Yesterday, US president Donald Trump signed an executive order directing the Attorney General (AG) to complete the rulemaking to reschedule marijuana from a Schedule I drug – the most restrictive classification under the Controlled Substances Act (CSA) – to a Schedule III drug that could be made available through prescription. Recreational marijuana would remain illegal at the federal level, as would possession of state‑dispensary marijuana products that are not Food and Drug Administration (FDA)‑approved drugs. This is the continuation of a proposed rulemaking by the Justice Dept (DOJ) under then-president Joe Biden in May 2024. With Trump’s direction to complete the rulemaking “in the most expeditious manner in accordance with Federal law,” it could be pushed through in as little as 3-6 months. The EO comes at a time when Trump’s popularity could use a boost.

Of the 100+ cannabinoids in the cannabis plant, THC (tetrahydrocannabinol) is the main psychoactive compound responsible for the "high," whereas CBD (cannabidiol) offers potential benefits for health conditions without a euphoric “high.” Hemp and marijuana are varieties of the same plant, but hemp plants by legal definition contain no more than 0.3% (dry weight) THC while marijuana might have 5-25%+ THC.

The EO directs Deputy Chief of Staff James Blair to work with Congress and federal agencies to update the definition and regulations for hemp-derived cannabinoid products. The language of the EO suggests that the updated regulations would allow for access to some products based on a THC-per-serving limit and CBD-to-THC ratio requirement, while placing restrictions on more potent products. The Federal Appropriations Bill recently closed a loophole that allowed for intoxicating hemp products (with other derivative compounds), which could be impacted by any update.

The Trump administration will initiate a pilot program that would authorize Medicare to cover medically recommended, regulated, hemp-derived CBD products at no cost for seniors, starting as early as Apr 2026. According to Medicare Administrator Mehmet Oz, Medicare patients can be eligible for coverage of up to $500 of CBD products each year. Last month, the Centers for Medicare & Medicaid Services (CMS) proposed a rule to authorize insurance coverage for CBD products under Medicare Advantage programs.

Historically, the AG has delegated the authority to reschedule drugs to the Drug Enforcement Administration (DEA), a part of the DOJ. CSA requires formal rulemaking for a drug rescheduling, including a notice to the public, a comment period, and an opportunity for an administrative hearing by the DEA. The notice by the DOJ back in May 2024 kicked off a 60-day public comment period that resulted in 43K public comments. The rulemaking has since been moving slowly through the DEA’s administrative process (during which time Trump took office), and is still awaiting an administrative law hearing.

Notably, the proposed rulemaking would not “legalize” marijuana, since it would still be considered a controlled substance. The DEA recognizes 5 categories of controlled substances from Schedule I to V, classified based on a drug’s acceptable medical use and potential for dependency/abuse.

A Schedule I drug like heroin, LSD, and ecstasy has “no currently accepted medical use and a high potential for abuse.” This description contradicts the current use of marijuana – a Schedule I drug since the CSA was first enacted in 1970 – for an array of conditions such as chronic pain, anxiety, insomnia, chemotherapy-induced nausea, pelvic pain, and Alzheimer’s-induced agitation. Examples of Schedule II drugs, also considered dangerous and highly controlled, include cocaine, methamphetamine, Vicodin, OxyContin, fentanyl, Adderall, and Ritalin. Schedule III drugs, which have “moderate to low” risk of dependence, include Tylenol with codeine, steroids, and testosterone. Schedule IV drugs (e.g. Xanax, Valium, Ambien) have a “low” risk of abuse/dependence. Schedule V drugs, which have an even lower risk, have very limited quantities of narcotics (e.g. Robitussin AC).

Notably, alcohol was “explicitly exempted from control under the CSA when it was enacted.” There are some lawmakers who have advocated for a full descheduling of marijuana so it can be treated like alcohol. For instance, descheduling could allow for excise taxes of up to 25% on marijuana.

Industry watchers believe the DEA – a “famously conservative” law-enforcement agency – has been skeptical about the rescheduling. Notably, DEA Administrator Anne Milgram did not sign the original proposed rescheduling herself; then-AG Merrick Garland signed it instead. According to Milgram, it was the first time to her knowledge that the DEA administrator had not signed a rescheduling order. The language in the proposed rule suggested a wary stance: “DEA has not yet made a determination as to its views of the appropriate schedule for marijuana.”

The DEA and the Dept of Health & Human Services (HHS) examined the question of whether to reschedule marijuana in 2016, when the DEA denied two petitions. HHS concurred at the time, finding that: (1) marijuana had a high potential for abuse; (2) did not have a currently accepted medical use; and (3) there was a lack of accepted safety for use under medical supervision. That decision was also informed by the longstanding belief that US international treaty obligations – particularly the 1961 Single Convention on Narcotic Drugs – requiring that marijuana be subject to controls would not be met if it were reclassified as a Schedule III-V drug.

The landscape has since changed. In Aug 2023, the HHS recommended that marijuana be rescheduled to Schedule III, based on a review and recommendation by the FDA based on more recent data, and concurrence by the National Institute on Drug Abuse. According to the DOJ’s Office of Legal Counsel (OLC), the DEA should accord the HHS’ medical and scientific determinations ‘‘significant deference’’ during the rulemaking process. The OLC also concluded that US treaty obligations could be met with supplemental controls after marijuana was reclassified. (In the meantime, the Single Convention treaty removed cannabis from its most restrictive schedule.)

A 2025 Gallup poll found that 64% of Americans support legalization of marijuana – up from 36% in 2005. The figure is higher for Democrats (85%) and independents (66%) but even among Republicans, a significant proportion (40%) support legalization. Given this public support, many – including the Congressional Research Service (CRS) and detractors like ex-DEA Administrator Asa Hutchinson believe the writing has been on the wall with respect to reclassification.

Perhaps most importantly, the Attorney General is vested with the final authority under the CSA “to schedule, reschedule, or decontrol drugs. The Attorney General has delegated that authority to the DEA Administrator, but also retains the authority to schedule drugs under the CSA in the first instance.” Given Trump’s emphasis during his second term on personal loyalty, it seems like the reclassification is virtually a done deal.

In the US, marijuana is the most widely used drug that is still illegal at the federal level, with 15% of Americans reporting that they smoke marijuana. An even higher 21% of Americans report using CBD in the past year. At the state level, 40 states plus the District of Columbia have regulated medical marijuana programs. There has also been state-level momentum gathering behind legalizing marijuana for recreational use. So far, 24 states have legalized marijuana for recreational use, including California, New York, New Jersey, Illinois, Washington, Colorado, and Ohio. No state has yet to reverse its legalization of either recreational or medical marijuana, although there have been efforts to do so.

The widening “policy gap” between federal and state legislation has caused confusion among Americans. Truck drivers, for instance, are subject to federal regulations barring marijuana use even if they live in a state where it is legal. Uneven regulation has resulted in Americans being kicked off of cruises and banned for life. Even after the reclassification, there would remain a policy gap between states that have legalized recreational use and the federal regime. Trump has said he does not support legalizing recreational marijuana, although the rulemaking would at least help close the policy gap for medical marijuana.

Reclassification has the potential to dramatically alter the cost structures of cannabis-based businesses. For instance, it would make it easier for cannabis businesses to take tax deductions. The IRS’ Section 280E bars businesses selling Schedule I drugs from deducting business expenses such as salaries and rent, resulting in an effective tax rate of 70-80%+. (Growers are allowed to deduct their cost of goods sold.) Fewer than 25% of cannabis businesses are profitable – with this rule change, it could help some cannabis businesses become profitable for the first time.

Reclassification would also make it easier to conduct clinical studies and other research on marijuana. Researchers studying Schedule I drugs need to register with the DEA and submit research protocols for review by the FDA, as well as meet stringent requirements for storage in electronic safes/vaults. Schedule III drugs are subject to fewer restrictions. With the reclassification, researchers could develop standardized dosing for medical marijuana, which is currently lacking.

Not everything will change. Rescheduling won’t necessarily make it easier for cannabis businesses to access banking and financing from larger institutions, although community banks and credit unions may perceive reduced risk. Bills have been proposed to fix this at the federal level (e.g. the bipartisan SAFER Banking Act) by providing safe harbor to institutions serving the marijuana industry, but none have yet passed. Marijuana would remain subject to the Federal Food, Drug, and Cosmetic Act (FDCA), which means it would need FDA approval to be transported across state borders. Marijuana businesses still won’t be able to be listed on US stock exchanges.

Legalizing marijuana doesn’t necessarily mean the black market is fully eliminated. As a Schedule III drug, marijuana dispensaries would need to register with the DEA like pharmacies do and comply with strict reporting requirements – a burden not every cannabis business will want to take on. Stringent licensing and taxes as high as 30-40% in New York and California means the black market in those states is still alive and well. In Canada, 1/3 of cannabis sales still take place on the black market. In the US and California, that figure is much higher at 60%+.

Some are skeptical about lifting the restrictions on marijuana, pointing to the health-related ramifications. These include potential risks from impaired judgment; cannabis-related motor-vehicle crashes; cannabis poisoning and cyclical vomiting; marijuana use disorder and potential for lasting brain adaptation to the presence of marijuana; higher rates of psychosis among young people and linkages to schizophrenia and bipolar disorder; depression and suicidal ideation; emphysema and airway inflammation and increased cardiovascular risk; head and neck cancer; behavioral and cognitive problems after fetal exposure; reduced fertility; and interactions with prescription drugs. Contaminants found in marijuana such as heavy metals and mold have also been linked to fungal infections, sudden numbness, fatal lung bleeding, and artery disease.

Reclassification is expected to accelerate a market that’s already worth $31B+. The shift, which has been brewing since 2022, is luring in a diverse set of investors. These investors are hoping that reclassification is just an early stone in a cascade that will finally open up the marijuana industry in the US.

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