President Trump Signs Executive Order Initiating the Process to Reschedule Cannabis from Schedule I to Schedule III

Yesterday, on December 18, 2025, President Donald Trump signed an executive order directing the Attorney General and federal agencies to begin the process of reclassifying cannabis from a Schedule I to a Schedule III controlled substance under the Controlled Substances Act. The order represents one of the most consequential shifts in U.S. drug policy in decades, formally acknowledging cannabis’s accepted medical uses and lower relative abuse potential, while stopping short of full federal legalization. The executive order also addresses access to CBD-based treatments, with media reporting that some hemp-derived products could potentially be covered under Medicare for senior beneficiaries. Importantly, while the order signals a clear policy priority, any change in cannabis’s federal scheduling must still proceed through the required statutory rulemaking process, including a formal notice-and-comment proceeding conducted by the Drug Enforcement Administration.

Financial markets reacted in mixed fashion following the announcement. In the weeks leading up to the executive order, cannabis equities experienced significant volatility amid speculation surrounding rescheduling, with several well-known industry participants seeing sharp ralliesat times driving share price increases of 40–50% or more on expectations of tax relief and regulatory normalization. However, some of these gains retraced ahead of the formal announcement as investors reassessed timing and execution risk. On the day the executive order was signed, portions of the sector traded lower, reflecting market recognition that the order does not deliver immediate commercial relief and that further regulatory steps are required before the legal and financial benefits of rescheduling can be realized.

From an industry perspective, the most material anticipated impact of Schedule III classification is the expected inapplicability of Internal Revenue Code §280E, which currently prohibits cannabis businesses from deducting ordinary and necessary business expenses and has materially constrained profitability across the sector. If cannabis is ultimately rescheduled, operators would be permitted to deduct typical operating expenses, resulting in meaningful improvements to cash flow, earnings profiles, and valuation metrics. In addition, Schedule III status would further legitimize cannabis-related medical research, potentially expanding clinical trials and accelerating the development of cannabinoid-based therapies.

Despite this momentum, reclassification alone does not legalize cannabis federally, eliminate state-level inconsistencies, or automatically resolve banking, capital markets, and interstate commerce limitations. Further legislative and regulatory reforms, potentially including federal descheduling, banking legislation, and broader criminal justice measures remain necessary to fully reconcile federal law with state-regulated markets. Viewed in that context, the executive order should be understood not as a final outcome, but as a foundational step. While meaningful obstacles remain before rescheduling is finalized, this development marks a long-overdue and highly constructive turning point for the cannabis industry. Investors and market participants should expect additional regulatory guidance, DEA rulemaking updates, and potential legislative proposals in the coming months as the process continues to unfold.

*The author would like to thank Torkin Manes’ Articling Student Noah Zanotti for his invaluable contributions.