The movement of state-licensed medical marijuana from Schedule I to Schedule III under the federal Controlled Substances Act (CSA) enhances the ability of banks to provide traditional deposit, cash management and lending services to the licensed growers, processors and dispensaries in West Virginia who complete the new federal registration process by reducing banks’ legal and regulatory concerns and by increasing the creditworthiness of medical marijuana businesses through reduced tax burdens. Indeed, the West Virginia medical marijuana market is ideally situated for the introduction of banking services because the CSA scheduling change strictly applies only to medical marijuana, and West Virginia has not legalized recreational adult-use marijuana. Diligence and compliance issues that result from dual-use operations in other states should be less applicable in West Virginia.

Federal Law Impediments to Providing Banking Services

Financial institutions have been functionally unable to provide banking products and services to marijuana businesses because marijuana has been classified as a Schedule I drug under the CSA. Even though 40 states, including West Virginia, have legalized the sale and use of marijuana for medical purposes and have established systems to regulate such activity, the CSA criminalizes the manufacture, sale, possession and distribution of Schedule I substances. The federal anti-money laundering laws (AML) criminalize the handling of proceeds derived from marijuana manufacturing and sales in violation of the CSA. Federal authorities may also confiscate, through civil or criminal asset forfeiture proceedings, all proceeds derived from any real or personal property involved in or traceable to marijuana sales in violation of the CSA. In addition, the Bank Secrecy Act (BSA) requires financial institutions to adopt certain policies and procedures, to file suspicious activity reports (SARs) with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) regarding transactions suspected to be derived from marijuana sales, and to establish and maintain AML programs designed to prevent institutions from facilitating money laundering and financing terrorist activity.

In February 2014, FinCEN issued guidance to clarify BSA expectations for financial institutions seeking to provide services to marijuana-related businesses. The guidance addresses the customer due diligence that should be performed and requires financial institutions to file one of three types of SARs (marijuana limited, marijuana priority and marijuana termination) on activity involving a marijuana-related business. The FinCEN guidance also lists examples of “red flags” that may indicate that a marijuana priority SAR is appropriate, such as if a business fails to sufficiently document state law compliance.

Timeline for Movement of Medical Marijuana to Schedule III

On Dec. 18, 2025, President Trump issued an executive order directing the U.S. Attorney General to “take all necessary steps to complete the rulemaking process related to rescheduling marijuana to Schedule III of the CSA in the most expeditious manner in accordance with Federal law.”

On April 23, 2026, the U.S. Department of Justice and DEA issued a final order (Order) that placed both FDA-approved products containing marijuana and marijuana products regulated by a state medical marijuana license in Schedule III of the CSA, effective April 28, 2026. The Order also provides for an expedited administrative hearing process to consider the broader rescheduling of marijuana from Schedule I to Schedule III that began on June 29, 2026. State-licensed medical marijuana businesses are now subject to CSA requirements, including registration, recordkeeping, reporting and security obligations. Most importantly, the Order provides that holders of state medical marijuana licenses will no longer be subject to the deduction disallowance imposed by Section 280E of the Internal Revenue Code.

Registration Requirements for State Licensees

The Order amends the DEA regulations to provide a new registration pathway for state-licensed medical marijuana entities seeking federal DEA registration as manufacturers, distributors and/or dispensers. The regulation creates an expedited review process under which applicants may submit their existing state credentials. Applications submitted before June 27, 2026, must be processed within six months, and these early applicants may lawfully operate under their state-issued licenses during the pendency of review. If a state medical marijuana license is suspended, revoked or expires, the DEA registration is automatically suspended. The Order and regulation allow state-law records, security, labeling, packaging, sealing and disposal requirements to satisfy most of the federal framework for state-licensed medical marijuana businesses.

Reduced Tax Burden

Because Section 280E of the Internal Revenue Code applies only to Schedule I and II substances, state-licensed medical marijuana businesses should be able to deduct ordinary and necessary business expenses, thus reducing their tax burden. The U.S. Department of the Treasury and Internal Revenue Service have indicated that guidance is forthcoming. The removal of the 280E tax burden will cause medical marijuana businesses to become more financially stable and creditworthy, thus allowing financial institutions to better analyze credit risk and provide access to traditional lending products to these entities.

Impact of Rescheduling on Banking Services

West Virginia banks may be comparatively well-positioned to evaluate medical marijuana opportunities because West Virginia currently has a medical-only program. Unlike the many states that authorize both medical and recreational adult-use marijuana sales, West Virginia’s licensed growers, processors and dispensaries may operate only within the state medical marijuana framework erected by the West Virginia Medical Cannabis Act. West Virginia has issued a total of nine grower licenses, nine processor licenses and 75 dispensary licenses to businesses that are eligible for expedited DEA registration. Rescheduling state-licensed medical marijuana from Schedule I to Schedule III enhances the ability of banks to provide banking services to these entities by reducing significant legal and regulatory concerns and by reducing the current tax burden on these entities, thus improving their profitability and creditworthiness.

Because West Virginia has only legalized medical marijuana, financial institutions considering services for a West Virginia medical marijuana business may have a more straightforward diligence obligation than a bank serving operators in dual-use states because half or more of such dual-use operators’ business remains on Schedule I and is therefore ineligible for the regulatory and tax benefits discussed herein. However, banks should still evaluate ownership, affiliated entities, source of funds, collateral, repayment sources and ongoing BSA/AML obligations, particularly where a West Virginia licensee is affiliated with businesses engaged in recreational adult-use marijuana activity in other states.

Although the risk has not been entirely eliminated, the provision of deposit, cash management and loan products to a state-licensed medical marijuana business that is DEA registered is less likely to be treated as a federal criminal act, and the proceeds are less likely to be subject to forfeiture. Until FinCEN revises its framework, financial institutions will still be required to follow existing FinCEN guidance by maintaining a system of monitoring and compliance controls for medical marijuana businesses, performing additional customer due diligence (including evidence of state and federal licensing), and filing the required SARs. Instead of asking whether the medical marijuana business is federally illegal, banks should be asking whether the proposed activity operates within the covered medical and registration parameters.