Washington State LCB Moves to Address DEA Registration Uncertainty

Washington has a problem that other integrated cannabis states may soon have to confront. The federal government now has a Schedule III registration pathway for businesses operating under state medical-marijuana licenses. But Washington deliberately combined much of its medical and adult-use cannabis system years ago. Producers and processors generally do not hold separate medical licenses, and the same state cannabis license can support activity serving both markets.

On October 7th, the Washington State Liquor and Cannabis Board unanimously accepted a petition for rulemaking aimed at addressing that problem. The proposal would create a mechanism for the state to verify a licensee’s participation in authorized medical-cannabis activities, potentially through a Medical Cannabis Verification Certificate. Accepting the petition means the Board agreed to begin the rulemaking process. It did not adopt a certificate or a final rule, and nothing has been finally approved.

The certificate would not create a new cannabis license or medical endorsement. Instead, it would document what the operator is already authorized to do under Washington law, a potentially useful piece of evidence when dealing with DEA, banks, researchers, insurers, or others asking whether the business participates in a legitimate state medical program. That sounds simple. It is not.

Washington intentionally built an integrated market

Washington law generally combines recreational and medical cannabis activity under the same licensing structure. Retailers can obtain medical endorsements. Producers are required to identify how much production they intend to dedicate to products sold to qualifying patients. But Washington did not create a completely separate medical cultivation and manufacturing licensing system. The LCB’s own analysis notes that the state intentionally created a combined system rather than separate medical production licenses. That structure made sense under Washington law. RCW 69.50 · RCW 69.51A

The problem is that the new federal system uses a different vocabulary. The April federal rule defines a “state medical marijuana license” as a state-issued license authorizing marijuana activity for medical purposes, and creates a DEA registration pathway around that concept. So what happens when the state license does not neatly say “medical only”? That is essentially what Washington is trying to solve. 21 C.F.R. § 1301.13(k)

The proposed certificate would document medical participation

The petition asks the LCB to create a process by which a licensee could obtain official verification of its state-authorized medical-cannabis activities. The proposed certificate would be based on Washington licensing and regulatory records and could identify whether a retailer, producer, or processor participates in the state’s medical system. Importantly, the petition itself acknowledges that the certificate would not determine federal eligibility. DEA would still decide whether the documentation satisfies federal registration requirements.

That distinction is important. Washington can certify what Washington law authorizes. It cannot force DEA to decide that the certification constitutes a qualifying federal “state medical marijuana license.”

LCB staff initially recommended saying no

The most interesting part of the October 7th action may be that LCB staff recommended denying the petition. Staff raised administrative concerns, including whether the state possesses enough historical information to verify exactly how individual licensees participated in medical cannabis and whether implementing the system would require significant additional resources.

But the federal concern was more substantive. Staff specifically noted that receiving a medical certificate would not prevent the same licensee from continuing to produce, process, or sell recreational cannabis. Staff therefore questioned whether such a certificate would actually help the operator qualify for federal medical-marijuana registration, going so far as to conclude that it very likely would not conform to the federal medical framework. The Board nevertheless unanimously accepted the petition and agreed to begin rulemaking. Whether a certificate is ultimately adopted, and in what form, remains to be decided.

That disagreement is important because it identifies the issue pretty cleanly: is demonstrating participation in a state medical program enough when the same license also authorizes recreational activity? We do not yet know DEA’s answer.

The federal registration does not authorize recreational marijuana

There is one thing we do know. The new federal medical-marijuana rule expressly states that a registration issued under the medical pathway does not authorize marijuana activity for non-medical purposes. So even if Washington creates a certificate that satisfies DEA that an operator is involved in legitimate medical activity, the federal registration would not somehow federalize the recreational side of that business. § 1301.13(k)(1)(iv)

But there is an important distinction here: a medical registration not authorizing recreational activity is not necessarily the same thing as recreational activity making the applicant ineligible for medical registration. The first proposition is expressly in the regulation. The second remains much less clear. And this is where the recent MedPharm Research decision becomes interesting, but also where I think we need to be especially careful.

MedPharm is interesting, but I would not take it too far

DEA recently denied MedPharm Research, LLC’s application for registration as a bulk marijuana manufacturer. In discussing the application, DEA pointed to recreational marijuana production by MedPharm’s affiliated entities and characterized marijuana entering recreational channels as “diversion of a Schedule I controlled substance.” DEA also looked beyond the applicant itself, considering the activities of its parent and sister company, which shared common management and the proposed operating facility. MedPharm Research, LLC, 91 Fed. Reg. 64176 (Oct. 7, 2026)

That language understandably gets attention, especially when Washington is asking whether a business can simultaneously participate in medical and recreational markets while seeking federal registration. But we should not treat MedPharm as answering that question. There are several major reasons.

1. MedPharm’s application was filed in 2016.
2. It was an application to become a Schedule I bulk manufacturer, not an application under the new Schedule III state-medical pathway.
3. DEA evaluated that application under the Schedule I public-interest framework and Part 1318, including a specific requirement emphasizing the applicant’s prior compliance with federal controlled-substance law.
4. MedPharm defaulted. Its factual allegations therefore went unrebutted, and it presented no evidence supporting registration. DEA itself explained that the adverse factors became dispositive in significant part because the applicant defaulted.
5. DEA expressly said the denial does not prevent MedPharm from applying through the new state-medical registration framework. Footnote 8 specifically points MedPharm toward the 2026 Schedule III pathway if it qualifies.

That footnote makes it difficult, in my view, to read the decision as establishing that participation in a state recreational market automatically disqualifies a company from receiving a Schedule III medical registration. If DEA intended to say that MedPharm’s recreational history categorically foreclosed registration under the new system, it would be strange to expressly preserve its ability to apply through that system. 91 Fed. Reg. at 64178 n.8

What MedPharm may tell us

That does not mean the decision is irrelevant. DEA’s willingness to examine affiliated entities may matter. In footnote 6, DEA relied on older agency precedent recognizing that it can look behind formal ownership structures when evaluating the people making decisions about the controlled-substance side of a business. That may provide some context for questions operators are encountering during DEA applications. If a company forms a separate entity to pursue the medical registration, does DEA necessarily ignore what related companies under the same control are doing? MedPharm suggests I would not assume that. 91 Fed. Reg. at 64178 n.6

But even there, the facts matter. MedPharm involved common control and a proposed shared facility where affiliated entities were already growing both medical and recreational marijuana. That is different from saying every recreational affiliate, regardless of operational relationship, is automatically attributable to the medical applicant. Again, the decision raises the question more clearly than it answers it.

Which brings us back to Washington

Washington’s proposal could solve one part of the problem. It could give an operator official state documentation saying: yes, this business participates in Washington’s regulated medical-cannabis system. That may be important evidence for a DEA application. But DEA may still ask another question: what exactly is the relationship between that medical activity and the recreational activity occurring under the same license or ownership structure?

• Does DEA require operational separation?
• Separate inventory?
• Separate entities?
• Separate facilities?
• Some combination?
• Or is state documentation of the medical activity sufficient so long as the federal registration itself is used only for the medical side?

At this point, I do not think the MedPharm decision answers those questions. And I would be cautious about pretending that it does.

The takeaway

Washington is trying to make an integrated state cannabis system legible to a federal registration system built around the concept of a “state medical marijuana license.” That is a worthwhile effort. The proposed Medical Cannabis Verification Certificate could provide operators with something they currently lack: formal state documentation identifying the medical component of their operations. Whether DEA ultimately treats that documentation as sufficient is still an open question.

The recent MedPharm decision adds an interesting data point because DEA discussed recreational production as federal diversion and looked beyond the applicant to related entities. But let’s not go too far with it. MedPharm involved a 2016 Schedule I bulk-manufacturer application, a different regulatory framework, and a defaulting applicant. DEA then expressly stated that MedPharm could still seek registration through the new Schedule III state-medical pathway. So I do not think we can say, based on MedPharm, that DEA will evaluate a modern state-licensed Schedule III medical applicant with recreational operations the same way.

Maybe DEA will scrutinize the overlap closely. Maybe the new framework’s express accommodation of existing state medical systems will produce a materially different analysis. Maybe the answer will turn on how integrated the particular operator actually is.

For now, Washington is asking exactly the question DEA still needs to answer: how does a state-integrated medical/adult-use market fit into a federal system that recognizes the medical side but not the recreational one? That is the issue worth watching.

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