On Thursday, the Trump administration formally moved to reclassify marijuana as a less dangerous drug under federal law, shifting it from Schedule I to Schedule III of the Controlled Substances Act.
The change, signed by acting Attorney General Todd Blanche, does not legalize marijuana for medical or recreational use at the federal level but alters how it is regulated, potentially easing research barriers and granting significant tax relief to state-licensed medical cannabis businesses. The move marks one of the most significant federal shifts on marijuana policy in decades, coming even as nearly all states have adopted some form of cannabis legalization despite federal prohibition.
By reclassifying cannabis to Schedule III — a category that includes drugs like Tylenol with codeine and testosterone — the administration acknowledges accepted medical use and lower abuse potential, a stark contrast to Schedule I substances such as heroin and LSD, which are deemed to have no medical value and high abuse risk. This shift aligns federal classification more closely with the reality on the ground, where 40 states operate medical marijuana programs and another two dozen plus Washington, D.C., allow adult recreational use.
The order immediately places FDA-approved marijuana-derived medicines and state-licensed medical cannabis products into Schedule III, whereas also launching an expedited process for broader rescheduling, with a hearing set for late June. It further directs the Drug Enforcement Administration to create an accelerated registration system for state-licensed producers and distributors, aiming to reduce bureaucratic friction between state markets and federal oversight.
For cannabis businesses, the change could alleviate a longstanding financial burden: under current IRS tax code Section 280E, marijuana companies are barred from deducting standard business expenses like rent, payroll, or utilities because cannabis remains a Schedule I substance. Moving to Schedule III would lift that restriction, allowing them to file taxes like other legal enterprises — a shift described by industry leaders as a potential windfall that could improve cash flow and support reinvestment in operations.
Researchers also stand to benefit. The administration said the reclassification removes penalties for scientists who obtain state-licensed cannabis for study, addressing a key obstacle that has limited clinical investigation into cannabis’s therapeutic applications for conditions like chronic pain, PTSD, epilepsy, and nausea from chemotherapy. As one industry advocate noted, federal barriers to research have persisted even as state-level acceptance has grown, creating a mismatch between public demand and scientific scrutiny.
Still, the policy leaves intact a fragmented regulatory landscape. Cannabis companies would continue to navigate a patchwork of state laws, each with its own licensing, testing, and packaging requirements. Federal reform does not erase those differences, nor does it guarantee access to banking services, which remain constrained due to lingering federal illegality and bankers’ compliance concerns.
The action reflects a long-standing promise by President Trump to revisit federal marijuana policy. In December, he directed his administration to act swiftly on rescheduling, and Blanche framed the move as fulfilling that pledge to expand access to medical treatment options. The timing also coincided with the president signing an unrelated executive order on psychedelics, during which he reportedly expressed frustration over the pace of the marijuana review.
Historically, the last major federal rescheduling of a widely used substance occurred in 2014, when the DEA moved hydrocodone combination products from Schedule III to Schedule II to tighten controls amid the opioid crisis. This current shift moves in the opposite direction — toward less restriction — signaling a notable reversal in how the federal government evaluates substances with both therapeutic use and public health concerns.
While advocates welcomed the development as overdue, they cautioned that rescheduling alone does not equate to legalization or resolve core tensions between state and federal law. As one cannabis industry executive put it, the change may bring stability and momentum toward more uniform standards, but the path forward remains incremental within a system still divided by jurisdiction.
Does this mean marijuana is now legal nationwide?
No. The reclassification does not legalize marijuana for medical or recreational use under federal law. It only changes how the drug is regulated, moving it to a category with fewer restrictions. State laws still govern where and how cannabis can be used, and possession or distribution outside those frameworks remains subject to federal enforcement.
How will this affect cannabis businesses financially?
By removing cannabis from Schedule I, the change would exempt businesses from IRS Code Section 280E, which currently prevents them from deducting ordinary business expenses. This could significantly reduce their tax burden and improve access to banking services, though actual implementation depends on final regulations and how financial institutions interpret the shift.
