Marijuana

Jacob Sullum | 12.15.2025 3:35 PM

During his 2024 campaign, President Donald Trump indicated that he supported the Biden administration's plan to reclassify marijuana under the Controlled Substances Act (CSA), saying "we will continue to focus on research to unlock the medical uses of marijuana [as] a Schedule 3 drug." Last August, Trump confirmed that his administration was "looking at reclassification," a move he reportedly discussed last week during a telephone call with House Speaker Mike Johnson (R–La.) that also included cannabis industry executives. The Washington Post reports that Trump is expected to issue an executive order that "directs federal agencies to pursue reclassification," which MJBizDaily says could happen this week.

Since 1970, marijuana has been listed in Schedule I of the CSA, a category supposedly reserved for substances with a high abuse potential and no accepted medical use—drugs so dangerous that they cannot be used safely even under a doctor's supervision. That classification has never made much sense, and moving marijuana to Schedule III, a category that includes prescription drugs such as ketamine, Tylenol with codeine, and anabolic steroids, would recognize that it does not meet the criteria for Schedule I. But the practical impact of rescheduling would be relatively modest.

"Symbolically, it suggests that maybe marijuana isn't as harmful as people thought [and that] maybe it does have some health benefits," Vanderbilt University law professor Robert Mikos, who specializes in drug policy, told The Washington Post. "On the practical side, though, the impact is pretty muted."

Placing marijuana in Schedule III would not legalize recreational use, and it would allow medical use only if the Food and Drug Administration (FDA) approved specific cannabis-based products as prescription drugs. Producing and distributing marijuana, even in compliance with state law, would still be federal crimes, albeit subject to somewhat less severe penalties. Reclassifying marijuana nevertheless would be a financial boon to state-licensed marijuana businesses, relieving them of a disability that results in staggeringly high effective income tax rates. It also would make medical research easier by eliminating federal restrictions that are specific to Schedule I.

Under Section 280E of the Internal Revenue Code, businesses that supply Schedule I or Schedule II substances in violation of federal law are not allowed to claim standard deductions for expenses such as advertising, renting retail space, and paying sales staff. Counterintuitively, tax courts have ruled that such businesses can deduct the "cost of goods sold," which includes expenses directly related to cultivating, processing, and purchasing marijuana. But the inability to claim deductions available to fully legal businesses has long plagued the cannabis industry, making it difficult for marijuana merchants to turn a profit, let alone invest in expansion.

The 280E restriction "often results in tax rates of more than 70% for marijuana retailers in particular," MJBizDaily noted in 2023. "I cannot emphasize enough that removal of § 280E would change the industry forever," cannabis lawyer Vince Sliwoski wrote around the same time. "Having worked with cannabis businesses for 13 years, I view taxation as the largest affront to marijuana businesses—more than banking access, intellectual property protection........

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