California Cannabis Retailers Can Now Hold Both A and M Licenses

California’s Department of Cannabis Control has opened an expedited path for dual-designated retailers to split a single A and M license, which carries both the Adult-Use and Medicinal designation, into two separate licenses. The move is the state’s first regulatory response to federal rescheduling, and it carries real structural consequences for operators.

What the A and M License Emergency Rule Does

Through emergency rulemaking DCC-2026-03-E, “Modifications to A and M Designation,” the Department amended Title 4 of the California Code of Regulations, sections 15000.1 and 15000.2, and adopted a new section 15023.1. The Department acted under its authority in Business and Professions Code sections 26012 and 26013, implementing and referencing sections 26012 and 26050.

Under California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), every non-laboratory license must carry either an Adult-Use (“A”) or Medicinal (“M”) designation, and a single license may bear both. Most licensed retailers and microbusinesses operate under exactly this kind of dual A and M license. The only practical difference between the two designations appears at the retail counter: an A-designated retailer may serve adult-use customers 21 and older, while an M-designated retailer may serve patients with a valid physician’s recommendation.

Before this rule, a licensee who wanted two separate licenses had no clean route to get them. As the Department explains in its Finding of Emergency, the licensee would have had to withdraw the original license, submit two new applications, and invest substantial time. The emergency rule replaces that with an expedited modification process. Just as significant, it allows the newly issued M-license to be held by a separate legal entity from the one holding the existing A-license, provided specific conditions are met.

Why the DCC Acted Now

The trigger is federal. On April 28, 2026, the U.S. Department of Justice, through the Drug Enforcement Administration, issued AG Order No. 6754-2026, published at 91 Federal Register 22714, rescheduling FDA-approved products containing marijuana and state-licensed medical marijuana from Schedule I to Schedule III of the Controlled Substances Act. The Department describes the stakes plainly in its Finding of Emergency: California medicinal cannabis licensees were given only sixty days from Federal Register publication to apply for DEA registration under an expedited process, and the Department warns that, absent that expedited path, DEA registration “may take years for approval.”

The Department identifies several potential advantages of registration for medical operators. Chief among them is relief from Section 280E of the Internal Revenue Code, which disallows ordinary business deductions for enterprises trafficking in Schedule I or II controlled substances. Because the Order moves state-licensed medical marijuana to Schedule III, the Department states that registered licensees “will no longer be subject to the deduction disallowance imposed by Section 280E.” The Order also adds medicinal cannabis to the list of substances that may be imported or exported under federal permit, which the Department says could open international medical markets, and points toward improved access to banking, credit, bankruptcy protection, and intellectual property rights.

The problem the rule solves is a structural one. A licensee operating under a single combined A and M license faced what the Department called “an impossible choice”: convert entirely to medicinal-only to enable registration and forfeit adult-use sales the business depends on, or keep the dual license and forgo the benefits of federal status. By allowing a separate M-license, potentially under a separate but closely aligned entity, the rule lets the medicinal side pursue registration while the adult-use business keeps operating.

A and M License Split: Conditions and Fine Print

The new pathway is available only to licensees authorized to engage in retail sales under a dual designation, and the mechanics are specific. Under amended section 15000.2, a separate A-license and M-license may be held by separate business entities at the same premises only if four conditions are satisfied: the businesses share the same individual owners and designated responsible party; cannabis goods are physically separated and distinguished in inventory or tracking records by license; all business records are maintained separately and clearly marked for each license; and the two entities are jointly and severally liable for all obligations, debts, and violations under either license. That last condition is important. Splitting the license does not split the liability.

New section 15023.1 sets out the modification process itself. A requesting licensee must continue to hold all inventory and conduct all sales through the existing A-license, and must obtain any new inventory properly under the M-license rather than simply transferring existing stock. The licensee must pay the applicable annual license fee for the new M-license before transferring any inventory to it, and no activity may occur under the M-license unless it complies with all local rules. The Department preserves its enforcement leverage by making noncompliance with the section grounds for discipline against both licenses.

To request the modification, a licensee submits, to the email address the Department specifies, five pieces of information: the specific dual designation being modified; the name the new M-license will bear and the name of the designated responsible party submitting the request; documentation substantiating that the M-license entity shares the same premises, ownership, and designated responsible party as the existing license; the federal employer identification number of the new entity; and its seller’s permit number. Notably, the Department will not charge a new annual license fee for the remainder of the existing license period, though at annual renewal each license carries its own fee.

Federal Legitimacy Has Limits

Operators should keep the scope of the underlying federal action in view. The Department is explicit that the Order rescheduled only medicinal cannabis and FDA-approved products; it did not reschedule adult-use cannabis. As the Finding of Emergency states, “adult-use commercial cannabis activity and businesses engaged solely in adult-use commercial cannabis activity are still illegal under federal law.” California has decriminalized adult-use activity for those 21 and older under state law, but the split-license structure does not confer federal legitimacy on the A-side of the house. The benefits the Department describes flow to the medicinal license that actually secures DEA registration.

It is also worth noting how much remains uncertain. The Department candidly frames its own rule as a response to “an environment of uncertainty caused by ambiguities in the Order” and “a lack of procedural or other guidance from the DEA.” How the DEA will process California applications, and how quickly, is not settled. This rule positions operators to apply; it does not guarantee an outcome.

What the A and M License Split Means for Operators

The Department estimates roughly 1,600 licensed retailers and microbusinesses hold dual designations and could be eligible to make changes under this rule. If your business is among them, a few points deserve attention. First, this is optional. Operators who do not intend to pursue DEA registration are not required to split anything. Second, splitting is a structural decision, not just a paperwork exercise: it can affect ownership disclosures, financier reporting, local conditional-use permits, and, because of the joint-and-several liability provision, your overall risk exposure. Any resulting change in ownership also triggers the DCC’s 14-day owner modification reporting rule. Operators with layered investor or management structures should map the downstream consequences before filing. Third, the conditions in sections 15000.2 and 15023.1 are strict, and the Department has expressly reserved the right to discipline both licenses for noncompliance, so a clean inventory-separation and recordkeeping plan is essential from day one, including how the two licenses are reflected in your METRC inventory records.

Because the underlying federal timeline was compressed into a sixty-day expedited window and the surrounding guidance is still developing, the value of splitting depends heavily on an operator’s specific medical-customer mix, corporate structure, and appetite for federal regulatory engagement. These are exactly the fact-specific judgments where experienced counsel earns its keep.

If your business is weighing whether to split an A and M license, restructure entities, or pursue DEA registration, the team at Baghoomian Law helps California cannabis operators navigate DCC licensing and compliance decisions like these. Contact us to discuss how these developments apply to your operation.

This post is for informational purposes only and does not constitute legal advice. Consult licensed counsel for advice on your specific situation. Attorney advertising. This article is provided for general informational purposes only, does not constitute legal advice, and does not create an attorney-client relationship. For advice regarding a specific matter, please consult qualified counsel.