Federal marijuana policy is on the cusp of substantial change, as recent developments suggest a forthcoming transition toward broader legalization. Following an executive order by President Donald Trump that last week reclassified marijuana from a Schedule I to a Schedule III drug, industry observers and investors are closely evaluating the implications of this regulatory adjustment.
President Trump characterized marijuana as having legitimate medical utility, drawing parallels to codeine, a Schedule III substance, which serves as a pain reliever. By reclassifying marijuana alongside Schedule III drugs rather than Schedule I—which includes heroin and LSD—this executive action marks a strategic move without fully legalizing or decriminalizing cannabis at the federal level.
Moreover, the administration signaled a potential expansion in Medicare coverage to encompass certain CBD-based treatments, a policy latent in the president’s earlier outreach via a Truth Social video. The initial post, which advocated for Medicare prescription coverage of medical marijuana, was widely interpreted as a test of public support for federal cannabis policy reform.
Looking at the broader landscape, marijuana’s legal status on the state level continues to advance. As of now, medical marijuana is permitted with a prescription in 40 states, while approximately half that number have authorized recreational use. Consumer adoption reflects these policy changes, with reported usage reaching about 20% nationwide across both medical and recreational segments. Concurrently, public opinion shows strong majority backing for legalization, with close to two-thirds of adults in favor.
Within this context, the timing of marijuana legalization appears increasingly linked to political events, with speculation centering on the forthcoming State of the Union address in January as a plausible juncture for a formal push by the president to pursue congressional legalization measures in 2026. The administration’s recent initiatives could thus be viewed as preparatory steps toward that agenda.
From a business perspective, the impact of moving marijuana out of Schedule I is notable. The reclassification permits marijuana enterprises to claim tax deductions on routine operating expenses such as rent, utilities, marketing, payroll, and insurance—deductions previously restricted under federal law. This policy alteration could reduce operational costs, potentially lowering cannabis retail prices and stimulating greater demand in line with standard economic principles.
An additional consequence of reclassification may be increased access to traditional banking services for marijuana firms. Historically, cannabis businesses have operated largely on a cash basis due to regulatory risks limiting banking relationships. The perception of lowered regulatory risk may encourage financial institutions to extend customary banking facilities, further normalizing cannabis business operations.
Investor sentiment has responded positively to these government actions. For instance, Tilray Brands swiftly announced plans to establish a United States subsidiary—Tilray Medical USA—focusing initially on medical marijuana sales in the American market, contingent on existing regulations. The company also signaled readiness to adapt quickly to further regulatory changes that could open recreational markets.
Comparatively, leading cannabis companies such as Aurora Cannabis and Canopy Growth have not yet issued formal statements about the recent federal developments but are presumed to be preparing strategic responses for the evolving regulatory environment. Market performance details reveal that these major players have not yet achieved profitability under generally accepted accounting principles (GAAP), although projections indicate potential profit realization for Aurora in the following year, and non-GAAP profitability for Canopy Growth, while Tilray has attained non-GAAP profits already.
The progression from rescheduling in 2025 toward potential full legalization in 2026 represents a pivotal juncture for the marijuana industry in the United States. Should full legalization materialize, it may catalyze enhanced revenue and profit growth across the sector, reshaping its economic profile and market dynamics. The preparatory steps already underway signal a landscape ready for significant transformation in the near future.
Key Points
- Marijuana's reclassification from Schedule I to Schedule III drugs marks a significant but incomplete federal policy shift, signaling increased medical legitimacy.
- State-level legalization and strong public support lay the groundwork for potential full federal legalization and expanded Medicare coverage in 2026.
- Changes in federal classification are expected to enhance marijuana firms’ financial operations by enabling tax deductions and improved banking access, potentially lowering costs and boosting demand.
Risks and Uncertainties
- The executive order does not equate to marijuana legalization or decriminalization, leaving significant regulatory restrictions in place.
- The timing and success of congressional action to legalize marijuana at the federal level remain uncertain, dependent on political processes and support.
- Major cannabis companies have yet to demonstrate consistent GAAP profitability, indicating financial risks that may affect investor returns despite regulatory progress.
Disclosure
This article is intended for informational purposes only and does not constitute investment advice or an endorsement of any particular company or policy.
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