WASHINGTON — President Donald Trump has signed an executive order directing federal agencies to move forward with the rescheduling of marijuana under federal law, a step that could ease financial pressure on the legal cannabis industry while stopping short of nationwide legalization.
The order instructs the Justice Department and the Drug Enforcement Administration to advance a review that would move marijuana from Schedule I of the Controlled Substances Act to Schedule III. Marijuana’s current classification places it alongside heroin and LSD, despite its legalization for medical use in most states and recreational use in nearly half the country.
The executive order does not legalize marijuana federally or override state laws. Cannabis would remain illegal under federal law, and interstate commerce would still be prohibited.
Federal Shift Long in the Making
The Controlled Substances Act, enacted in 1970, categorizes drugs based on medical use and potential for abuse. Schedule I substances are defined as having no accepted medical use and a high potential for abuse.
For decades, marijuana’s Schedule I status has restricted scientific research and imposed additional financial and regulatory burdens on state-licensed cannabis businesses.
The rescheduling process formally began in 2023, when the Department of Health and Human Services recommended that the DEA reclassify marijuana to Schedule III. Trump’s executive order accelerates that review.
Tax Relief Central to Industry Impact
The most significant immediate impact for cannabis businesses would be tax relief.
Under IRS Section 280E, companies that sell Schedule I or II substances are prohibited from deducting ordinary business expenses such as payroll, rent, utilities, and marketing. Cannabis businesses are generally limited to deducting cost of goods sold, resulting in unusually high effective tax rates.
If marijuana is reclassified as a Schedule III substance, Section 280E would no longer apply. Businesses would be able to deduct standard operating expenses, significantly reducing federal tax burdens.
Michigan Market Under Pressure
The potential tax relief could be particularly significant in Michigan, one of the nation’s largest cannabis markets.
Michigan recorded $260 million in cannabis sales in November, a monthly record. However, wholesale and retail prices have fallen to historic lows due to oversupply and intense competition, compressing margins for growers, processors, and retailers.
Because of Section 280E, many Michigan cannabis businesses face effective federal tax rates exceeding 50%, even as prices decline. Industry analysts say relief from those tax rules could improve cash flow and determine which companies survive in the coming year.
Rescheduling is expected to accelerate consolidation in Michigan’s cannabis market, as larger and better-capitalized operators gain financial breathing room and smaller firms struggle to compete.
Research and Oversight
Moving marijuana to Schedule III would also ease restrictions on scientific research, making it easier for universities, health systems, and private companies to conduct clinical studies.
The shift could increase the role of the Food and Drug Administration in overseeing cannabis products, particularly those marketed for medical use. While that could raise compliance costs, industry observers say clearer standards may provide long-term stability.
Limits of Rescheduling
Despite the potential benefits, rescheduling would not resolve several major issues facing the cannabis industry. Banks would still not be required to serve cannabis businesses, and interstate commerce would remain illegal without congressional action.
For Michigan operators, the change represents a significant but limited shift.
Rescheduling could improve cash flow and stabilize struggling businesses, but it would not address oversupply or fully normalize the industry under federal law.
