How does Free Grace Theology reconcile 1 John? My understanding of Free Grace Theology is that it separates the believers salvation from their sanctification, in that sanctification is not the necessary result of salvation.   It separates the call to believe and be saved from the call to follow and be a disciple.  In other words, people may be saved without exactly being "followers" (i.e., without going through the process of sanctification).

There are many passages in 1 John that seem to contradict Free Grace Theology, such as 1 John 3:9-10 (NASB)


  No one who is born of God practices sin, because His seed abides in
  him; and he cannot sin, because he is born of God. [10] By this the
  children of God and the children of the devil are obvious: anyone
  who does not practice righteousness is not of God, nor the one who
  does not love his brother


This passage seems to contradict Free Grace Theology's teaching that the saved may not be "followers" of Christ.

How do adherents to Free Grace Theology reconcile/interpret 1 John?

Disclaimer: I understand that this passage is not saying that Christians will never sin, lest it contradict 1 John 1:10.
I recommend you read Zane Hodges' book "The Gospel Under Siege" for a full answer to this question, as he deals with 1 John. I am fully convinced that 1 John is a letter to believers and is a test of fellowship, not a test of life. When it says in the original greek that they are "not of God" it is referring to their fellowship with God, not whether they are saved or not.