ARTICLE
14 January 2025

Cannabis And Trump 2.0: 2025 And Beyond

CL
Carter Ledyard & Milburn

Contributor

Carter Ledyard & Milburn is a New York-based law firm with a strong focus on litigation, corporate transactions, real estate, and trusts and estates. We have a ratio of partners to associates of about one to one, and provide personal, partner-level attention to all clients and matters, large and small. This forms part of our Partners for Your Business® commitment, together with the focus we place on providing counseling to help advance the business interests of our clients.
As we head into 2025, the U.S. cannabis industry stands at a crossroads. Since the beginning of the first Trump administration — which began with the appointment of cannabis opponent Jeff Session...
United States Cannabis & Hemp

(January 09, 2025) - Alexander Malyshev and Sarah Ganley of Carter Ledyard & Milburn LLP discuss what the cannabis sector can expect as 2025 begins in areas such as federal rescheduling, legislation and litigation.

As we head into 2025, the U.S. cannabis industry stands at a crossroads. Since the beginning of the first Trump administration — which began with the appointment of cannabis opponent Jeff Session as Attorney General — the industry has come a long way. However, despite near universal acceptance of medical marijuana, and growing acceptance of adult-use cannabis at the state level, federal legalization is not here yet. As a result, it makes sense to take a closer look at what the cannabis sector can expect in the years ahead.

Federal rescheduling of cannabis

One of the most anticipated developments of 2025 is the potential rescheduling of cannabis from Schedule I of the Controlled Substances Act (CSA) to the less-restrictive Schedule III. In April of 2024, at the direction of President Biden, the Drug Enforcement Administration (DEA) announced its intent to initiate a formal rulemaking process to reclassify cannabis as a Schedule III controlled substance, in accordance with the Department of Health and Human Services' (HHS) earlier recommendation.

If successful, rescheduling would be a boon to the industry, easing federal restrictions and relieving state-legal cannabis businesses from Internal Revenue Code Section 280E, which prohibits businesses from deducting expenses associated with trafficking in Schedule I or Schedule II substances.

As predicted, the formal rulemaking process was not completed by year's end and remains ongoing. The DEA held an initial public hearing on Dec. 2, 2024. However, the administrative law judge overseeing the possible reclassification of cannabis did not hear testimony regarding the proposed rule during the hearing, leaving testimonies for future proceedings that are scheduled to run from Jan. 21 to March 6, 2025.

While formal rulemaking can be a lengthy process (and in some instances can go on for years), given that witness testimony in the DEA's rescheduling proceedings is currently scheduled to conclude on March 6, 2025, it is possible the DEA will publish a final rule in the latter half of 2025.

While Trump has indicated support for states' rights in deciding legalization (giving hope that Trump will stay the course), his administration has not taken an official stance on the issue. Nor is cannabis reform specifically addressed in Project 2025 (https://bit.ly/4h6cyAR), suggesting that it may not be a high-priority initiative.

Moreover, several of Trump's picks for his administration have voiced opposition to legalization. For example, Trump's pick for U.S. Attorney General, Pam Bondi, opposed cannabis legalization during her time as Florida's attorney general. Trump's pick to lead the FDA, Marty Makary, has referred to cannabis as a gateway drug and suggested it may cause cognitive issues. Both appointments are likely to play a pivotal role in shaping the Trump Administration's approach to federal reform efforts.

Congress' legislative agenda and federal reform efforts

With Republicans set to control all three branches of government, the cannabis industry may see a shift in federal cannabis reform efforts in the coming year. While advocates remain hopeful that reforms are still achievable under a Republican-led federal government, they will likely be more incremental than holistic, with an emphasis on public safety and states' rights. Again, although Trump has expressed support for state-led legalization, it remains unclear whether federal reform will be a priority for the incoming administration.

Nevertheless, it is anticipated that lawmakers on both sides of the aisle will continue to re-introduce bills that could have significant impacts on the industry, given that cannabis reform is one of the few bipartisan issues gaining traction in recent years and both parties have shown increasing interest in ending the federal prohibition.

Some of the most likely contenders to gain bipartisan traction in the upcoming legislative session include the Secure And Fair Enforcement Regulation Banking Act (SAFER Banking Act), which would provide cannabis businesses with much-needed access to financial services (and which was most recently passed by the Senate Banking Committee in September 2023); the States Reform Act, which would deschedule cannabis, impose an excise tax, release nonviolent cannabis offenders and preserve existing state legalization policies; and the Strengthening the Tenth Amendment Through Entrusting States 2.0 Act (STATES 2.0 Act), which would amend the CSA so that it does not apply to cannabis produced and sold in compliance with state law. These bills have been introduced in prior legislative sessions and have garnered bipartisan support in the past.

Passage of any of these bills would be a significant boon to the industry. Bills preserving existing state legalization policies could be particularly advantageous given the number of states that have legalized cannabis in some capacity. Currently, 24 states, two territories, and the District of Columbia have legalized recreational cannabis, while medical cannabis is legal in 40 states, with additional states expected to legalize cannabis in 2025. Passage of a law preserving state regulatory regimes (along the lines of the States Reform Act or the STATES 2.0 Act) could result in less disruption to industry participants who have been operating in compliance with state laws.

Cannabis cases to keep an eye on in 2025

There are a handful of cases the industry should keep its eye on in 2025. In particular, appeals currently pending in the Second, Fourth, and Ninth circuits challenging state and local cannabis licensure programs as violative of the Dormant Commerce Clause doctrine (DCC) — which generally restricts states from enforcing policies that impeded interstate commerce — could have a huge impact on the industry. See Variscite NY Four LLC et al. v. New York State Cannabis Control Board et al., No. 24-384 (2d Cir.); Jensen v. Maryland Cannabis Administration, No. 24-1216 (4th Cir.); Peridot Tree WA Inc. v. Washington State Liquor & Cannabis Control Board et al., No. 24-209 (9th Cir.).

The plaintiffs in these cases allege that cannabis licensure programs in New York, Maryland, and Washington unconstitutionally privilege in-state cannabis entrepreneurs over out-of-state players in violation of the DCC. For example, the plaintiffs in Variscite NY Four LLC et al. v. New York State Cannabis Control Board et al. allege that New York regulators unconstitutionally discriminated against out-of-state cannabis license applicants by giving applicants with in-state cannabis convictions or relatives of someone with such a conviction priority status for review in the state's general recreational cannabis license application pool. Federal trial court judges in New York, Maryland, and Washington have disagreed with plaintiffs' arguments in these cases, concluding that cannabis' illegality under federal law means the DCC does not apply to state regulatory regimes.

The 1st U.S. Circuit Court of Appeals is the only federal appeals court that has issued a decision on the issue, holding that the DCC did apply to Maine's medical cannabis market. See Ne. Patients Grp. v. United Cannabis Patients & Caregivers of Me., 45 F.4th 542 (1st Cir. 2022). Thus, depending on how the 2nd, 4th, or 9th circuits decide the pending appeals, we could see a circuit split in the coming year, teeing up the issue to be brought before a Republican-controlled Supreme Court.

Another case to keep an eye on is Canna Provisions Inc., et al. v. Garland, No. 24-1628 (1st Cir.), a case brought by several Massachusetts cannabis businesses challenging the federal prohibition on state-regulated cannabis under the CSA and arguing that the Supreme Court's decision in Gonzalez v. Raich, 545 U.S. 1 (2005), which rejected a previous challenge to the CSA, warrants revisiting.

Over the summer, a federal judge sitting in the District of Massachusetts dismissed the case, which plaintiffs subsequently appealed to the 1st Circuit. In December, a three-judge panel heard oral arguments on the appeal and appeared likely to reject plaintiffs' arguments that the federal prohibition on cannabis could no longer be deemed constitutional. The 1st Circuit is likely to issue a decision in 2025. Court watchers speculate the case could ultimately end up before the Supreme Court in the coming years.

Originally Published by Westlaw Today

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More