WASHINGTON — In a move that signals a historic shift in federal drug policy, President Donald Trump signed an executive order on Thursday directing the Attorney General to expedite the reclassification of marijuana. The order aims to move cannabis from Schedule I—the same category as heroin—to Schedule III, placing it alongside substances like ketamine and testosterone.
While the move was met with enthusiasm from industry leaders and some Democrats, it has sparked a sharp divide within the Republican party.
Key Takeaways of the Executive Order
Shift to Schedule III: Marijuana would be recognized as having “legitimate medical use” and a lower potential for abuse than Schedule I drugs.
Boost to Research: Senior officials noted the primary goal is to unlock federal funding for medical research into the risks and benefits of cannabis.
Medicare Inclusion: The Centers for Medicare and Medicaid Services plans to allow coverage for certain hemp-derived CBD products as early as April 2025.
Economic Impact: The move could eventually allow cannabis businesses access to traditional banking and institutional investment, though current restrictions remain a hurdle.
“A Lot of People Need It…We have people begging for me to do this, people that are in great pain for decades, I’m not gonna be taking it. But a lot of people do want it. A lot of people need it.”
Trump told reporters at the White House.
Political and Market Reaction
The announcement triggered immediate pushback from several House and Senate Republicans. In a joint letter, dozens of lawmakers argued that reclassification would “send the wrong message to children” and potentially empower drug cartels. On the other side of the aisle, Senate Democratic Leader Chuck Schumer welcomed the decision as a long-overdue step toward reform.
Market Volatility:
Cannabis stocks saw a roller-coaster afternoon on Thursday. While shares of companies like Tilray, Aurora Cannabis, and Canopy Growth initially surged up to 12% on the news, they ended the day in the red. Analysts suggest investors were disappointed that the order did not include specific mandates for cannabis banking reform, which remains a major pain point for the industry.
The Road Ahead
The final decision now rests with the Drug Enforcement Administration (DEA), which must review the recommendation. Even if the reclassification is finalized, marijuana will remain a controlled substance at the federal level.
Because the U.S. currently operates under a patchwork of state laws, industry experts warn that true stability for the “green economy” will likely require further acts of Congress to resolve banking and tax hurdles that the executive order cannot fix alone.
Moving marijuana to Schedule III might sound like a technicality, but for the people actually running these businesses, it’s basically a financial “get out of jail free” card.
The biggest reason? Section 280E.
What is 280E (and why do cannabis owners hate it)?
Section 280E is a relic from the 1980s “War on Drugs.” It was originally passed to stop literal drug kingpins—like cocaine traffickers—from deducting their “business expenses” (like weighing scales or getaway cars) on their tax returns.
Because marijuana is currently a Schedule I drug, the IRS treats every legal dispensary in America like a criminal cartel. They can’t deduct any normal operating costs. We’re talking:
Rent and utilities Employee payroll and health insurance, Marketing and website costs Security and maintenance The “80% Tax Rate” Nightmare.
Imagine you run a pizza shop. You make $1 million, but you spend $700k on dough, cheese, rent, and staff. Normally, you’d only pay taxes on your $300k profit.
But under 280E, a cannabis shop can only deduct the “cost of goods” (the actual plants). They can’t deduct the rent or the budtenders’ salaries. This often leaves them paying federal taxes on almost their entire $1 million revenue, even if they’re actually losing money. This can lead to effective tax rates of 70% to 80%, which is why so many cannabis companies are struggling to stay afloat.
How the New Order Changes the Game
How the New Order Changes the GameBy moving marijuana to Schedule III, Section 280E officially stops applying. It only covers Schedule I and II drugs.
Here’s the immediate impact:
- Instant Profitability: Companies that were barely breaking even because of taxes will suddenly have massive amounts of cash back in their pockets.
- Level Playing Field: Cannabis businesses will finally be taxed like “normal” businesses (think pharmacies or breweries).
- Expansion & Hiring: With that extra cash, you’ll likely see dispensaries finally able to give raises, fix up their shops, or hire more staff without the IRS taking the lion’s share.
Is there a catch?
Of course. While this solves the tax nightmare, it doesn’t automatically fix banking. Most big banks are still scared of federal laws, so many shops will still be stuck dealing in cash for now. Also, moving to Schedule III means the FDA might want a seat at the table, which could mean more paperwork and “pharma-style” regulations down the road.
For the average person walking into a dispensary, this change is a bit of a mixed bag. It doesn’t mean prices will drop 50% overnight, but it does change the “math” behind your receipt.
Here is how the reclassification trickles down to your wallet:
1. The Price “Floor” Might Drop
Right now, legal dispensaries are in a constant battle with the “black market.” Because legal shops pay that massive 70–80% tax rate we talked about, they have to keep their prices high just to stay in business.
The Shift: Once 280E is gone and shops are taxed like normal businesses, they’ll have way more “margin.”
The Result: Some of that extra cash will likely be used for aggressive sales and lower base prices so they can finally undercut the guy selling weed out of a backpack down the street.
2. Better Loyalty Programs and Perks
Since dispensaries can’t currently deduct “marketing” or “advertising” from their taxes, things like big blowout sales, expensive loyalty apps, and free delivery are actually huge financial burdens for them.
Expect: More “Buy One, Get One” deals, better rewards points, and more polished shopping experiences. When a business can actually write off the cost of a billboard or a discount code, they’re much more likely to give them to you.
3. The “State Tax” Still Looms Large
It’s important to remember that the President’s order only affects federal taxes. Most of the sticker shock you feel at the register comes from state and local taxes, which can be anywhere from 15% to 37% depending on where you live (looking at you, Washington and California). Reclassification won’t change those state-level “excise” taxes, so your total might still feel high compared to a six-pack of beer.
4. The Medicare Wildcard
One of the most interesting parts of the order is the move toward Medicare coverage for CBD. If you are a senior or a veteran using cannabis for pain management, you might eventually see “prices” for certain products effectively drop to $0 (or a small co-pay) if they become covered by insurance. This is a huge deal for medical patients who currently pay hundreds out-of-pocket every month.
