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Los Angeles, Calif. (December 18, 2025) - On December 18, 2025, President Donald Trump issued an Executive Order directing the United States Attorney General to expedite and complete its rulemaking process for reclassifying "marihuana" (today generally referred to as "cannabis") as a Schedule III substance under the Controlled Substances Act ("CSA"). This Client Alert examines the Executive Order and the effects it may have on the state-legal cannabis industry if rescheduling comes to pass.
Historical Federal and State Regulation
The CSA places controlled substances into five different schedules. Schedule I is reserved for substances with no accepted medical use and that have a high potential for abuse. Since the 1970s, cannabis has been a Schedule I controlled substance, alongside heroin and other harmful substances. In effect, any use or sale of cannabis (with the limited exception of federally approved research) has been prohibited for more than 50 years.
Despite the CSA's prohibitions, in 1996, California's Compassionate Use Act (Prop. 215) created a defense to prosecution for individuals recommended cannabis by physicians for certain illnesses. Since then, most U.S. states have permitted medical cannabis, and about half of the states now allow recreational cannabis.
During Joe Biden's presidency, the Department of Health and Human Services issued a recommendation to the Drug Enforcement Agency that cannabis be reclassified as a Schedule III controlled substance. The federal government nevertheless has not completed the rescheduling process.
President Trump's Executive Order
President Trump's Executive Order will direct the federal government to complete its rescheduling process in an expeditious manner and move cannabis to Schedule III. To be clear, that process is not complete and will still likely not be completed in the immediate future.
Rescheduling will also not "federally legalize" existing cannabis businesses. State-sanctioned dispensaries will still violate the CSA—Schedule III controlled substances like ketamine must still be prescribed by physicians, and there is no legal market for recreational sales of Schedule III substances.
Some commentators have speculated that rescheduling will effectively prohibit state-licensed businesses and require that cannabis be prescribed like other scheduled drugs. However, it appears unlikely that the federal government will—after more than a decade of deference to the states—use rescheduling to close state-permitted businesses.
While rescheduling will not federally legalize cannabis, it will provide relief to cannabis businesses in other critical ways. For example, Section 280E of the Internal Revenue Code, which generally prohibits cannabis businesses from making tax deductions, will no longer apply. The order may also expand access to capital, banking, and other relief for businesses in the industry, which has been in decline in the last few years.
Key Takeaways
While President Trump's Executive Order does not change federal law just yet, and while it will not federally legalize cannabis, it nevertheless signals a potential sea change for cannabis businesses. Given the shift in federal policy, cannabis businesses are likely to push for even more federal legislation and move closer to a federally regulated or permitted marketplace.
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.
