In the eyes of the federal government, some cannabis is no longer as dangerous as heroin – and that’s a big deal.
The Trump administration just announced an order that would reclassify some forms of marijuana, moving the drug out of Schedule I – a category it shares with heroin, MDMA, and LSD – to Schedule III.
Acting Attorney General Todd Blanche announced the decision in a post on X, noting that the DOJ would immediately move state-licensed marijuana and FDA-approved marijuana products to Schedule III alongside Tylenol with codeine, ketamine, and steroids. In contrast with Schedule I, a classification for drugs with high abuse and addictive potential, Schedule III contains substances with a “moderate to low” potential for abuse and physical or psychological dependence.
“Under the decisive leadership of @POTUS, this Department of Justice is delivering on his promise to improve American healthcare,” Blanche wrote on X. “…These actions will enable more targeted, rigorous research into marijuana’s safety and efficacy, expanding patients’ access to treatments and empowering doctors to make better-informed healthcare decisions.”
Blanche also said that the DOJ planned to order a “new, expedited hearing” to fast-track the process of potentially fully rescheduling marijuana. That hearing is expected to happen in June and is a necessary step if the government were to consider legalization on a federal level.
Psychedelics and cannabis under review
The DOJ’s move to reclassify some forms of marijuana pick up where the Biden administration left off, pushing the broader reclassification process forward. In 2023, Biden’s Department of Health and Human Services recommended that marijuana be reclassified as a Schedule III drug, but the process stalled out in court – an outcome Trump is hoping to avoid.
The latest changes partially make good on an executive order that Trump issued in December that directed the DOJ to move forward with downgrading the drug’s official dangers, a move comes less than a month after Trump fired former Attorney General Pam Bondi. Bondi had opposed marijuana reform over the course of her career, but her ouster was widely considered to be the result of friction with Trump over her handling of files from the Jeffrey Epstein investigation, not a result of her stance on drug policy.
President Trump has been focused on reforming federal drug policy in recent days. Last week, Trump issued an executive order to accelerate research on psychedelic drugs like MDMA and psilocybin, the psychoactive compound in magic mushrooms. In research, psychedelic drugs have shown untapped potential for treating everything from addictive disorders and PTSD to serious depression.
In a signing event for that order over the weekend, Trump expressed frustration that government officials were “slow-walking” the rescheduling process for marijuana. “You’re going to get the rescheduling done, right, please?” Trump said to an off-camera government employee. “You know, they’re slow-walking me on rescheduling. You’re going to get it done, right?”
Weed business stuck in a maze of rules
While rescheduling is a major change for a drug long categorized as equally dangerous to heroin, it won’t solve all of the cannabis industry’s headaches. The move doesn’t legalize marijuana on a federal level, leaving its legal status to a patchwork of state laws with little interplay. Cannabis products are currently legal in 40 out of 50 states for medical use, while 24 states and Washington, D.C. have opened the door for legal adult recreational use.
The federal government’s decision to reschedule marijuana won’t untangle the web of state laws and the restriction on interstate commerce, but it could give weed companies a big boost on taxes.
Cannabis businesses have long been subject to Section 280E of the IRS code, which blocks them from tax credits and deductions that their non-cannabis counterparts enjoy. Because those companies pay taxes on their gross income rather than adjusted income, effective tax rates can be as high as 70% in the cannabis business.
Reclassification could set the scene for some tax relief, but it won’t happen automatically. The IRS will need to weigh in first in order to reinterpret how 280E applies in an environment in which marijuana drops out of Schedule I to become a Schedule III drug. Still, in an industry facing a devastating glut of product, flat demand, and plummeting prices, any hope on the horizon is enough for a buzz.