U.S. Cannabis Reclassification: What It Could Mean for Industry Players

The administration of U.S. President Donald Trump is considering a cannabis reclassification, marking it as a less dangerous drug—a shift that could ease criminal penalties, reduce the industry’s tax burden, and open access to financing for cannabis-related businesses.

Trump said Monday that a cannabis reclassification decision could be announced in the coming weeks.

Cannabis-related stocks traded in the United States surged in premarket trading Tuesday, led by a 13 percent jump in Canopy Growth. Organigram Global, SNDL, Aurora Cannabis, and Tilray Brands also rose, gaining between 3 percent and 12 percent.

What a Cannabis Reclassification Would Mean

Under the Controlled Substances Act, cannabis is currently designated as a Schedule I substance, meaning it is considered to have a high potential for abuse and no accepted medical use.

Cannabis reclassification as a less dangerous drug could open the door for producers to access traditional banking services, attract institutional investors, reduce tax burdens, and spur mergers and acquisitions.

Securing financing has long been one of the biggest hurdles for cannabis producers, as federal restrictions keep most banks and institutional investors out of the sector. This has forced companies to rely on expensive loans or alternative lenders.

Last year, the Biden administration asked the Department of Health and Human Services to review the possibility of a cannabis reclassification. The agency recommended moving it to Schedule III, a category reserved for substances with a moderate to low risk of physical or psychological dependence.

How Cannabis Reclassification Could Affect Taxes

One of the most significant benefits of cannabis reclassification would be that cannabis businesses would no longer be subject to Section 280E of the federal tax code.

This provision bars companies dealing in Schedule I or II controlled substances from deducting business expenses or claiming tax credits, often resulting in substantially higher effective tax rates for cannabis operators.

What Happens Next?

According to Jaret Seiberg, an analyst at TD Cowen, full federal cannabis reclassification remains unlikely, citing the lack of substantial support in Congress and the limited scope of action available to the Drug Enforcement Administration (DEA) through simple reclassification.

“It seems more probable to us that Trump would restart cannabis reclassification efforts within the DEA to move it to Schedule III, which would allow the government to regulate it,” Seiberg said.

However, some analysts caution that cannabis reclassification alone would not fundamentally change the landscape. Cannabis would remain illegal under federal law, interstate commerce would still be prohibited, and individual states would continue to enforce their own rules, according to the research firm Zuanic & Associates.

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(Featured image by David Gabrić via Unsplash)

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