The Second Circuit ruled on March 5 in Garcia v. Director, Office of Workers’ Compensation Programs that marijuana’s Schedule I status categorically bars reimbursement as medical treatment under the Longshore and Harbor Workers’ Compensation Act (LHWCA). Seven weeks later, the DEA moved state-licensed medical marijuana to Schedule III, pulling the legal foundation out from under the court’s reasoning and injecting new uncertainty into WC pharmacy reserve assumptions for multi-state self-insured employers.
The ruling
Luis Peña Garcia, a maritime worker in Puerto Rico permanently disabled by a 1994 workplace injury, sought reimbursement for physician-recommended cannabis edibles to manage chronic pain. His treating physician stated the edibles were among the only effective treatments. The court held that the Controlled Substances Act (CSA) defines Schedule I drugs as having “no currently accepted medical use,” which means marijuana cannot qualify as a “reasonable and necessary” medical expense under the LHWCA. The panel rejected arguments that congressional riders permitting state medical marijuana programs altered this analysis.
The rescheduling
On April 22, the DOJ placed marijuana subject to a qualifying state medical marijuana license into Schedule III. State-licensed medical cannabis now carries a federal acknowledgment of accepted medical use, the very premise Garcia relied on to deny reimbursement. Recreational marijuana and unlicensed products remain Schedule I. A broader rescheduling hearing is set for June 29 through July 15.
The rescheduling does not automatically overturn Garcia. The LHWCA still requires that treatment be “reasonable and necessary,” and the Second Circuit’s ruling is binding in its jurisdiction. But future claimants in federal WC programs now have a straightforward argument: state-licensed medical cannabis is no longer Schedule I, so the “no accepted medical use” bar no longer applies.
Who it affects
Multi-state self-insured employers with workers in both federal and state WC jurisdictions face the sharpest impact. Five states require WC cannabis reimbursement: Connecticut, New Hampshire, New Jersey, New Mexico, and New York. California allows it in limited circumstances. New Mexico’s WC fee schedule caps cannabis reimbursement at $4,930 per 90 days, providing one data point for per-claim cost loads.
Self-insured construction, maritime, and energy firms spanning reimbursement and non-reimbursement jurisdictions face diverging pharmacy cost streams on otherwise similar long-duration claims.
The reserve mechanism: pharmacy cost development
The jurisdictional split creates a direct problem in pharmacy severity assumptions. In reimbursement-required states, medical cannabis adds a per-claim cost layer that does not exist in non-reimbursement states or federal programs. Self-insured employers using a blended national pharmacy development factor will over-reserve in some jurisdictions and under-reserve in others.
The Schedule III reclassification adds a second layer of uncertainty. If the Garcia rationale erodes and federal WC programs begin reimbursing cannabis, the pharmacy cost load currently confined to five states could expand to every jurisdiction where a claimant holds a state medical marijuana license. That would be a one-time step-change in per-claim pharmacy estimates for employers with federal exposure.
WCRI’s February 2026 national inventory documents accelerating state legislative activity on WC cannabis reimbursement. This trend interacts with WCRI’s separate finding that recreational marijuana legalization raises WC claim frequency 15% within five years; the reimbursement question adds a distinct cost variable on top of the frequency effect.
What this means for your next review
Ask your actuary three questions. First, are you using separate pharmacy development factors for states that require cannabis reimbursement versus states that don’t? A single blended factor masks the jurisdictional split. Second, what is the per-claim cannabis cost increment in reimbursement-required states, and is it reflected in severity picks? Third, if the broader federal rescheduling proceeds and Garcia’s rationale collapses for federal WC programs, what is the reserve sensitivity for your multi-state portfolio? The June 29 hearing makes that last question timely.
Sources
- Garcia v. Director, No. 23-8066 (2d Cir. 2026), Justia
- DOJ: Rescheduling of Marijuana (April 28, 2026), Federal Register
- WCRI: Workers’ Compensation Prescription Drug Regulations: A National Inventory, 2026
- Federal Appeals Court Denies WC Claim for Cannabis Edibles, Claims Journal
- Federal Appeals Court Rules WC Plans Cannot Reimburse Cannabis Costs, NORML