April order, that relief unwinds, and the operators who just reported their first normal-looking quarters in years go back to being taxed as Schedule I narcotics traffickers.

The order the AGs want vacated was signed by Acting Attorney General Todd Blanche on April 23, after years of stalled rulemaking under two administrations. The DEA's final rule was published in the Federal Register on April 28. It did two things at once. First, it immediately rescheduled the narrow category of state-licensed medical and FDA-approved products to Schedule III. Second, it set an expedited administrative hearing — beginning June 29 at the DEA's facility in Arlington, Virginia, and scheduled to conclude by July 15 — to consider the broader question of moving all marijuana, including adult-use, off Schedule I. (S7)

That two-step structure is the heart of the AGs' procedural complaint. By rescheduling the medical category through an immediate order rather than full notice-and-comment rulemaking, they argue, Blanche skipped the public-comment process the Administrative Procedure Act requires. Their petition says the action "fails to comport with the requirements of the Administrative Procedure Act" because it "was improperly promulgated and was otherwise procedurally improper," and that it "exceeds or is inconsistent with pertinent authority, including the Controlled Substances Act." They also argue the reclassification may violate a 1967 international treaty on the handling of narcotics. (S2, S6)

The legal theory is not frivolous, and operators know it. The same expedited mechanism that delivered 280E relief in weeks rather than years is the mechanism most vulnerable to an APA challenge. The government chose speed; speed skipped steps; the skipped steps are now the petition's strongest argument. A vacatur would not merely pause the relief — it would erase the legal basis on which medical operators have already filed quarterly tax positions, repriced their balance sheets, and, in some cases, raised capital.

There is also a question of what the lawsuit does not touch. The April order rescheduled only the narrow band of state-licensed medical and FDA-approved products. Adult-use cannabis — the bulk of the legal market by revenue, sold in states from California to Michigan — never moved off Schedule I, and remains there pending the June 29 hearing. A petition that succeeds in vacating the medical order would not roll back adult-use relief, because there was none to roll back. It would instead remove the one piece of federal tax relief the industry has actually banked, while leaving the larger, still-pending question exactly where it sat in April.

There is a federalism irony running underneath the case. Of the three petitioners, Indiana has no cannabis program at all, and Louisiana runs a medical program — meaning Murrill is, in effect, suing to strip a federal tax benefit from operators serving patients in her own state. Nebraska, where voters approved a medical program that remains tangled in litigation and rulemaking, sits in between. The plaintiffs are not unified by what cannabis does in their states. They are unified by the view that the federal government got the science and the procedure wrong.

Hilgers, the Nebraska attorney general, has been the most vocal of the three. In a December statement signed by eight Republican attorneys general opposing the then-pending rescheduling, he argued that the case against the drug had only hardened. "The science surrounding marijuana — which has become only more clear in recent weeks — properly establishes it as a Schedule I drug," Hilgers wrote, adding that his office had "seen firsthand the harm the drug has caused in our communities." (S5)

“The science surrounding marijuana — which has become only more clear in recent weeks — properly establishes it as a Schedule I drug.”

— Mike Hilgers, Attorney General, Nebraska

On the same side of the v., Kevin Sabet, the chief executive of Smart Approaches to Marijuana, whose suit was consolidated with the states', framed the April order in public-health terms. The rescheduling, Sabet said, was an "unprecedented order" that "will cause significant harm to public health and safety." SAM and the drug-testing association bring a different standing theory than the states, but the same goal: vacate the rule and return marijuana to Schedule I. (S2)

The operators on the other side have mostly let their balance sheets do the talking. The post-rescheduling quarter was the strongest the large multistate operators had reported in three years, driven almost entirely by the removal of 280E rather than by sales growth. None of the major operators is a named party to the litigation; the rule they are defending was written by the government being sued. That leaves the industry in the unusual position of rooting for the Trump Justice Department to win a case brought by Republican state attorneys general.

Advocacy groups are circling the June 29 hearing for a different reason. NORML asked the DEA on May 26 for a seat at the proceeding, arguing that consumers — not just the government, the operators, and the prohibitionists — deserve representation when the agency decides whether to move the rest of the plant off Schedule I. The hearing will go forward on its own track even as the D.C. Circuit weighs whether the first, narrower step that preceded it was lawful. (S8)

For now, the April rule stays in effect. A petition for review does not by itself pause the action it challenges; the order remains binding unless the D.C. Circuit grants a stay or, at the end of its review, vacates the rule. That leaves operators in a holding pattern of their own — entitled to the 280E relief today, uncertain whether a court will let them keep it. Tax positions taken under a rule that is later vacated are the kind of exposure that auditors and lenders tend to notice. The cleaner the April order looked in the first-quarter prints, the more it now reads as a number with an asterisk.

1. June 29, 2026 — Expedited DEA administrative hearing on broader rescheduling, including adult-use, begins in Arlington, Virginia.
2. July 15, 2026 — Scheduled conclusion of the DEA hearing.
3. Ongoing — D.C. Circuit briefing on the consolidated petition to vacate the April order; the court can leave the rule in effect or stay it while it reviews.
4. Next earnings season — Whether operators disclose the litigation as a risk to the 280E positions they booked in Q1.

Todd Rokita's home state will not gain or lose a single dispensary depending on how the D.C. Circuit rules. Indiana has no market to protect. What his lawsuit can do is unwind the tax relief in the states that do, and cast doubt over a hearing that was supposed to settle the question for the rest of the country.

The order the three attorneys general want vacated runs a few pages. The petition challenging it runs fifteen. Somewhere between those documents sit the operators who already booked the relief, the patients in Louisiana whose own attorney general is now in court against the rule, and a June 29 hearing that will open in Arlington whether or not anyone yet knows if the step before it will hold.