Cannabis Rescheduling in 2025: Expert Insights on Federal Policy Changes

The Cannabis industry stands at a pivotal crossroads in 2025. With federal
rescheduling proceedings facing unexpected delays and a new administration
settling into office, Cannabis businesses and their accountants face
significant uncertainty about the regulatory landscape ahead. Understanding
these complex policy developments is essential for Cannabis businesses to
navigate compliance requirements and prepare for potential changes that
could dramatically impact their operations and tax obligations.

In this comprehensive analysis, we explore the current state of Cannabis
rescheduling efforts, examine the political dynamics at play in Washington,
and provide strategic guidance for Cannabis businesses and their financial
advisors during this transitional period.
The Long Road to Rescheduling: How We Got Here

Since the passage of the Controlled Substances Act in 1970, Cannabis has
been classified as a Schedule I substance—a category reserved for drugs
with "no accepted medical use" and "high potential for abuse." This
classification has placed Cannabis in the same category as heroin and LSD,
despite mounting scientific evidence of its medicinal benefits and moderate
risk profile.

The Biden administration initiated a scientific review of Cannabis
scheduling in 2022, directing the Department of Health and Human Services
(HHS) to evaluate whether Cannabis belonged in Schedule I. After conducting
a comprehensive analysis, HHS recommended in 2023 that Cannabis be
reclassified as a Schedule III substance, acknowledging its legitimate
medical applications and relatively lower abuse potential compared to
Schedule I and II substances.

This recommendation represented a monumental shift in federal policy.
Schedule III substances, which include medications like Tylenol with
codeine and ketamine, are recognized as having medical value while still
maintaining certain controls. For Cannabis businesses, this
reclassification would deliver significant benefits—most notably the
elimination of the punitive Section 280E tax provision that currently
prevents Cannabis businesses from deducting ordinary business expenses.

"This isn't just about rescheduling—it's about undoing decades of
prohibition policy and replacing it with sensible regulations that allow a
flourishing industry," explains Aaron Smith, co-founder and CEO of the
National Cannabis Industry Association (NCIA). "While full federal
legalization remains the ultimate goal, rescheduling to Schedule III would
represent the most significant federal Cannabis reform since prohibition
began."
The December 2nd Hearing and Unexpected Complications

The Drug Enforcement Administration (DEA) initiated formal proceedings to
consider HHS's recommendation, scheduling administrative hearings that
began on December 2, 2024. These hearings were to be presided over by an
administrative law judge who would make a non-binding recommendation to the
DEA administrator on whether to proceed with rescheduling.

In an unprecedented development, the DEA—which historically has resisted
Cannabis reform—positioned itself as the proponent of rescheduling during
these proceedings, with opponents having the burden to demonstrate why
Cannabis should remain in Schedule I.

However, what should have been a straightforward process took a complex
turn when certain pro-annabis entities, including Village Farms and
veterans' advocacy groups, filed motions to stay the proceedings. These
organizations alleged improper communications between the DEA and
prohibitionist groups like Smart Approaches to Marijuana (SAM), and
questioned whether the DEA was genuinely committed to rescheduling despite
its stated position.

"These hearings have been indefinitely postponed following the stay," Smith
notes. "From our perspective, this was an unfortunate and misguided
strategy. The judge was clearly indicating that these proceedings could
move forward efficiently, but now we're looking at significant delays that
could extend for months."

The stay raises serious questions about the timeline for rescheduling,
especially with the transition to a new administration. While the previous
attorney general had personally signed the proposed rule to reschedule
Cannabis—an unusual step indicating high-level political support—the
appointment of new leadership at the Department of Justice and DEA creates
additional uncertainty.
The Trump Administration's Approach to Cannabis Policy

With Donald Trump's return to the White House and his nomination of key
cabinet officials, Cannabis industry stakeholders are closely analyzing
potential policy directions. During his campaign, Trump expressed support
for state-level Cannabis legalization efforts and hinted at potential
federal reform.

The critical appointments to watch include:

1. *RFK Jr. as Secretary of Health and Human Services* – Kennedy has
historically supported Cannabis reform but has indicated he would defer to
the DEA on rescheduling decisions, despite HHS having conducted the
scientific evaluation that recommended rescheduling.
2. *Pam Bondi as Attorney General* – As Florida's former attorney
general, Bondi opposed a state constitutional amendment to expand medical
Cannabis access, calling the measure's wording "misleading." Her position
on federal Cannabis policy remains unclear.
3. *DEA Administrator* – This pending appointment will be crucial, as
the DEA retains significant authority over the rescheduling process and
could potentially delay or accelerate the administrative proceedings.

"While Cannabis may not be a top priority for the new administration, there
are reasons for cautious optimism," Smith observes. "President Trump
understands this is a multi-billion dollar industry with strong public
support, particularly among demographics that were important to his
electoral coalition. There's political advantage in moving forward with
reform."

The administration's approach to Cannabis could mirror its handling of
other policy areas, with the president delegating authority to cabinet
secretaries to develop and implement policies in their respective domains.
For Cannabis, this likely means RFK Jr. at HHS will have significant
influence over the federal government's approach to medical Cannabis.
Potential Pathways Forward for Federal Cannabis Reform

Several potential pathways exist for Cannabis policy reform in 2025:
1. Administrative Rescheduling

The most immediate pathway remains the DEA's administrative process. Once
the stay on proceedings is resolved, hearings could resume, leading to a
recommendation from the administrative law judge and ultimately a decision
by the DEA administrator.

"The president has the authority to direct the DEA to reschedule Cannabis,"
Smith explains. "While this would require navigating institutional
resistance within the agency, clear direction from the White House could
accelerate the process significantly."
2. Congressional Action

With Republicans controlling both chambers of Congress, Cannabis
legislation faces a challenging environment. However, bipartisan support
exists for certain reforms, particularly around banking access.

"Look for Cannabis provisions to be attached to larger legislative vehicles
rather than standalone bills," Smith advises. "The Senate Banking Committee
has already held hearings on 'debanking' where Cannabis banking issues were
raised. These entry points provide opportunities to advance incremental
reforms."
3. Executive Action

While less likely, the president has the authority to direct sweeping
changes through executive action. "The administration could theoretically
direct the DEA to remove Cannabis from the Controlled Substances Act
altogether," Smith notes. "While this would create a regulatory vacuum that
might necessitate congressional action, it would immediately end federal
prohibition."
4. State-Level Momentum

Regardless of federal developments, state-level legalization continues to
expand. Ohio and Minnesota are implementing adult-use Cannabis markets in
2025, joining the growing number of states with regulated Cannabis
programs. This expanding state-level framework continues to increase
pressure for federal reform.
Financial Implications for Cannabis Businesses

For Cannabis businesses and their financial advisors, the potential
rescheduling presents significant implications:
1. Section 280E Relief

The most immediate benefit of rescheduling would be relief from Section
280E of the Internal Revenue Code, which prohibits businesses trafficking
in Schedule I or II substances from deducting ordinary business expenses.
This provision creates effective tax rates of 60-70% for many Cannabis
operations.

"Rescheduling to Schedule III would allow Cannabis businesses to deduct
normal business expenses like any other industry," explains Andrew
Hunzicker, CPA and Cannabis accounting specialist. "This would dramatically
improve cash flow and profitability across the sector."
2. Banking and Financial Services

While rescheduling alone wouldn't completely resolve banking challenges, it
would reduce the risk profile for financial institutions serving Cannabis
businesses, potentially expanding access to banking services, loans, and
merchant processing.
3. Capital Markets and Investment

The regulatory certainty provided by rescheduling would likely attract
significant new investment into the Cannabis sector. Public Cannabis
companies would benefit from reduced compliance costs and improved
profitability, potentially driving valuations higher.
4. Compliance Requirements

Even with rescheduling, Cannabis would remain a controlled substance with
specific regulatory requirements. Businesses would need to adapt their
compliance programs to any new federal frameworks that emerge alongside
rescheduling.
Strategic Recommendations for Cannabis Businesses in 2025

Given the uncertain policy environment, Cannabis businesses and their
accountants should consider the following strategic approaches:
1. Prepare for Multiple Scenarios

Develop contingency plans for different potential outcomes, including:

- Successful rescheduling to Schedule III
- Extended delays in the administrative process
- Congressional action on specific issues like banking
- Continued status quo with state-level regulation and federal
prohibition

2. Maintain Robust Compliance Systems

Regardless of rescheduling outcomes, maintaining detailed financial records
and strict regulatory compliance remains essential. Businesses should
document their operations meticulously, particularly in areas that may be
scrutinized under 280E such as cost of goods sold calculations.
3. Engage in Advocacy Efforts

Industry participation in advocacy efforts can influence policy outcomes.
"This is a movement as much as an industry," Smith emphasizes. "Businesses
that engage with organizations like NCIA can help shape the policies that
will govern the future of legal Cannabis."
4. Optimize Current Tax Strategies

While awaiting potential 280E relief, businesses should work with
Cannabis-specialized accountants to implement appropriate cost accounting
methodologies that maximize deductible expenses within the current
regulatory framework.
5. Monitor Political Developments Closely

The rapidly evolving political landscape requires constant monitoring. Key
indicators to watch include:

- Appointments to relevant agencies like the DEA
- Statements from administration officials on Cannabis policy
- Congressional hearings related to banking or controlled substances
- Court decisions that may impact administrative proceedings

Conclusion: Navigating Uncertainty While Preparing for Change

The Cannabis industry has repeatedly demonstrated resilience through
regulatory uncertainty and political shifts. While the path to federal
reform remains complex, the direction of travel continues toward expanded
recognition of Cannabis's legitimate medical applications and economic
contributions.

"Despite the current procedural delays, we're closer than ever to
meaningful federal reform," Smith concludes. "The scientific evidence
supporting rescheduling is overwhelming, public support continues to grow,
and the economic case for reform becomes stronger with each new state
market that comes online."

For Cannabis businesses and their financial advisors, the coming months and
years require vigilance, adaptability, and strategic foresight. By
understanding the complex political and regulatory dynamics at play,
businesses can position themselves to thrive regardless of how federal
policy evolves in 2025 and beyond.

[Click here to listen to our conversation with NCIA CEO Aaron Smith.]