Executive Order Accelerates Federal Cannabis Rescheduling and Expands Medical Marijuana and Cannabinoid Research

On December 18, 2025, President Donald Trump signed an Executive Order titled Increasing Medical Marijuana and Cannabidiol Research, marking the most consequential federal cannabis policy action in decades. While the Order does not legalize marijuana or immediately alter its status under federal law, it directs the administration to complete the long-anticipated rescheduling of cannabis under the Controlled Substances Act and to significantly expand federal research into marijuana, cannabidiol, and related cannabinoid products.

For cannabis operators, investors, healthcare stakeholders, and hemp and CBD manufacturers, the Order signals a decisive shift in federal regulatory posture, with material implications for taxation, research, compliance obligations, and future legislative engagement.

Accelerated Rescheduling to Schedule III

At the core of the Executive Order is a directive to the Attorney General to complete, as expeditiously as permitted by law, the administrative rulemaking necessary to reclassify marijuana from Schedule I to Schedule III of the Controlled Substances Act. This directive builds upon prior scientific and medical reviews conducted by the Department of Health and Human Services and reflects explicit executive recognition that marijuana has accepted medical uses and a lower abuse potential than Schedule I substances.

The Order itself does not change marijuana’s legal classification. Rescheduling must still proceed through the Drug Enforcement Administration’s formal rulemaking process, including publication of proposed rules, a public comment period, and issuance of a final rule. Nevertheless, the language of the Order signals clear executive intent and substantially reduces the likelihood of further administrative delay following years of regulatory inertia.

If finalized, Schedule III classification would place marijuana alongside substances such as ketamine and Tylenol with codeine, formally acknowledging medical legitimacy under federal law while retaining controlled substance status.

Elimination of IRC Section 280E and Economic Impact

One of the most immediate and consequential effects of rescheduling would be the removal of Internal Revenue Code Section 280E as applied to cannabis businesses. Section 280E currently prohibits businesses trafficking in Schedule I or II substances from deducting ordinary and necessary business expenses, resulting in effective tax rates that far exceed those faced by similarly situated businesses in other industries.

Because Section 280E applies only to Schedule I and II substances, reclassification to Schedule III would allow state-legal cannabis operators to deduct expenses such as payroll, rent, utilities, insurance, and equipment. This change would materially improve cash flow, reduce effective tax burdens, and significantly alter valuation and investment models across the industry. These tax benefits would apply prospectively once rescheduling is finalized and reflected in IRS guidance.

Investment, Capital Access, and Banking

Beyond tax normalization, the Executive Order is expected to reduce institutional stigma surrounding cannabis and catalyze new investment. Expanded research authorization and reduced regulatory barriers may unlock federal grants, pharmaceutical partnerships, and clinical trial opportunities that have historically been unavailable.

The Order also includes an explicit call for Congress to advance cannabis banking reform, including passage of the SAFER Banking Act. While the Executive Order cannot itself modify banking law, the administration’s endorsement strengthens the legislative case for improved access to financial institutions, lending, and payment systems for cannabis businesses.

Expansion of Medical Marijuana and Cannabinoid Research

The Executive Order places substantial emphasis on expanding medical marijuana and cannabidiol research. Federal agencies, including the Department of Health and Human Services, the Food and Drug Administration, the National Institutes of Health, the Centers for Medicare and Medicaid Services, and the Drug Enforcement Administration, are directed to develop and implement research frameworks that incorporate real-world evidence and modern clinical methodologies.

The stated objectives include improving the quality and availability of clinical data, informing standards of care, supporting evidence-based policymaking, and accelerating pharmaceutical development. The Order specifically references FDA findings that cannabis may be effective in treating chronic pain, anorexia, and chemotherapy-related nausea, positioning cannabis as a potential alternative to addictive opioid medications and aligning reform with broader public health strategies.

Schedule III status would also substantially reduce regulatory barriers to research, including reduced DEA oversight and simplified registration requirements. These changes are expected to expand participation by academic and medical institutions that have historically avoided cannabis research due to regulatory complexity.

Hemp, CBD, and Cannabinoid Policy Initiatives

The Executive Order addresses cannabidiol and hemp-derived cannabinoid products, an area marked by increasing regulatory uncertainty.

Medicare and CBD Access: The Order authorizes CMS to develop a pilot program allowing Medicare reimbursement for CBD products when recommended by a physician. If implemented, this would represent the first federal healthcare reimbursement pathway for cannabinoid products and could significantly expand patient access while accelerating clinical data collection.

Full Spectrum CBD and Product Safety: The President directs senior White House staff to work with Congress to preserve patient access to lawful full spectrum CBD products while restricting dangerous or life-threatening synthetic alternatives. The emphasis is on consumer safety, research-backed standards, and medical legitimacy rather than recreational expansion.

Clarifying the Hemp Definition and Intoxicating Hemp Products: The Order urges Congress to update statutory definitions governing hemp and hemp-derived cannabinoids, including potential guidance on THC limits per serving, THC to CBD ratios, labeling standards, and permissible product categories. While the Order does not override existing statutory THC limits or reinstate products rendered unlawful under recent federal actions, it acknowledges that the current patchwork of laws has created confusion for manufacturers, consumers, and regulators alike.

Legal and Regulatory Limits

The Executive Order does not legalize recreational marijuana, does not preempt state cannabis laws, does not authorize interstate commerce, and does not establish a comprehensive federal regulatory regime. Cannabis remains a controlled substance under federal law, and broader legalization, criminal justice reform, or commercial integration would require congressional action.

The Order also does not create enforceable legal rights against the federal government. Its practical effect depends on subsequent agency rulemaking and, in several areas, legislative cooperation.

Path Forward and Takeaways

The implementation of this Executive Order will unfold over several stages. The DEA must complete the rescheduling rulemaking process. Federal agencies will continue developing research initiatives and reimbursement and data collection models. The administration is expected to engage Congress on statutory updates related to banking and hemp-derived cannabinoid products. Following rescheduling, agencies including the IRS, FDA, DEA, and CMS will need to update guidance governing taxation, research protocols, product approvals, and reimbursement.

In sum, the December 18 Executive Order represents a significant federal policy signal rather than an immediate legal transformation. It accelerates the path toward Schedule III rescheduling, unlocks the prospect of substantial tax relief, expands medical and cannabinoid research, and initiates a coordinated federal reexamination of hemp and CBD regulation. While key regulatory and legislative steps remain ahead, the Order confirms that federal cannabis policy is entering a new phase and warrants close attention and proactive planning by all industry stakeholders.

For guidance on how this Executive Order and the accelerated federal cannabis rescheduling process may impact your business or compliance obligations, contact Daniel T. McKillop to discuss next steps and planning considerations.