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So the other day I had a BA opponent have a unit of 10 Sternguard pop out of a Drop Pod when it landed and they were immediately Combat Squadded. Is this actually allowed? I understand that the option to Combat Squad marines happens when they hit the board for the first time, so does this qualify as the first time they deploy?

Yes - they cannot combat squad while in reserves, so (if they're going to) must when they hit the ground from the drop pod.

It even explicitly states that you can combat squad out of a drop pod, in the combat squad rules...

I play GK and it doesn't mention the Drop Pods in my version of Combat Squads, that is why I asked.

That's because you do not have drop pods(so why mention it).

It is the last sentence in the second paragraph in Combat Squads on page 23 of the BA codex(third paragraph of the same area on page 51 of the Vanilla marine codex).

I brought it up because an opponent used it, I didn't argue with him because it sounded correct RAW, just wanted to ask about it here.

I think you missed the reasoning for my parenthetical; it was not directed at you, but rather "why would GW mention the drop pod portion of the combat squad rules for an army without drop pods".

So I guess it should have been: "That's because GK do not have drop pods(so why would the author mention it)." In reference to that portion of the rule not being found in the GK codex.

Also I added the specific entries in the codices that can do it(also DA, but I didn't feel like digging out that codex) so that you would know exactly where to look should you want to see the rule for yourself..