Federal Cannabis Rescheduling: Status, Impacts, and Strategies

Recent reports indicate that President Trump is preparing to issue an executive order as early as Monday, December 15 directing his administration to finalize the long-anticipated reclassification of cannabis under the federal Controlled Substances Act (CSA) from Schedule I to Schedule III. This development follows years of regulatory review and political debate spanning multiple administrations and would mark the most significant federal cannabis policy shift in more than 50 years.

Where the Rescheduling Process Stands

Under the current federal framework, cannabis remains a CSA Schedule I substance, a category reserved for drugs the government deems to have a “high potential for abuse” and “no accepted medical use.” This classification places cannabis alongside substances such as heroin and LSD, despite its widespread state-level medical programs and growing public support for reform. 

The rescheduling process formally began under the Biden administration after the Department of Health and Human Services (HHS) conducted a scientific evaluation and recommended that cannabis be moved to Schedule III. The Drug Enforcement Agency (DEA) subsequently issued a Notice of Proposed Rulemaking reflecting this recommendation, but the process stalled in early 2025 when a scheduled hearing was postponed pending an appeal. 

President Trump cannot unilaterally reschedule cannabis because that authority technically rests with the Attorney General, as enforced through the DEA. However, by issuing an executive order directing the DOJ/DEA to forego the stalled hearing and issue a final rule, the White House could effectively accelerate the rescheduling process without further procedural delay.

What Schedule III Means And What It Does Not

A Schedule III classification would recognize cannabis as having an accepted medical use and lower potential for abuse relative to Schedules I and II. Substances in Schedule III include drugs such as ketamine and certain combination narcotic products.

Importantly, rescheduling would not render cannabis federally legal.  Cannabis would remain illegal under federal law, interstate commerce of cannabis would continue to be prohibited under the CSA, and federal criminal enforcement powers would remain available to DEA and other federal agencies because federal drug trafficking laws apply regardless of CSA scheduling category.

Immediate and Strategic Impacts

If cannabis is rescheduled to Schedule III, the most immediate and consequential effects for regulated businesses will arise in taxation, research, and access to financial services and capital.

1) Section 280E Tax Relief

Under current law, cannabis businesses cannot deduct ordinary business expenses (e.g., salaries, rent, utilities, marketing) under Internal Revenue Code Section 280E because cannabis remains a Schedule I substance. This restriction has produced effective federal tax rates often exceeding 60% for many operators.  Rescheduling to Schedule III would remove Section 280E’s application to cannabis, allowing companies to take standard business deductions and aligning federal tax treatment with other industries. The impact on profitability and cash flow could be profound, potentially saving operators billions of dollars annually.

2) Expanded Research & Development

Schedule I status imposes logistical and regulatory barriers that have hindered large-scale clinical research. Moving to Schedule III would align cannabis with other medically accepted substances, easing security and administrative requirements for clinical trials and potentially accelerating FDA-approved product development. This dynamic could facilitate deeper scientific inquiry and open pathways for pharmaceutical firms to engage in novel cannabis-based therapeutics.

3) Financial Services and Capital Access

A federal classification acknowledging medical use and reduced risk severity is likely to de-risk cannabis for some financial institutions and investors, though it won’t fully resolve the compliance conflict between federal and state law. Nevertheless, banking participation may increase as perceived regulatory risk diminishes and improved tax treatment and profitability could enhance valuations and attract traditional capital.

Path Forward

The anticipated executive order may set an aggressive schedule into motion that culminates in rescheduling.  Cannabis stakeholder businesses and investors should act now to monitor official DEA/DOJ rulemaking publications and Federal Register notices, engage legal and tax advisors to model the financial and compliance impacts of rescheduling, and reassess strategic plans for growth, financing, and research partnerships in light of potential regulatory shifts.

For guidance on how federal cannabis rescheduling may impact your operations or investment strategy, contact Daniel T. McKillop to discuss your specific circumstances and next steps.