The cannabis industry will forever remember this day.
President Donald Trump issued an executive order on Dec. 18 directing his administration to loosen restrictions on cannabis by reclassifying the plant to Schedule III under the Controlled Substances Act (CSA).
Goodbye, Section 280E tax burdens.
Hello, currently accepted medical use.
“This is a big day and really for many reasons,” Trump said during Thursday’s signing ceremony. “Today, I’m pleased to announce that I will be signing an executive order to reschedule marijuana from a Schedule I to Schedule III controlled substance with legitimate medical uses. … For decades, this action has been requested by American patients suffering from extreme pain, incurable diseases, aggressive cancers, seizure disorders, neurological problems, and more.”
The order instructs the Department of Justice (DOJ), through U.S. Attorney General Pamela Bondi, to “expedite completion” of the process for a final rule to remove cannabis from Schedule I, where it has been listed alongside heroin, LSD and ecstasy as drugs with the highest potential for abuse since former President Richard Nixon signed the CSA into law more than 50 years ago.
While this monumental decision from the White House won’t decriminalize cannabis, the reform from Schedule I to Schedule III goes a long way toward further normalizing the plant, especially with the federal government recognizing its medicinal value through removing it from Schedule I.
“Today’s historic announcement reclassifying cannabis to Schedule III marks a pivotal moment that recognizes there are commonly accepted medical uses for cannabis, finally allowing America’s next great homegrown industry to reach its full potential by serving patients, creating jobs, unlocking economic growth, and reversing decades of harmful prohibitionist policies,” Verano founder and CEO George Archos said in a statement provided to Cannabis Business Times. Verano is one of the largest multistate operators in the U.S.
Although a Schedule III cannabis listing itself won’t legalize medical cannabis, Trump’s order provides that reclassification will allow research studies to “incorporate real-world evidence and models that can assess the health outcomes of medical marijuana and legal CBD products while focusing on long-term health effects in vulnerable populations like adolescents and young adults.”
Cannabis industry stakeholders have debated whether a Schedule III listing would streamline the approval process for scientists and researchers hoping to conduct clinical trials, and whether it would motivate the U.S. Food and Drug Administration to approve more cannabinoid-based medicines.
But Trump made his intentions clear: to remove barriers to medical cannabis research.
“This reclassification order will make it far easier to conduct marijuana related medical research, allowing us to study benefits, potential dangers and future treatments,” he said. “It’s going to have a tremendously positive impact, I believe.”
One of the most impactful effects of reclassifying the plant to Schedule III is allowing state-sanctioned cannabis businesses to start deducting their ordinary business expenses – such as payroll, rent and utilities – from their federal taxes. Most American companies only have to pay taxes primarily on their profits, but businesses that deal in Schedule I or II substances face tax deduction barriers on their operating expenses under Section 280E of the Internal Revenue Code.
This onerous tax provision has significantly hindered growth for plant-touching cannabis businesses.
For the average cannabis dispensary in the U.S., a Schedule III listing means $268,000 in tax savings per year, and as much as $805,000 in annual savings for stores in higher-volume states, according to industry data and analytics provider Headset, which modeled these estimates for the median store in 24 state markets (2,176 stores) under the benchmark assumptions that a typical retailer’s operating expenses are 35% of sales and taxed at a 21% federal rate.
On the consumer side, Trump’s order also directs the White House deputy chief of staff for legislative, political and public affairs to work with Congress to find a regulatory pathway that ensures Americans have safe access to nonintoxicating, full-spectrum CBD products, including those derived from hemp.
More specifically, the order directs the U.S. Department of Health and Human Services (HHS) to help improve safe access to hemp-derived cannabinoid products through developing research, utilizing real-world evidence, and informing “standards of care.”
A federal agency operating within the HHS, the Centers for Medicare and Medicaid Services (CMS), through Administrator Mehmet Oz, is expected to adopt a new policy allowing doctors to recommend CBD products to older Americans as an alternative treatment and to allow their medical coverage to pay for it. This aligns with a video Trump shared in September from the Commonwealth Project, advocating for CBD to be integrated into the U.S. health care system for those 65 and older.
Oz said at the signing ceremony that Medicare coverage for CBD products could come as soon as April. Medicare covers more than 68 million Americans, he said.
“Today, our innovation center at CMS is announcing a new model and additional actions to give seniors access to cannabinoids,” Oz said. “These are CBDs. They're not addictive, which many are already using to manage pain. There’s some clinical evidence that’s showing that CBDs provide relief from common conditions that affect Americans, including cancer symptoms and chronic pain, and a slew of other problems that affect, disproportionately, seniors and our veterans. And six in 10 people who use the CBDs report that they improve their pain.”
While some news reports speculated that the executive order would urge Congress to pass banking legislation for the cannabis industry and/or provide clemency for certain individuals with minor nonviolent cannabis offenses, those items were not included.
The underlying directive, however, follows through on Trump’s campaign promise in late 2024, when he said he would “focus on research to unlock the medical uses of marijuana to a Schedule III drug.”
Trump also said in 2024 that he’d work with Congress to pass a safe banking bill and support criminal justice reform: “I believe it is time to end needless arrests and incarcerations of adults for small amounts of marijuana for personal use.”
Health Secretary Robert F. Kennedy Jr., who has publicly supported cannabis reform, applauded Trump for living up to his campaign promise to stand behind rescheduling.
“Five administrations have promised to act on this issue,” Kennedy said. “The Biden administration promised to do this, and the proposal began during the Biden administration. It got mired down in the chaos, and inertia, and disorganization.”
Trump’s rescheduling decision doesn’t just represent a policy shift supported by the majority of Americans (82% according to Trump); it illustrates a political maneuver that deviates from the current era of cannabis reform being driven primarily by the Democratic Party. For example, all 11 states that legalized adult-use cannabis legislatively (as opposed to citizens’ initiatives) did so with Democratic majorities in their state legislatures.
While Joe Biden initiated the current federal cannabis rescheduling process when he directed his administration in October 2022 to “review” how cannabis is scheduled, the former president didn’t go as far as to order his executive agencies to actually follow through on an HHS recommendation to reclassify the plant to Schedule III, despite 252 pages of scientific and medical evidence.
Instead, Biden stood by as former Drug Enforcement Administration (DEA) Administrator Anne Milgram opposed the recommendation and prolonged the rescheduling process by granting an administrative law judge hearing to debate the merits of the Biden DOJ’s proposed rule. Milgram stacked the deck in favor of, and colluded with, anti-rescheduling parties for the hearing, pro-cannabis parties argued.
Instead of slamming the Schedule III proposed rule through the hoop after nearly 70% of 43,000-plus commenters supported it, the Biden administration got blocked at the rim when the administrative law judge overseeing the hearing granted an interlocutory appeal that derailed the process on the eve of Trump taking office in January.
The interlocutory appeal and stayed hearing process remain in place today, meaning the Trump administration will have to pick up the pieces from that fiasco following the president’s intentions to "expedite" the process, indicating he's in support of going straight to a final rule.
Specifically, the Trump administration would need to either cancel or withdraw the hearing before going straight to a final rule, which would “moot” the interlocutory appeal, attorney Shane Pennington, a partner at Blank Rome, told Cannabis Business Times. Representing pro-rescheduling participants, Pennington filed for the appeal on behalf of his clients.
“Both things need to be done/explained in the right way, but both can certainly be done,” he said.
While the president cannot unilaterally reschedule cannabis, Trump has made his decision, directing Bondi to do so, final – something that he’s been publicly considering since August.
“I've never been inundated by so many people as I have about this particular reclassification,” he said Thursday.
