Marijuana Rescheduling Pending Despite New Executive Order
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On December 18, 2025, President Donald J. Trump issued an Executive Order titled Increasing Medical Marijuana and Cannabidiol Research. The Order directs the Attorney General (“AG”) to take steps to complete the ongoing rulemaking process to reschedule marijuana from Schedule I to Schedule III under the Controlled Substances Act (“CSA”), and it directs executive branch officials to advance research and regulatory coordination related to medical marijuana and hemp-derived cannabinoid products.
The Executive Order itself does not change marijuana’s classification under federal law. Instead, it directs the AG to complete the existing rulemaking process – one dependent on the seamless collaboration of a handful of other federal agencies:
- Proceedings to reschedule a substance may be initiated by DEA, by HHS, or by petition, but a substance is not rescheduled unless and until the rulemaking process is completed and a final rule takes effect.
- Under the CSA, marijuana can be moved from one schedule to another only through formal rulemaking issued by the AG.
- Federal law also requires the AG to request a scientific and medical evaluation from Department of Health and Human Services (“HHS”) before making any scheduling decision.
- HHS does not control the ultimate scheduling decision. DEA must still complete the statutory process and issue a rule based on the full administrative record. In a May 16, 2024 opinion, the Department of Justice Office of Legal Counsel (“OLC”) clarified how this requirement operates in practice.
- As acknowledged in the Executive Order, the DOJ issued a proposed rule to transfer marijuana from Schedule I to Schedule III back in May 2024. A year and a half later, that proposal remains pending following public comment and prior to completion of an administrative law hearing.
The Executive Order directs the AG to move that process forward, but it does not alter the statutory requirements governing how or when rescheduling will occur. Thus, the significance of the Order is somewhat muted by continued uncertainty as to the timeline of likely events, and yet it is prudent for industry participants to begin planning for the downstream effects that would follow when/if marijuana is transferred to Schedule III.
Potential Federal Tax Implications
Currently, 280E continues to apply in full at the federal level, specifically disallowing deductions or credits for amounts paid or incurred in carrying on a trade or business that consists of trafficking in Schedules I or II controlled substances. If marijuana is transferred to Schedule III through completion of the federal rulemaking process, cannabis businesses would no longer fall within its scope. Operators could potentially be allowed to deduct ordinary and necessary business expenses such as payroll, rent, utilities, marketing, and professional fees.
Research and Policy Directives
The Executive Order expressly establishes a federal policy of expanding medical marijuana and cannabidiol research, stating that “it is the policy of my Administration to increase medical marijuana and CBD research to better inform patients and doctors.” The Order also addresses hemp-derived cannabinoid products regulated under the Agricultural Marketing Act of 1946, noting that certain full-spectrum CBD products may be treated as marijuana under the CSA and directing executive branch officials to work with Congress to develop a regulatory framework addressing THC limits, labeling, and product safety.
We are as interested in the implementation of this directive as any other stakeholder. However, it is worth noting that if an agency slow-walks, deprioritizes, or narrowly interprets an EO, there is no private right of action to force compliance.
Still Posing Risk to Financial Institutions
Another industry challenge remaining unchanged by the Executive Order is reliable banking. In the absence of federal legislation, plant-touching businesses remain subject to existing federal banking, anti-money laundering, and enforcement frameworks. As such, changes to cannabis banking risk can only reasonably occur through one or both of the following channels:
- Federal money laundering statutes prohibit conducting financial transactions involving proceeds of unlawful activity with knowledge of that fact. Congress has the authority to address cannabis banking risk directly through legislation. Although they have considered legislation to provide explicit banking protections for the cannabis industry, including the SAFER Banking Act, those efforts have not resulted in enacted law.
- Treasury’s Financial Crimes Enforcement Network can revise or replace its guidance governing Bank Secrecy Act expectations for servicing marijuana related businesses. As it currently stands, the guidance repeatedly emphasizes that marijuana remains illegal under federal law and that such transactions involve proceeds of unlawful activity. The practical message is that if institutions proceed, they should treat cannabis customers as inherently high risk by documenting, monitoring, and reporting those relationships through ongoing suspicious activity reporting.
As a Congressional Research Service legal sidebar explains, rescheduling alone is unlikely by itself to eliminate the legal risks for financial institutions serving marijuana businesses because rescheduling cannabis doesn’t make it “legal”.
Suddenly Subject to FDA Oversight?
Schedule III classification requires that a substance have a “currently accepted medical use in treatment in the United States,” which would mark a fundamental shift from Schedule I status, but it would also place cannabis squarely under the oversight of both the Food and Drug Administration and the Drug Enforcement Administration. The FDA currently notes that it has not approved a marketing application for cannabis for the treatment of any disease or condition, although it has approved certain cannabis derived or cannabis related drug products.
Under the Federal Food, Drug, and Cosmetic Act, any cannabis product would need to undergo FDA’s drug approval process, including clinical trials demonstrating safety and efficacy, before it could be legally marketed. The practical impact on current state legal products would depend on subsequent federal implementation and enforcement decisions, none of which are resolved by the Executive Order.
Conclusion
The Executive Order does not materially alter the legal framework governing cannabis today, nor does it impose deadlines or resolve the many regulatory questions that matter most to industry participants. Instead, it directs federal agencies to continue a process that began with HHS’s rescheduling recommendation more than a year ago, leaving the timing, scope, and substance of any changes dependent on future rulemaking, guidance, and potential litigation. While much of the initial commentary has focused on potential tax relief and related benefits, those outcomes remain contingent and, even if realized, would not automatically align existing state-licensed cannabis operations with federal Schedule III requirements.
More consequential for planning purposes are the unresolved issues that remain. These include when rescheduling might take effect given anticipated objections and litigation; how the FDA will approach oversight in the absence of clear, timely guidance; whether and how Schedule III requirements would be applied to existing medical and adult-use markets; and how tax, financing, and competitive dynamics may evolve during any interim period. These questions will not be answered by the Executive Order itself, and their resolution is likely to vary by operator, sector, and strategy.
Stakeholders should carefully evaluate how these developments intersect with their specific circumstances and consult counsel to assess risk, positioning, and next steps as the federal process continues to unfold.
Special thanks to Regulatory Compliance Strategist Jessica Kaiser for contributing to this article.
Sources:
Executive Order, Increasing Medical Marijuana and Cannabidiol Research (Dec. 18, 2025).
Controlled Substances Act, 21 U.S.C. § 811.
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