Different state rules. Different federal objections. What would restructuring actually solve?
A medical cannabis business can follow its state’s rules and still face a DEA objection to those very rules.
That is the concern running through this week’s coverage. Published excerpts from DEA orders to show cause raise questions about patient documentation, adult-use activity, and whether features of state cannabis programs satisfy federal requirements. California is now part of that discussion.
But the DEA’s objections are not identical across jurisdictions. Understanding those differences matters before a business changes its patient intake procedures, creates another entity, or gives up an adult-use license.
The first question is what, exactly, the DEA says is wrong.
Different states, different documentation questions
In California, the reported objection concerns whether the state’s patient-documentation framework satisfies the federal certification requirements. California’s retail regulation already requires a valid physician’s recommendation for medicinal sales. The federal question includes whether the document contains everything required by the April rescheduling rule.
The fact that a particular state form is optional does not, by itself, establish that physician recommendations are optional or that every alternative document is inadequate.
D.C. and Minnesota present a different issue. D.C. permits adults 21 and older to self-certify their medical use. Minnesota offers an alternative certification pathway for veterans that permits self-certification in place of a health care practitioner’s certification. These are specific pathways, not a description of how every patient qualifies in either jurisdiction.
The April rule provides the common reference point. Under 21 C.F.R. § 1301.13(k)(5), a “certification or other document” that “state law deems sufficient” for obtaining medical cannabis “shall be sufficient” to permit dispensing when the federal conditions are met. Those conditions include the required signature and date, the patient’s full name and address, and the authorized practitioner’s identifying information.
In California, a response may focus on showing that an already-required recommendation satisfies each federal condition. In D.C. or Minnesota, it may also need to explain how the applicant’s procedures relate to the available self-certification pathways and how the business obtains the required practitioner documentation.
Those differences can lead to different arguments and evidence. The response should identify the documents the business actually accepts, the procedures employees follow, and the controls that prevent dispensing without the required documentation.
The reported orders also invoke treaty obligations under the Single Convention. That issue belongs in the analysis alongside the April rule’s express acceptance of qualifying state certifications and other documents.
Read the California analysis | Read the D.C. analysis
Would a separate entity address the objection?
Forming a new company does not supply missing patient documentation. Separating medical and adult-use licenses does not, by itself, change the activities occurring at the premises.
If the objection concerns a license authorizing both medical and adult-use activity, the scope of the license needs attention. If the concern involves continued adult-use operations at the same location, the analysis must address those operations. If the problem is patient certification, the documentation and dispensing procedures need their own review.
A business could change its ownership structure and still leave the relevant issue untouched.
There is also a broader question: is the DEA challenging this applicant’s conduct, or asserting that the state’s framework prevents registration? State permission to use a particular pathway does not necessarily establish that the applicant uses it. At the same time, an applicant should not assume that an individual operating change resolves every objection to the underlying licensing framework.
What MedPharm adds to the entity analysis
The MedPharm Research decision provides a concrete example of the DEA looking beyond the applicant’s separate legal identity. The agency considered the activities of its parent and sister companies, management by the same CEO, and proposed operations at a facility used for both medical and recreational cultivation.
The DEA weighed the affiliated companies’ unregistered manufacturing and production for the recreational market against registration, treating recreational production as diversion under the federal framework it applied. Its analysis considered who controlled the businesses and what those businesses actually did.
The context matters: MedPharm involved a Schedule I bulk-manufacturer application and was decided on default, with the OSC’s factual allegations deemed admitted. Footnote 8 expressly states that the denial did not prohibit an application under the newer state-medical-license framework, if applicable.
MedPharm therefore does not establish that every affiliated or co-located Schedule III applicant must be denied. My takeaway is narrower: separate entities should not be assumed to insulate an applicant from scrutiny of common control, affiliated adult-use operations, or the activities at a shared facility.
Any proposed restructuring should explain what would change, which stated DEA concern that change might address, and which concerns may remain unresolved.
Preserving the right to respond comes first
An order to show cause proposing denial is not itself a final denial. It starts a process with response requirements.
An applicant seeking a hearing generally must file and serve both a hearing request and an answer within 30 days following receipt of the OSC. The answer must address the factual allegations. A hearing request alone does not satisfy both requirements.
Do not assume that discussions with the DEA, a proposed corrective action plan, or a broader industry response extend those deadlines.
Read: Understanding DEA Orders to Show Cause
Past convictions: a separate federal review
A conviction that did not prevent participation in a state cannabis program may still require a separate federal review. California, for example, provides licensing protections for certain prior controlled-substance convictions after completion of the entire sentence, subject to specified exceptions. Those protections do not themselves supply a federal employment waiver.
The business’s registration eligibility and a person’s access to controlled substances involve distinct questions. The federal practitioner employee-access rule addresses controlled-substance-related felony convictions, among other circumstances. A discretionary exception may be available, but should not be assumed.
Start with the rescheduling order, then identify the actual offense, the person’s responsibilities, their access to controlled substances, and the additional requirement the DEA is applying. That review should come before changing employment or ownership arrangements.
Read: Past Convictions and DEA Registration
These developments point to the same practical question: what does federal compliance require of medical cannabis businesses? Patient documentation, affiliated adult-use activity, and prior convictions are all part of that discussion. A new entity or a separate medical license may be relevant, but it remains uncertain which changes, if any, would resolve the DEA’s objections. For now, the focus is on understanding the specific concern, preserving the right to respond, and evaluating possible changes without assuming that any one step will secure registration.
Received DEA correspondence or considering a restructuring?
The starting point is identifying the specific objection and evaluating potential responses. To reach out, email Ryan, schedule a consultation, or call or text (916) 572-6445.
Thanks for reading,
Ryan Kocot
Kocot Law
Attorney advertising. General information only, not legal advice. Reading this newsletter does not create an attorney-client relationship.