Written by: Marcus Wolter, Bianca Lindau, and Elizabeth Bestwick

On December 18, 2025, President Trump signed an executive order directing federal agencies to fast-track the reclassification of cannabis from Schedule I to Schedule III under the Controlled Substances Act. While the order does not legalize cannabis at the federal level or alter state recreational regimes, it represents a significant federal shift that could affect tax planning, product strategy, and capital formation for cannabis and CBD businesses, particularly those operating in or adjacent to the medical cannabis and CBD markets.

What the Order Does and Does Not Do

The order directs the Attorney General to expeditiously complete the rescheduling process aimed at moving cannabis to Schedule III for purposes of federal medical research and regulation. The order has three core directives: (1) complete the Schedule III rulemaking under the Controlled Substances Act, (2) work with Congress to modernize hemp and cannabinoid definitions to preserve access to appropriate full‑spectrum CBD while restricting unsafe products, and (3) direct relevant federal health agencies to develop real‑world evidence and standards that could support Medicare and, eventually, commercial insurance coverage for qualifying cannabinoid therapies.

Key takeaways include:

• There is no federal legalization or decriminalization.
  
• State cannabis laws remain unchanged.
  
• Recreational cannabis is expressly excluded.
  
• No criminal justice reforms are included.

The Administration positioned the change as a medical research and evidence-alignment initiative rather than a legalization policy and did not signal any change in federal treatment of recreational cannabis.

Why Schedule III Status Matters

1. Lower barriers to research and FDA pathways.

Rescheduling reduces regulatory hurdles for clinical research and FDA-supervised drug development. For cannabis companies with medical ambitions, this creates a clearer route to move through traditional pharmaceutical approval channels, particularly in areas such as pain management, opioid alternatives, veterans’ care, and senior health but does not apply to recreational cannabis products sold outside an FDA-approved framework.

2. Potential relief from Section 280E.

A Schedule III designation is widely expected to remove cannabis businesses from the scope of Internal Revenue Code § 280E, restoring the ability to deduct ordinary business expenses for such businesses that are otherwise operating in compliance with applicable federal and state law. For many operators, this change alone could materially improve margins, cash flow, and overall enterprise valuation even where businesses also operate state-legal recreational lines. By contrast, state-legal operators that are purely recreational and do not participate in any federally compliant medical or research channel should not assume that 280E relief will apply to their non-medical activities absent further federal clarification.

3. Clarification for CBD and hemp-derived products.

The order calls for coordination with Congress to modernize statutory definitions for hemp-derived cannabinoids, responding to concerns over overly restrictive THC thresholds. In parallel, the Centers for Medicare & Medicaid Services (CMS) announced a pilot program that could allow Medicare reimbursement for doctor-recommended CBD as early as 2026 (subject to program design and regulatory approval), important for CBD manufacturers, formulators, distributors, and healthcare-adjacent businesses but not applicable to recreational cannabis products.

4. Improved access to capital.

Reduced federal risk may encourage renewed institutional investment, support more conventional financing structures, and catalyze M&A activity, particularly for cannabis companies with strong compliance infrastructure, medical positioning, and scalable operations including operators with both medical and recreational footprints.

Investor & M&A Implications

For investors and acquirers, Schedule III rescheduling has several immediate implications:

• Valuation recalibration: Anticipated 280E relief may justify revised EBITDA assumptions and deal pricing.
  
• Increased deal activity: Lower regulatory risk may unlock stalled M&A, minority investments, and platform roll-ups, particularly for medical and mixed medical/recreational operators that can align at least part of their business with the emerging federal medical framework.
  
• Greater diligence focus: Buyers are likely to scrutinize FDA readiness, clinical data strategies, IP portfolios, and quality-control systems.
  
• Renewed institutional participation: Private equity, credit funds, and strategic investors previously sidelined by federal risk may re-enter the space.

What Comes Next

Schedule III status does not automatically permit prescribing, interstate commerce, or normal banking access, and implementation details from the DEA and FDA may take months to resolve particularly as applied to purely recreational cannabis activity that remains illegal under federal law.

Cannabis and CBD companies should view this development as a strategic transition point. Practical next steps may include:

• Reassessing tax forecasts in anticipation of potential 280E relief.
  
• Preparing for FDA-level compliance, data, and quality-control requirements.
  
• Updating capital-raising and M&A strategies as institutional interest returns.
  
• Closely monitoring hemp and cannabinoid rulemaking.

The Takeaway

This order does not legalize cannabis, but it fundamentally reshapes the federal framework, signaling a shift toward regulated medical acceptance rather than recreational legalization. Coming on the heels of the Biden Administration’s earlier rescheduling initiative, the order underscores emerging bipartisan recognition of cannabis’s medical use. For medical-focused operators, CBD companies, and long-term investors, the implications could be substantial. For the broader industry, momentum is building, but execution and policy risk remain.

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