Cannabis rescheduling: The impact on business & banking

The recent executive order directing federal agencies to accelerate the completion of transitioning cannabis from Schedule I to Schedule III marks a historic shift in national drug policy. For business owners and industry observers, this announcement has generated significant optimism, along with a fair amount of confusion.

However, it's important to look past the initial excitement and understand the practical implications of a potential move to Schedule III. Here's what this move could mean for businesses across the cannabis and hemp industry—and which barriers would remain in place.

Cannabis rescheduling explained

For decades, cannabis has been classified as a Schedule I substance under the Controlled Substances Act, or CSA, alongside drugs such as heroin. This classification defined cannabis as having no accepted medical use and a high potential for abuse.

In August 2023, the US Department of Health and Human Services, or HHS, recommended moving marijuana from Schedule I to Schedule III. The following year, the Drug Enforcement Administration, or DEA, announced it would hold a hearing on the proposal. On December 18, 2025, President Trump issued an executive order directing the attorney general to accelerate the rescheduling process.

Schedule III substances, which include testosterone, ketamine and Tylenol with codeine, are recognized as having accepted medical uses and a moderate to low potential for physical or psychological dependence. While these drugs remain strictly regulated by the DEA, a final move to Schedule III would formally acknowledge cannabis as having legitimate medical utility under federal law.

The business impact of cannabis rescheduling

For operators, the most immediate impact of rescheduling would likely be tax-related.

Currently, cannabis businesses are subject to Section 280E of the Internal Revenue Code, which prohibits businesses with products in Schedule I or II from deducting standard business expenses such as rent, payroll and marketing. As a result, many cannabis companies face effective federal tax rates that can reach as high as 70%.

If cannabis is formally reclassified as a Schedule III substance, Section 280E would no longer apply. This change would allow operators to:

• Deduct ordinary operating expenses like any other business.
• Reduce their federal tax burden.
• Retain more capital for reinvestment, hiring and stabilization.

"The cannabis industry has paid outsized taxation for years," says Beau Whitney, Chief Economist at Whitney Economics, a firm that analyzes the cannabis and hemp industry. "In 2025 alone, we found the industry will be charged an additional $2.3 billion on top of what other non-cannabis businesses would pay. While the national and international industries have evolved significantly in the 40 years since 280E was signed into law, the tax policy has not."

The potential for medical recognition

If finalized, rescheduling could also reduce the regulatory hurdles that have historically limited clinical and academic research. Scientists could face fewer hurdles when studying the safety, dosing and therapeutic efficacy of cannabis. Over time, expanded research could help standardize medical use and support innovation across the sector.

With cannabis formally recognized as having medical use, many also anticipate the launch of pilot programs through agencies such as HHS and the Centers for Medicare and Medicaid Services, or CMS, to explore how medical cannabis treatments might be covered under systems like Medicaid.

Should these efforts advance, they could pave the way for cannabis to enter the mainstream health care reimbursement system. This would fundamentally shift the business model for medical cannabis, moving it closer to a traditional pharmaceutical framework.

"Defining marijuana or its compounds as a drug opens the door for cannabis to be added to the formulary, allowing cannabis medical patients to receive insurance reimbursements," Whitney says. "In other words, cannabis can be used to proactively address issues rather than waiting for them to become emergencies. Once widely adopted, this could reduce health care expenditures throughout the US. Studies from JAMA Network indicate that in states where consumers have widespread access to cannabis products, average opioid-related overdoses decline 24.8%."

The impact on hemp and CBD

The conversation around cannabis rescheduling also extends to the hemp and CBD markets. The executive order includes hemp-derived products, such as CBD oils and topicals and hemp-derived edibles. This segment has grown rapidly despite ongoing regulatory uncertainty and challenges accessing traditional banking services.

Currently, inconsistencies remain between the loosening of marijuana restrictions and potential limits on certain hemp-derived THC products. As federal policy shifts toward a more regulated, medical-focused framework, discrepancies could emerge between state-licensed cannabis operators and hemp businesses.

Businesses in the hemp and CBD space are monitoring these developments closely. A broader move toward pharmaceutical-grade standards could eventually result in stricter national expectations around testing, labeling, quality control and consumer safety for all cannabinoid products.

Moving forward with optimism and caution

If finalized, reclassification of cannabis to Schedule III would represent meaningful progress. However, the broader impact remains nuanced.

Because rescheduling is an administrative action, it would not:

• Legalize cannabis at the federal level
• Remove barriers related to banking, insurance or interstate commerce
• Resolve ongoing conflicts between state and federal law

Until Congress enacts broader reform, potentially through legislation such as the SAFER Banking Act, banks must continue to operate within a complex compliance framework.

"As financial partners, we welcome further clarity to legal and regulatory frameworks, as it supports our clients in their day-to-day management of their business operations," says Ryan Palmquest, Senior Director of Cannabis Business at First Citizens.

That said, the move still holds value for cannabis banking relationships. By removing the punitive 280E tax burden, cannabis businesses may become more financially stable and creditworthy. A healthier balance sheet often makes it easier for financial institutions to assess risk and build sustainable partnerships.

For operators, this is a moment to prepare. Work with your accountants to understand how 280E relief applies to your specific situation and ensure your financial records are audit ready.

For investors and partners, now is the time to focus on the improved financial health of the sector while remaining aware of the continued federal restrictions.

The bottom line

The potential rescheduling of cannabis to Schedule III is a significant milestone. If enacted, it would validate medical use, address a substantial tax burden and signal a shift in the federal government's approach to the industry. However, it doesn't erase the need for comprehensive banking reform, nor does it remove the rigorous compliance standards expected of business owners.

Essentially, rescheduling cannabis signals progress but leaves key barriers in place. Each step forward brings meaningful progress toward a more practical and secure future for the cannabis industry. While full regulatory clarity is still needed, these changes demonstrate positive momentum.