State AGs Challenge Trump Medical Marijuana Policy Shift
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
cannabismarijuana-stocks
Fazen Markets Editorial Desk
Collective editorial team · methodology
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A coalition of 18 state attorneys general filed a federal lawsuit on May 28, 2026, challenging a directive from the Trump administration that sought to reschedule medical marijuana. The legal action targets a Department of Justice memo issued two weeks prior, which instructed federal prosecutors to deprioritize cases against state-compliant medical cannabis operators. This challenge creates immediate regulatory uncertainty for a sector that reached $35 billion in legal sales during the previous fiscal year.
The lawsuit represents the most significant state-level legal challenge to federal cannabis policy since the 2014 Cole Memorandum. That Obama-era guidance, which was rescinded in 2018 by then-Attorney General Jeff Sessions, established a similar framework for federal non-interference with state-legal operations. The current challenge emerges against a backdrop of accelerating state legalization, with 38 states now permitting medical use and 21 allowing adult recreational consumption.
The triggering catalyst was a May 14, 2026, DOJ memorandum that directed U.S. attorneys to reclassify medical cannabis as a lower enforcement priority. This administrative action circumvented the ongoing FDA review process for rescheduling, which typically requires scientific evaluation. The state AGs argue the DOJ overstepped its authority by creating de facto rescheduling through enforcement discretion rather than following established regulatory channels.
The cannabis sector demonstrated significant volatility following the lawsuit's filing. The AdvisorShares Pure US Cannabis ETF (MSOS) declined 7.2% in the first trading session after the announcement. This drop erased most of the 9.5% gain the ETF recorded following the initial DOJ memo on May 14. Major multi-state operators showed varied reactions, with Curaleaf Holdings (CURLF) falling 5.8% and Green Thumb Industries (GTBIF) declining 4.3%.
Legal cannabis sales reached $35.2 billion in 2025, representing 17% year-over-year growth from 2024's $30.1 billion. The industry supports approximately 440,000 full-time equivalent jobs across cultivation, retail, and manufacturing. State tax revenue from cannabis programs exceeded $4.2 billion in 2025, with California generating $1.3 billion alone. These figures contrast sharply with federal prohibition, creating the regulatory tension that underpins the lawsuit.
The legal challenge creates near-term headwinds for pure-play cannabis operators including Curaleaf, Trulieve Cannabis (TCNNF), and Cresco Labs (CRLBF). These companies face renewed uncertainty regarding federal enforcement priorities, potentially slowing expansion plans and capital investment. Ancillary businesses serving the cannabis sector, such as point-of-sale provider Green Check Verified and lighting manufacturer GrowGeneration (GRWG), may experience reduced demand from cautious operators.
Pharmaceutical companies with cannabis-derived products stand to benefit from prolonged regulatory ambiguity. Jazz Pharmaceuticals (JAZZ), which markets the FDA-approved cannabis-derived drug Epidiolex, maintains competitive insulation through its drug approval status. Generic pharmaceutical manufacturers also avoid direct competition from unapproved cannabis products while rescheduling remains contested. The lawsuit's primary risk involves prolonged legal uncertainty delaying capital market access for cannabis operators, who remain excluded from major U.S. exchanges.
Institutional positioning data shows increased short interest in cannabis ETFs following the lawsuit announcement. Options flow indicates heightened demand for puts on MSOS with June and July expirations. Retail investor activity, which typically accounts for 65-70% of cannabis stock volume, declined 15% in the session following the news as uncertainty deterred speculative positions.
The District Court for the District of Columbia will hear initial arguments in the case on June 15, 2026. This hearing will address the state AGs' request for a preliminary injunction to suspend the DOJ memo pending full judicial review. The FDA's scientific review of cannabis rescheduling continues separately, with a final recommendation expected by September 30, 2026.
Market participants should monitor the 50-day moving average for MSOS at $8.25, which provided support during the March 2026 sector selloff. A break below this level could trigger further technical selling toward the $7.50 support zone. Congressional activity represents another catalyst, with the SAFE Banking Act scheduled for committee markup on June 20, 2026, which could provide banking reform regardless of scheduling outcomes.
Patient access to medical cannabis remains unaffected immediately, as the lawsuit challenges federal enforcement policy rather than state programs. All 18 participating states maintain operational medical cannabis systems that serve approximately 4.2 million registered patients. The legal action seeks to preserve the status quo of state-regulated medical access while challenging the federal government's administrative approach to rescheduling.
This case differs significantly from 2018's state challenge to Jeff Sessions' rescission of the Cole Memorandum. That lawsuit argued the federal government violated states' rights by interfering with state-legal programs. The current action contends the DOJ exceeded its statutory authority by effectively rescheduling cannabis through enforcement discretion rather than following the Controlled Substances Act's formal rescheduling process via the FDA and DEA.
The coalition includes attorneys general from California, New York, Illinois, Colorado, Massachusetts, Oregon, Washington, New Jersey, Maryland, Arizona, Nevada, New Mexico, Vermont, Connecticut, Rhode Island, Delaware, Minnesota, and Hawaii. These states represent approximately 65% of the U.S. population and account for over 80% of legal cannabis sales. Notably absent are Florida and Pennsylvania, both with established medical programs but Republican attorneys general.
The lawsuit creates regulatory uncertainty that pressures cannabis operators while benefiting pharmaceutical companies with approved cannabis-derived drugs.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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