President Trump Issues Executive Order to Move Cannabis to Schedule III of the Controlled Substances Act
On December 18, 2025, President Donald Trump signed an executive order (the “Order”) directing the federal government to move cannabis from Schedule I to Schedule III under the federal Controlled Substances Act (“CSA”). The White House frames the Order as a research-forward initiative intended to better inform patients and physicians by reducing barriers that have historically limited federally recognized study into cannabis safety, efficacy, and appropriate medical use. This is a consequential change in federal posture long sought by many in the industry, but it is not the end of the story. The Order is not self-executing. Scheduling under the CSA is ultimately implemented through agency action, yet to be completed.
One of the notable aspects of the Order is its emphasis on full-spectrum cannabidiol (“CBD”). The Order directs Congress to examine updating the federal hemp definition to reflect and support access for full-spectrum CBD for eligible patients. Although not specifically referenced, the Order contemplates, and officials discussed at the Order’s signing ceremony, the possibility of insurance coverage pathways for CBD products through federal health programs like Medicare. This could create additional market opportunities.
What the Executive Order Directs
The Order is aimed at expediting federal action and increasing access to medical cannabis and CBD research. In particular, the White House describes three primary directives:
Direct the Attorney General to expedite completion of the cannabis rescheduling process from Schedule I to Schedule III.
Direct White House leadership to engage Congress on enabling access to appropriate full-spectrum CBD products while restricting products deemed to pose serious health risks.
Direct the Department of Health and Human Services to develop research methods and models, specifically including real-world evidence, to improve access to hemp-derived cannabinoid products in accordance with federal law and to inform standards of care.
Why Rescheduling Matters
Pursuant to the CSA, controlled substances are placed into one of five schedules based on factors including abuse potential, accepted medical use, and safety under medical supervision. Cannabis has long been classified as Schedule I (the same category as heroin), meaning the federal government treats it as having a high potential for abuse and no currently accepted medical use. A move to Schedule III signals federal recognition of accepted medical and scientific value, while continuing to regulate cannabis as a controlled substance (akin to substances such as ketamine or certain anabolic steroids which are also Schedule III).
Practically, Schedule III status widens the lane for research. Schedule I research has historically been expensive , extremely limited, and burdensome. If rescheduling is finalized, research access should improve, potentially accelerating clinical studies, product standardization efforts, and pharmaceutical development pathways. How (and whether) state medical markets ultimately converge with FDA drug pathways remains uncertain.
What Changes for Cannabis Businesses
If the rescheduling process is completed and cannabis is formally placed in Schedule III, the business implications could be significant:
280E Relief
Internal Revenue Code Section 280E generally bars ordinary business deductions for businesses trafficking Schedule I or Schedule II substances. If cannabis is ultimately placed in Schedule III, the statutory basis for applying 280E to cannabis operators would be removed. For many plant-touching businesses, this could translate into a dramatic reduction in effective tax rates and a meaningful improvement in cash flow. We may see improving valuations, greater M&A appetite, and the feasibility of better long-term business planning.
Banking and Capital Markets
While rescheduling does not automatically solve cannabis banking and investment issues, it may shift institutional risk perceptions and expand access over time. If this is the case, improved access to capital could lower the cost of money for operators, increase institutional participation, and expand financing options. That said, businesses should not assume that every bank or payment provider will immediately change course; many will wait for final rulemaking, clearer guidance, and, if any, litigation outcomes.
Increased Compliance
Movement toward a medical-use framework often brings increased attention to manufacturing standards, labeling, product consistency, and health claims, particularly for companies positioning products as therapeutic. Companies will need to adapt to the expected forthcoming federal rules and regulations that may accompany rescheduling and improving CBD access and reimbursement.
What Rescheduling Does Not Do
Rescheduling is not legalization, and it does not make the federal-state legal divide disappear. State-licensed commerce will remain federally unlawful even if cannabis moves to Schedule III. The Order does not automatically authorize interstate commerce, although the expected schedule change may revive long-stalled discussions among neighboring states to consider multi-state commercial compacts. A Schedule III substance is still federally regulated and subject to CSA constraints. Additionally, the Order does not turn licensed dispensary products into Food and Drug Administration (“FDA”)-approved drugs. FDA approval is a separate process, and rescheduling does not grant blanket permission to market cannabis products with medical claims.
What Happens Next
At this time, it remains unclear how quickly the Drug Enforcement Administration, the Department of Justice, and other relevant federal agencies may move to enact enforceable outcomes. Scheduling changes of this magnitude may attract legal challenges, and administrative timelines can shift quickly depending on procedure, politics, and litigation.
We will continue tracking developments closely and are happy to discuss how this may affect your business.
This article was written by Dr. Jessica Steinberg, with input from David Feldman and Courtney Barnes.