President Donald Trump signed an executive order on Thursday directing federal agencies to reclassify marijuana from Schedule I to Schedule III, marking the most consequential shift in U.S. cannabis policy in more than half a century.
The move doesn’t legalize recreational pot, but it fundamentally reshapes the regulatory, financial, and medical landscape for an industry that has operated in legal purgatory for decades.
Here’s the real story: Trump just handed the cannabis industry a multibillion-dollar tax break while simultaneously launching a Medicare pilot program for CBD that has scientists scratching their heads. Meanwhile, 22 Republican senators are publicly furious, cannabis stocks are doing their usual roller-coaster routine, and Robert F. Kennedy Jr. is out there talking about the “miraculous effects” of cannabinoids. Welcome to federal drug policy in 2025.
What Is a Schedule III Drug, and Why Does This Matter?
To understand why this executive order is such a seismic shift, you need to understand the Drug Enforcement Administration’s scheduling system. Since the Controlled Substances Act of 1970, marijuana has been classified as Schedule I, the most restrictive category reserved for substances with “no currently accepted medical use and a high potential for abuse.” That puts cannabis in the same regulatory bucket as heroin, LSD, and ecstasy.
Schedule III substances, by contrast, are defined as having “moderate to low potential for physical and psychological dependence” with recognized medical applications. The company marijuana will now keep includes ketamine, Tylenol with codeine, testosterone, and anabolic steroids. The distinction isn’t just semantic; it triggers a cascade of regulatory, tax, and research implications that cannabis operators have been desperate to unlock.
The executive order directs Attorney General Pam Bondi to expedite the completion of the rescheduling rulemaking process, which the Biden administration initiated but never finished. Trump emphasized repeatedly that this “doesn’t legalize marijuana in any way, shape or form, and in no way sanctions its use as a recreational drug.” He framed it purely through a medical research lens, citing patients with chronic pain, cancer, seizure disorders, and veterans with service-related injuries.
The $2.3 Billion Tax Question
Let’s follow the money, because that’s where this story gets interesting. Under IRS Code Section 280E, businesses that traffic in Schedule I or Schedule II controlled substances cannot deduct ordinary business expenses like rent, payroll, and equipment. This has created a punishing tax environment where cannabis companies effectively pay taxes on their gross revenue rather than their profits.
Moving marijuana to Schedule III eliminates that penalty entirely. Industry analysts estimate this will save cannabis businesses approximately $2.3 billion annually. For companies like Trulieve and Tilray, which have been hemorrhaging cash while trying to comply with byzantine federal-state regulatory conflicts, this is the financial lifeline they’ve been waiting for.
The reclassification also opens the door to banking access and institutional capital that has historically avoided the sector over compliance fears. Many on Wall Street expect the changes will draw major pharmaceutical players into the cannabis space to chase federally insured revenue, particularly through the new Medicare CBD pilot program.
The Medicare CBD Pilot: Revolutionary or Reckless?
This is where things get genuinely controversial. The executive order includes a novel provision directing the Centers for Medicare and Medicaid Services, led by Dr. Mehmet Oz, to launch a pilot program in April allowing certain Medicare-covered seniors to receive free, doctor-recommended CBD products.
The initiative is being championed by billionaire Howard Kessler, a Trump ally who founded The Commonwealth Project, an organization that produced a video Trump shared on Truth Social calling CBD coverage “the most important senior health initiative of the century.”
Here’s the problem: the science doesn’t support the hype. FDA-funded research warns that prolonged CBD use can cause liver toxicity and interfere with other life-saving medications. A 2023 review of 134 studies involving adults over 50 found medical cannabis to have “inconsistent outcomes” for conditions like end-stage cancer and dementia.
“It’s not at all based on science. This is all based on money, and it’s egregious,” said Meg Haney, director of the Cannabis Research Laboratory at Columbia University. “That’s not the way we make medical decisions.”
HHS Secretary Robert F. Kennedy Jr., who has previously endorsed therapeutic use of cannabis and psychedelics, acknowledged that “there are valid claims on both sides” but emphasized the potential benefits for chronic pain, epilepsy, PTSD, and chemotherapy-induced nausea.
Cannabis Stocks: The Whiplash Is Real
If you’ve been watching Tilray stock this week, you’ve witnessed the chaotic energy of a policy-driven market in real time. Shares surged 44% on Friday when reports first emerged about the executive order, then dropped 10% Monday, jumped 27% Tuesday on “Weednesday” speculation, and were up about 6% following the actual signing.
The Amplify Seymour Cannabis ETF rallied more than 54% for its best day on record. Canopy Growth jumped 52%. But here’s the reality check: Tilray shares are still trading around $14 after peaking at more than $2,140 (split-adjusted) in September 2018. The cannabis sector has been a graveyard of investor dreams, and one executive order doesn’t change the structural challenges these companies face.
Market reaction to the actual signing was mixed. While Tilray rose modestly, Trulieve sank roughly 15% and Green Thumb Industries fell around 5%. The AdvisorShares Pure US Cannabis ETF dropped more than 10%. Investors are clearly wrestling with what Schedule III actually means for specific business models.
Tilray CEO Irwin Simon told CNBC, “I’m a lot more optimistic than I ever have been,” but acknowledged that reclassification represents only a “partial victory” until Congress creates a comprehensive federal framework.
The GOP Civil War Over Weed
Perhaps the most underreported story here is the open revolt within Trump’s own party. Twenty-two Republican senators, including Senate Majority Whip John Barrasso and close Trump allies like Tommy Tuberville and Lindsey Graham, sent a letter urging the president to maintain marijuana’s Schedule I status.
“The only winners from rescheduling will be bad actors such as Communist China, while Americans will be left paying the bill,” the senators wrote, adding that the move would “undermine your strong efforts to Make America Great Again.”
Senator Rick Scott, whose brother died after a lifelong battle with drug addiction, was blunt: “It’s a gateway drug. Marijuana impacts your brain. There’s no ifs, ands or buts about it.”
House Republicans mounted their own opposition, with Rep. Pete Sessions and House Freedom Caucus Chairman Andy Harris leading 24 GOP lawmakers in arguing that reclassification will “send the wrong message to America’s children, enable drug cartels, and make our roads more dangerous.”
The White House response was notably measured: “The President is committed to expanding medical research into promising treatments for American patients. Today’s EO does not legalize recreational marijuana use, nor does it pave the way to recreational marijuana use.”
What This Means for You
If you’re in a state where cannabis is legal, not much changes immediately. You’ll still buy from the same dispensaries under the same state rules. What changes is happening behind the scenes: your local cannabis shop may soon have access to normal banking services, may be able to deduct their rent from their taxes like any other business, and may see new competition from pharmaceutical companies entering the space.
If you’re a Medicare recipient interested in CBD, the pilot program launching in April could provide access to doctor-recommended products at no cost. But proceed with caution: the FDA has not approved CBD for most of the conditions being touted, and there are legitimate safety concerns, particularly for seniors taking multiple medications.
If you’re a cannabis investor, buckle up. This sector remains one of the most volatile in the market, heavily driven by regulatory headlines rather than fundamental business performance. The removal of 280E tax penalties is genuinely significant, but interstate commerce barriers, banking restrictions, and inconsistent state regulations will continue to constrain growth.
The Bottom Line
Trump’s executive order is a genuine inflection point for federal cannabis policy, but it’s not the legalization breakthrough some advocates hoped for. It’s a pragmatic, business-oriented reform that prioritizes tax relief and medical research while explicitly distancing itself from recreational use.
The real question is what comes next. Will Congress act to create a comprehensive regulatory framework? Will the Supreme Court weigh in on state-federal conflicts? Will the Medicare CBD pilot produce evidence that justifies broader integration into the healthcare system, or will it reveal the hype to be exactly that?
According to Gallup, 64% of Americans support legalizing marijuana. The gap between public opinion and federal policy has been widening for decades. Thursday’s executive order narrows it, but doesn’t close it. For the cannabis industry, that’s progress. For policymakers, the hard work is just beginning.