On Thursday, December 18, 2025, President Trump issued an Executive Order (EO) directing the U.S. Department of Justice (DOJ) to expedite the completion of the rescheduling of marijuana from Schedule I to Schedule III. A fact sheet about this action is available here. While the order does not itself reschedule marijuana – something the President cannot do unilaterally – it is nonetheless a watershed moment for the cannabis industry. The directive makes clear that the Trump Administration intends to accelerate the stalled rescheduling process, and in doing so, fundamentally recalibrate the federal government's posture toward marijuana. In announcing the EO, the President highlighted the medical benefits of marijuana.
In addition, the EO highlights the need for meaningful reform as it pertains to hemp and cannabidiol (CBD). The President has directed the White House to work with Congress to ensure patients have access to CBD and directs the Department of Health and Human Services (HHS) to develop research methods and models to improve access to hemp-derived CBD.
For cannabis businesses, investors, and other stakeholders, the implications are immediate and substantial. At the same time, many of the industry's most persistent structural challenges –interstate commerce, federal legalization, and comprehensive federal regulation – remain unresolved, at least for today. Understanding both what changes now and what remains uncertain are essential as the industry begins to plan for a Schedule III world.
How We Got Here: A Compressed but Critical Timeline
The current rescheduling effort that appears to be nearing completion began more than three years ago.
On October 6, 2022, President Biden issued an EO directing the HHS and DOJ to initiate a scientific and medical review of marijuana's classification under the CSA. That review, which was a necessary first step in the rescheduling process, focused on whether marijuana has accepted medical use and its potential for abuse (i.e., whether it belongs in Schedule I alongside substances like heroin).
After nearly a year of review, HHS transmitted its findings to DOJ in August 2023, formally recommending that marijuana be moved to Schedule III. HHS concluded that marijuana has accepted medical use in the United States and a lower potential for abuse than Schedule I and II substances.
In May 2024, the Drug Enforcement Administration (DEA) published a notice of proposed rulemaking in the Federal Register agreeing with HHS's recommendation and proposing to move marijuana from Schedule I to Schedule III. That step marked the first time DEA had publicly endorsed a lower scheduling for marijuana.
Later in 2024, the process slowed considerably. The proposed rule became the subject of a hearing before a DEA administrative law judge (ALJ), where it became bogged down in procedural disputes. When the ALJ retired in early 2025, the process effectively stalled.
Following President Trump's election in November 2024 and his subsequent public comments in mid-2025 emphasizing the importance of expanding research access to marijuana, momentum resumed. Thursday's EO reflects the Administration's intent to break the logjam by directing DOJ to move forward expeditiously, potentially proceeding directly to a final rule rather than returning to a prolonged hearing process.
Legal challenges are expected. Organizations such as Smart Approaches to Marijuana have already previewed arguments that the rescheduling rule is procedurally flawed, substantively unsupported, or both. Still, the Administration appears committed to finalizing rescheduling notwithstanding anticipated litigation.
The Immediate Impact: Section 280E Finally Falls Away
The most immediate and economically significant consequence of moving marijuana to Schedule III is the elimination of the highly burdensome Section 280E of the Internal Revenue Code for marijuana businesses.
Section 280E, which prohibits cannabis companies from deducting ordinary and necessary business expenses, applies only to Schedule I and Schedule II substances. Once marijuana is reclassified as Schedule III, plant-touching cannabis businesses will be permitted to take these deductions like any other lawful business.
For an industry that has labored under uniquely punitive tax treatment for more than a decade, the importance of this change cannot be overstated. Effective tax rates for some operators – particularly vertically integrated businesses with significant dispensary assets – have approached or exceeded 75 percent. Removing 280E will materially improve cash flow, strengthen balance sheets, and, in many cases, determine whether businesses can survive and grow.
The elimination of 280E is also likely to produce additional benefits. Improved financial performance should support increased private investment, unlock additional non-bank sources of capital, and improve the overall investment profile of the industry. While large money-center banks are still likely to remain cautious absent congressional action, rescheduling meaningfully changes the risk analysis for many market participants.
Scientific & Medical Research
Rescheduling marijuana to Schedule III would have an immediate and meaningful positive impact on scientific and medical research. Schedule I imposes the most restrictive regulatory barriers, including heightened DEA registration requirements, limited sourcing options, and extensive protocol approvals that materially delay or deter research. Moving marijuana to Schedule III would ease these constraints, allowing researchers to access study materials more efficiently and conduct clinical trials under a framework similar to other controlled substances with accepted medical use and lower potentials for abuse.
This change would likely facilitate expanded research into safety, efficacy, dosing, drug interactions, and delivery methods across a range of potential therapeutic applications. It would also likely encourage greater participation by academic institutions, pharmaceutical companies, and federally funded researchers who have historically avoided Schedule I substances due to compliance risk and burdens.
Hemp & CBD
President Trump's EO also contains a pragmatic next step to expand patient access to certain hemp-derived products, including CBD, as well as tees up the establishment of guidance on an upper-limit of hemp-derived tetrahydrocannabinol (THC) per serving. Through the EO, President Trump is directing the Assistant to the President and Deputy Chief of Staff for Legislative, Political, and Public Affairs to work with Congress to "update the statutory definition of final hemp-derived cannabinoid products." Per the President, Americans will benefit from access to "appropriate full-spectrum CBD products while preserving the Congress's intent to restrict the sale of products that pose serious health risks." It remains to be seen which products are determined to pose "serious health risks."
Further, the President is ordering the development of a regulatory framework for hemp-derived cannabinoid products, including development of guidance on an "upper limit on milligrams of THC per serving with considerations on per container limits and CBD to THC ratio requirements." One question coming out of these provisions of the EO is how the recently-enacted intoxicating hemp ban, included in the spending package to reopen the federal government in November, will be impacted. Said differently, it seems possible that the previously established limit of 0.4 milligrams of THC per container could be revisited.
What Rescheduling Does Not Do
Despite its significance, rescheduling marijuana from Schedule I to Schedule III will not, in and of itself, resolve several of the cannabis industry's most persistent challenges.
First, it does not authorize interstate commerce in marijuana. Opening state borders to marijuana commerce would almost certainly require congressional action and a clearer federal regulatory framework. While courts have begun to address Dormant Commerce Clause challenges to state marijuana licensing schemes that favor in-state operators, those cases have not produced a uniform pathway to interstate trade.
The hemp experience following the 2018 Farm Bill is instructive. States cannot discriminate against interstate commerce, but that does not mean they are required to allow the sale of federally lawful products within their borders. The same principle applies here.
Second, rescheduling does not federally legalize marijuana. Moving marijuana to Schedule III ends federal prohibition, but it does not force states to allow marijuana sales. State controlled substances acts – while often modeled on the federal CSA – are not preempted by federal law. States remain free to prohibit marijuana entirely or regulate it within constitutional limits.
DEA, FDA, and the Reality of Federal Regulation
Some have suggested that Schedule III status will lead to immediate and active regulation of marijuana by DEA and the U.S. Food and Drug Administration (FDA). That outcome is unlikely.
Absent explicit congressional delegation of authority and directed appropriations, it is difficult to imagine either agency meaningfully regulating the existing state-legal marijuana industry in the near term. Federal agencies generally do not have personnel or funding waiting to be deployed to new regulatory regimes, particularly where states already have comprehensive systems and years of experience.
While Schedule III places marijuana in a category alongside drugs such as Tylenol with codeine or Ritalin, rather than heroin, neither the current marijuana industry nor federal regulators are structured for full CSA-style oversight of state markets.
Medical Versus Adult Use: A Structural Tension
Schedule III is a medical designation, and that creates a fundamental mismatch with today's marijuana industry. Most operators – especially public multistate operators – have both medical and adult-use assets. In many states, dispensaries are dual-use.
It is unrealistic to expect companies to decouple adult-use operations from medical ones or to separate these businesses entirely. How DEA addresses this reality remains one of the most significant unanswered questions following rescheduling.
Capital Markets, Intellectual Property, and Planning Ahead
Rescheduling has important implications for capital markets and intellectual property.
The New York Stock Exchange (NYSE) and Nasdaq have previously indicated that a movement to Schedule III alone would not be sufficient to permit the listing of plant-touching cannabis companies. Whether those exchanges revisit that position post-rescheduling remains to be seen. Nevertheless, U.S. operating companies that went public in Canada because it was their only viable option should begin preparing for potential uplisting scenarios.
Schedule III status also opens meaningful opportunities for intellectual property protection, particularly trademarks, which were limited under Schedule I. Companies should be thinking now about brand protection, trademark filings, and long-term IP strategy. Our IP practitioners have deep experience in this area, and have been advising cannabis operators since the early days of the industry. We suggest scheduling discussions with them to evaluate portfolio protection and expansion opportunities.
Looking Ahead
There will almost certainly be litigation, regulatory uncertainty, and political debate in the months and years ahead. But the direction of travel is clear.
Rescheduling is not the end of the story but it is the beginning of a new chapter. Cannabis businesses should be planning now for what a Schedule III world means for their tax posture, operations, capital strategy, and long-term growth.
Our cannabis law team is uniquely positioned to help clients navigate the move to Schedule III. In addition to having represented a leading underwriter in some of the most notable cannabis go-public transactions in the industry's history, we have in our ranks a former Capitol Hill legislative aide and FDA regulatory counsel, a former Assistant U.S. Attorney for tax, and a former in-house counsel at a leading multistate operator that led one of the largest mergers in cannabis industry history.
We are continuing to digest this historic development, and will issue further analysis as warranted. In the meantime, please do not hesitate to reach out to the authors or the Saul Ewing attorney with whom you usually work if you have any questions.
