Cannabis Sector Ignites on Landmark Reclassification by White House
Executive order moves marijuana to Schedule III, unlocking billions in tax savings for U.S. companies by eliminating the restrictive 280E tax code.
The U.S. cannabis industry is poised for a seismic financial transformation after President Donald Trump signed a historic executive order reclassifying marijuana from a Schedule I to a Schedule III substance under the Controlled Substances Act.
The move, which was confirmed on Thursday, December 18, 2025, represents the most significant federal cannabis policy reform in American history and is expected to unleash a wave of investment and profitability across the sector. Cannabis stocks surged in pre-market trading as investors reacted to the monumental shift that effectively ends a decades-long policy equating marijuana with drugs like heroin and LSD.
The primary impact of the reclassification is the immediate elimination of Internal Revenue Code Section 280E for all state-legal cannabis operators. This punitive tax provision, which applied to Schedule I and II substances, barred businesses from deducting standard operating expenses from their federal tax filings. As a result, many cannabis companies faced effective tax rates ranging from 40% to as high as 80%, crippling cash flow and hindering growth.
"This is the moment the industry has been working towards for years," said one industry analyst. "Removing 280E is not just a minor tweak; it fundamentally refactors the business model for every legal cannabis company in the United States. It instantly improves profitability and makes the entire sector more attractive to institutional capital."
According to reports from BNN Bloomberg, the action follows a recommendation first made by the Department of Health and Human Services (HHS) in late 2023. The reclassification to Schedule III acknowledges cannabis's accepted medical use and lower potential for abuse, placing it in the same category as substances like ketamine and Tylenol with codeine.
For investors, the move is a powerful de-risking event. By aligning the tax structure of cannabis businesses with that of traditional industries, the executive order is projected to free up billions of dollars in capital. This capital can now be reinvested into research, expansion, and marketing, rather than being diverted to cover disproportionate tax bills. Analysts expect a significant uptick in M&A activity as newly profitable companies look to consolidate market share.
The decision also promises to accelerate medical research. As noted by CBS News, academics and pharmaceutical firms can now pursue studies on cannabis with fewer of the bureaucratic hurdles and security protocols that its Schedule I status required. This could fast-track the development of new, FDA-approved cannabis-derived medicines.
While the order does not federally legalize recreational cannabis, its financial and cultural impact is hard to overstate. The reclassification provides a new level of legitimacy to the industry and may create momentum for further reforms, including potential changes to banking laws that have historically prevented cannabis companies from accessing traditional financial services. The industry will now watch closely as the Drug Enforcement Administration (DEA) implements the directive and as companies begin reporting financial results under the new, more favorable tax regime.