Not Legal, Just Less Illegal:

Understanding Marijuana’s Potential Move to Schedule III

President Trump just signed an executive order that could mark a shift in federal cannabis policy. While the order does not legalize marijuana, it does push the federal government toward rescheduling cannabis from Schedule I to Schedule III under the Controlled Substances Act. For cannabis business owners who have been operating under uncertainty for years, this is not just political noise. It is a real development with real consequences, especially when it comes to taxes, banking, financial structuring, cannabis research, and long-term market stability. Here’s what you need to know...

What the Executive Order Does & Doesn't Mean

On December 18, 2025, President Trump issued an executive order directing the Attorney General to complete the rulemaking process to move marijuana from Schedule I to Schedule III as quickly as federal law allows. This order builds on work that began under the Biden administration, including scientific and medical reviews conducted by the DHHS and the DEA.

Those agencies concluded that marijuana has a currently accepted medical use and a lower potential for abuse than Schedule I or II substances. The executive order does not instantly reschedule marijuana, but it signals that the federal government intends to finalize the process after months of delay tied to administrative hearings.

Bottom line: Rescheduling is not federal legalization, but this order showcases a meaningful federal cannabis policy shift.

Schedule I v. Schedule III

Under the Controlled Substances Act, Schedule I substances are defined as having no accepted medical use and a high potential for abuse. Marijuana has been classified this way since 1970, alongside substances like heroin. Schedule III substances are different. They are recognized as having accepted medical use and a lower potential for abuse, with moderate or low physical dependence risk.

Moving marijuana into Schedule III would be the first time the federal government has formally acknowledged that cannabis has medical value. That recognition alone is historic and will be paramount in shaping how the industry is treated going forward.

The Biggest Immediate Change for Businesses: 280E Relief

For cannabis operators, the most significant impact of Schedule III rescheduling is the elimination of Internal Revenue Code Section 280E. Right now, because marijuana is a Schedule I substance, cannabis businesses cannot deduct ordinary and necessary business expenses. Rent, payroll, marketing, insurance, and professional services are largely nondeductible, leaving many operators paying taxes on gross income instead of net income.

If marijuana moves to Schedule III, Section 280E no longer applies. That would mean cannabis businesses could deduct normal operating expenses just like any other business. For many operators, this change alone could dramatically improve cash flow, reduce effective tax rates, and free up capital for reinvestment, debt service, hiring, and growth, at a time when state taxation continues to rise .

What Rescheduling Doesn’t Change

Rescheduling does not legalize marijuana at the federal level. Cannabis would continue to remain a controlled substance under federal law, and state licensed businesses would still operate in conflict with the Controlled Substances Act.

Rescheduling does not override state cannabis programs, does not create interstate commerce, does not automatically expunge federal records, and does not instantly fix banking access.

Banking, Lending, & Financial Stability

While rescheduling does not guarantee access to traditional banking, it may reduce perceived legal risk for financial institutions. Schedule III classification could make banks more willing to work with licensed cannabis businesses and may improve access to loans, payment processing, and other financial services. Similarly, rescheduling creates political momentum. It establishes a framework where Congress may be more willing to advance banking and capital market reform in the future.

Rescheduling marijuana to Schedule III meaningfully softens the federal illegality barrier that has historically excluded cannabis operators from the federal bankruptcy system. By rescheduling, marijuana-related activity would no longer be inherently criminal under federal law, undermining the primary rationale bankruptcy courts have relied on to dismiss cannabis cases. Although Schedule III status would not automatically guarantee bankruptcy eligibility, it substantially strengthens the argument that a cannabis debtor’s assets and revenues may be administered without requiring a trustee or court to facilitate ongoing criminal conduct. At minimum, rescheduling makes bankruptcy access more legally defensible and materially more open than it is under the current framework.

Research, Credibility, and Industry Legitimacy

Schedule I status has long made cannabis research unnecessarily difficult, requiring extra approvals and limiting access to research materials. Moving to Schedule III lowers those barriers and supports expanded research into safety, dosing, and medical applications. For cannabis businesses, more research means better data, safer products, stronger credibility, and a more stable regulatory environment over time. Federal recognition of medical use also reduces stigma and brings federal policy closer to the reality of state regulated markets serving millions of patients.

Progress, Not the End of the Road

The executive order directs federal agencies to complete the formal rulemaking process, including final rules issued by the DOJ and the DEA. This process will take time, and the details of implementation will matter. Cannabis businesses should work closely with accountants, tax professionals, and legal advisors to understand how and when 280E relief may apply and how to position themselves as the rules are finalized.

Rescheduling marijuana to Schedule III does not solve every problem facing the cannabis industry. Federal and state law remain misaligned, and comprehensive reform still requires congressional action, but this order is a critical step forward.

If you are a cannabis business owner trying to understand how rescheduling could impact your taxes, operations, or long-term strategy, now is the time to get informed. The experienced cannabis legal team at Oak Law works with marijuana businesses at every stage, from compliance and licensing to restructuring and strategic planning. As federal policy shifts and new opportunities emerge, having knowledgeable counsel can make all the difference.

If you or someone you know needs guidance on cannabis business issues, reach out to the team at Oak Law to schedule a consultation and see how they can help protect and position your business for what comes next.

Hyperlink to our State tax article.