Issued on December 18, 2025, President Trump’s Executive Order 14370, “Increasing Medical Marijuana and Cannabidiol Research” (Marijuana EO), is a significant federal policy shift regarding marijuana. The Marijuana EO itself does not reclassify the Cannabis plant in its entirety or decriminalize the use of its psychoactive constituents. Rather, the Marijuana EO directs federal agencies to accelerate efforts to reclassify marijuana to Schedule III under the Controlled Substances Act (CSA), expand federal research into medical marijuana and cannabidiol (CBD), and provide a regulatory framework to improve access for patients.
The implications of this shift are substantial. Currently, industry growth has been hampered by the split between state and federal laws, inconsistent regulatory regimes, and tax penalties arising out of the plant’s Schedule I classification. The industry has been further impacted by recent changes in the definition of “hemp,” which effectively limited the sales of many hemp-derived products based on total THC content. While the industry must await the final rule for complete details, formal rescheduling will carry immediate and material implications and businesses should proactively prepare for changes that are likely to reshape the industry.
Hemp, Marijuana, Medical, Pharmaceutical, and Recreational – The Present Patchwork of the Cannabis Industry
The Agriculture Improvement Act of 2018 (2018 Farm Bill) removed “hemp from the CSA, which means that cannabis plants and derivatives that contain no more than 0.3 percent THC on a dry weight basis [were] no longer controlled substances under federal law.” See FDA CBD Regulations. Recently, the FY2026 Agriculture Appropriations Act (P.L. 119-37) (FY2026 Appropriations Act) that reopened the Federal Government in November 2025, included language that banned intoxicating hemp-derived cannabinoid products. The ban included caps on the amount of THC and its precursors that may be present in the final hemp product, even when the THC may be derived or manufactured wholly from non-psychoactive cannabinoids present in the otherwise legal hemp plant.
Cannabis plants with more than 0.3 percent THC by dry weight, commonly referred to as marijuana in the industry, are presently under Schedule I of the CSA.
The 2018 Farm Bill also preserved the FDA’s authority to regulate products derived from hemp. The FDA approved CBD and delta-9-THC as prescription pharmaceutical products in Epidiolex and dronabinol, respectively. However, the FDA has not approved “medical” marijuana that is available through state-licensed dispensaries. Further, the agency has denied approval of cannabinoid-containing food, beverages, or dietary supplements, even when sourced from federally-legal hemp.
The Marijuana EO Directives
The Marijuana EO directs the Assistant to the President and Deputy Chief of Staff for Legislative, Political, and Public Affairs to work with Congress to update the statutory definition of final hemp-derived cannabinoid products, considering the Congressional intent to restrict the sale of products that pose serious health risks. The Secretary of Health and Human Services, the Commissioner of Food and Drugs, the Administrator of the Centers for Medicare and Medicaid Services, and the Director of the National Institutes of Health shall develop research methods and models utilizing real-world evidence to improve access to hemp-derived cannabinoid products in accordance with Federal law and to inform standards of care.
Implications of the Marijuana EO
A Federally Regulated Pathway for “Medical” Marijuana?
The Marijuana EO repeatedly references the benefits of “medical” marijuana, especially for the treatment of chronic pain, as a major rationale for the proposed change. However, the FDA has not approved any cannabinoid for the treatment of pain, and development of a new drug through traditional drug approval pathways is time consuming and expensive. Rather, the Marijuana EO calls for the development of a “regulatory framework for hemp-derived cannabinoid products” and “improve[d] access.” The Marijuana EO also emphasizes the importance of a regulatory regime to provide guidance and product safeguards for CBD products, pointing to risks posed by inaccurate labeling and inconsistent quality control of commercially available products.
This suggests that the FDA and other agencies may provide a pathway for approval of non-pharmaceutical cannabinoid products for medical use outside of traditional drug approval frameworks. The implications of such a pathway would be substantial. Presently, Schedule III drugs can only be sold with a prescription by registered pharmacies, hospitals, clinics, and authorized prescribers following FDA approval as a prescription product. “Medical” marijuana may currently only be recommended and dispensed from state-licensed dispensaries. It remains to be seen whether the FDA and other agencies will provide a novel pathway for “medical” marijuana or require it to fit into one of the existing drug approval pathways.
Limitations on THC in Final Products
The Marijuana EO recognizes that under the FY2026 Appropriations Act, some full-spectrum CBD products will once again be controlled as marijuana under the CSA if they contain THC levels above the per-container threshold set by that law. This tension between improving access to cannabinoids, specifically CBD, and broad-spectrum, or full-spectrum, products, while limiting the permissible amounts of THC is likely to be addressed through rule making and/or guidance from Federal agencies. In addition to the directives of the Marijuana EO, the FY2026 Appropriations Act requires the FDA to consult with relevant federal agencies and publish the following within 90 days of enactment:
- a list of all cannabinoids that are known to FDA to be capable of being naturally produced in a cannabis plant based on peer-reviewed literature;
- a list of THC class cannabinoids known to FDA to be naturally occurring in the plant;
- a list of all other known cannabinoids with similar effects to (or marketed to have) THC class cannabinoids; and
- additional information about the term container as defined in the law.
The End of IRC Section 280E
Rescheduling will also end the penalties faced by marijuana businesses under Section 280E of the Internal Revenue Code. IRC Section 280E generally prohibits businesses trafficking in Schedule I or II controlled substances from deducting ordinary and necessary business expenses. State-licensed marijuana businesses were thus placed at a financial disadvantage, paying significantly higher effective tax rates than those faced by other industries. Denied the ability to deduct common operating expenses like payroll, rent, and marketing, marijuana businesses were taxed on gross income rather than net income. Rescheduling to Schedule III would offer substantial relief to marijuana businesses, including access to capital, reduced borrowing costs, insurance options, and opportunities for institutional investments.
Takeaways
The rescheduling of marijuana to Schedule III marks a significant shift in the Federal treatment of cannabis and potentially opens a new framework for the FDA to approve cannabinoid containing final products for consumer use. While the EO does not immediately change the status quo, businesses can proactively take measures to prepare for a new regulatory regime:
- Schedule III reclassification would continue to involve restrictions on sales of the final product in interstate commerce. Under present regulations, Schedule III drugs require a prescription and must comply with FDA and DEA regulations. Rescheduling alone is unlikely to legalize recreational use, and it is possible that the parallel state and federal mandates may continue for the near future especially considering limitations to total THC under Federal law.
- The Marijuana EO contemplates rule making, as well as publication of guidance from Federal agencies, as the federal government prepares to regulate the marketplace. Businesses should actively participate in submitting comments in response to draft rules or RFIs, as such input will not only inform the final rule but also may preserve rights in the event of future litigation.
- Both the Marijuana EO and the preceding FY2026 Appropriations Act focused on total THC content as a concern. Businesses may want to assess product portfolios to evaluate items that are likely to be impacted by new limitations, and opportunities that may become available if the FDA provides a pathway for approval of cannabinoid-containing final products under “medical” marijuana and/or non-pharmaceutical categories.
- Considering potential IRC Section 280E relief, businesses should reevaluate tax planning and prior-year positions, model financial performance with applicable business deductions, and review accounting systems for IRC Section 280E compliance. Guidance from the DEA, IRS, and state regulators is likely to emerge as agencies gear up to comply with the mandates of the Marijuana EO and the FY2026 Appropriations Act and should be monitored closely for compliance.
