Cannabis Rescheduling and the Business Reality Facing U.S. Operators: A Deep Dive

Recent developments around federal cannabis rescheduling have prompted renewed attention from operators, investors, and policymakers. In a detailed video briefing, Hirsh Jain, Director of Market Intelligence at Verdant Strategies, examines the rescheduling process, its historical context, and its practical implications for the U.S. cannabis industry.

Rather than treating rescheduling as a singular turning point, the discussion situates it as part of a longer policy trajectory, one that reshapes certain constraints while leaving others in place.

For cannabis businesses, this distinction is central to understanding how rescheduling affects taxes, research, capital access, state policy, and longer-term global dynamics.

The Rescheduling Process and Its Legal Foundation

On December 18, President Trump signed an executive order directing the Attorney General to complete the rulemaking process to move cannabis from Schedule I to Schedule III under the Controlled Substances Act. If finalized, this would constitute the most significant federal reclassification of cannabis since the Controlled Substances Act was enacted in 1971.

Rescheduling would formally acknowledge that cannabis has accepted medical use under federal law. At the same time, cannabis would remain a controlled substance, and federal prohibition would continue to structure the industry through a state-by-state regulatory framework.

The executive order does not itself change cannabis’s legal status. Instead, it directs the Attorney General to complete a process that began in October 2022. That process is supported by three core elements: a scientific and medical review conducted by the Department of Health and Human Services; a legal analysis by the Office of Legal Counsel outlining how the Controlled Substances Act’s scheduling criteria apply to cannabis; and a detailed administrative record developed through evidentiary hearings before a DEA administrative law judge, including expert testimony and cross-examination.

This administrative record is particularly relevant in light of expected legal challenges. Courts typically grant deference to agency decisions that are supported by comprehensive scientific review and formal fact-finding.

In particular, the evidentiary hearings conducted before DEA Administrative Law Judge John Mulrooney play a central role in this process. These hearings included expert testimony, cross-examination, and formal findings on medical use, safety, and abuse potential. This type of administrative record is precisely what federal courts look for when determining whether to defer to an agency’s judgment under administrative law, and it materially strengthens the government’s position in the event of judicial review.

While litigation may delay implementation, the structure of the process increases the likelihood that rescheduling will withstand judicial scrutiny.

Why is this Moment Politically Significant?

As Hirsch reconstructs, rescheduling reflects developments that have unfolded over several decades rather than a sudden policy shift. Its origins can be traced to the medical cannabis movement that emerged at the state and local levels, particularly in California during the late 1980s and early 1990s. State initiatives such as San Francisco’s Measure P and California’s Proposition 215 established regulatory frameworks that operated in tension with federal prohibition.

Over time, medical cannabis laws spread across the country. Today, 40 states have legalized medical cannabis, and cannabis has been integrated into medical practice, regulatory systems, and court decisions. These developments gradually weakened the federal government’s position that cannabis lacked accepted medical use.

The current moment is also notable for its political configuration. Although the rescheduling review began under President Biden, the executive order directing its completion was issued by President Trump. Public support for the move from lawmakers across party lines has contributed to perceptions that rescheduling may have greater durability than prior federal cannabis initiatives.

The executive order also extends beyond scheduling alone. It directs federal agencies to expand engagement around cannabidiol (CBD) products and to explore defined pathways for Medicare coverage in specific contexts. While limited in scope, these directives reinforce a broader shift in federal framing—away from cannabis as a criminal issue and toward cannabis as a healthcare and public policy matter.

Research Access and Regulatory Friction

A move to Schedule III would lower several barriers to cannabis research. Administrative requirements would be reduced, and it would become easier for universities, pharmaceutical companies, and federally authorized researchers to conduct clinical trials involving cannabis.

Rescheduling is expected to improve research conditions incrementally rather than fully integrate cannabis into federal biomedical research infrastructure. At the same time, research would remain subject to DEA registration, FDA oversight, sourcing constraints, and funding limitations.

Tax Treatment and Operator Economics

One of the most direct operational implications of rescheduling concerns IRS Code Section 280E. Once cannabis is no longer classified as a Schedule I or II substance, the provision disallowing ordinary business deductions should no longer apply.

This change would significantly reduce effective tax rates for cannabis businesses and alter profitability across the sector. Some companies that have struggled under the existing tax structure may see improved financial performance.

However, several uncertainties remain. The timing of 280E relief—whether it applies retroactively to tax year 2025 or only prospectively in 2026—will depend on IRS guidance and judicial interpretation. In addition, many operators carry substantial unresolved tax liabilities from prior years. Rescheduling does not eliminate those exposures, and balance-sheet remediation will remain a priority.

Price dynamics are also relevant. Past tax reductions in state markets have often contributed to price compression rather than sustained margin expansion. Lower prices may strengthen legal market competitiveness relative to illicit channels, but they may also limit the extent to which tax savings translate into higher operator margins.

Capital Markets and Financial Services

Rescheduling is expected to have a modestly positive effect on capital markets. Some investors may view Schedule III classification as reducing regulatory risk, and certain financial institutions may become more willing to engage with cannabis operators.

Nevertheless, cannabis would remain federally illegal, and many large banks are likely to maintain restrictive policies. Core banking challenges are therefore expected to persist absent further legislative action.

Access to major U.S. stock exchanges remains unresolved. U.S.-based cannabis operators are currently excluded from listing on exchanges such as the NYSE and NASDAQ, while Canadian companies with U.S. operations are permitted to list. Rescheduling alone does not address this discrepancy. Explicit federal guidance or legislation, including measures such as SAFE Banking, would likely be required to change exchange listing policies.

This situation creates a structural inconsistency in U.S. capital markets. While Canadian cannabis companies are permitted to list on U.S. exchanges, U.S.-based operators complying with state law are not. This outcome runs counter to broader domestic investment and competitiveness objectives and may increase pressure for explicit federal guidance addressing exchange access.

State-Level Effects and the 2026 Outlook

Rescheduling may influence cannabis policy debates at the state level, particularly in jurisdictions where Republican leadership has historically opposed reform. The completion of rescheduling under a Republican administration may alter the political context in which medical cannabis proposals are evaluated.

States that have not yet enacted comprehensive medical cannabis programs—including Georgia, Idaho, Indiana, Iowa, Kansas, North Carolina, South Carolina, Tennessee, Wisconsin, and Wyoming—are expected to revisit medical cannabis legislation in 2026. Federal recognition of medical use could also reshape debates in states where cannabis is already legal. For example, lawmakers and local governments may face more pressure to reconsider cannabis taxes and local restrictions that were previously justified by its former Schedule I status.

International Considerations

Beyond domestic policy, rescheduling carries potential international implications. For much of the twentieth century, U.S. drug policy shaped global cannabis prohibition through treaties and diplomatic pressure. A formal acknowledgment of cannabis’s medical value at the federal level may create additional political and regulatory space for reform in other countries.

Developments in Europe, Latin America, and other regions could accelerate as governments reassess medical cannabis frameworks in light of U.S. policy changes. For operators with international exposure, these shifts are likely to unfold over a multi-year horizon.

Strategic Considerations for Operators

If finalized, rescheduling would address a central inconsistency in federal cannabis policy.

It would also alter several economic and regulatory parameters affecting the industry. At the same time, it would leave key structural constraints intact, including federal prohibition, banking limitations, unresolved tax liabilities, and fragmented state markets.

For cannabis businesses, the implications are less about immediate transformation and more about strategic positioning. Rescheduling changes the operating environment, but it does not remove the need for disciplined compliance, financial management, and operational efficiency.

In this sense, rescheduling functions as a structural reset rather than a resolution. It corrects a longstanding contradiction in federal cannabis policy—treating a substance widely used by patients, recommended by physicians, and regulated by states as having no accepted medical value—while leaving many structural constraints intact.

For operators, the value of this moment lies in using it to improve compliance, address balance-sheet risks, and position for a more competitive and institutionally stable market environment.

To go deeper into the analysis provided by Hirsh Jain, click here to watch his timely video.