Lead
President Donald Trump on Thursday directed the U.S. Food and Drug Administration to reclassify cannabis from a Schedule I to a Schedule III substance, a federal shift that could broaden clinical study opportunities and change financial rules for marijuana businesses. The change is set to take effect in the second quarter of next year and does not legalize recreational use nationally — Michigan remains one of 24 states that have legalized adult-use cannabis. For Michigan operators, the move could mean access to routine business deductions, easier banking and new investment, but many outcomes hinge on detailed federal guidance and implementation timing.
Key Takeaways
- The Trump administration ordered cannabis moved from Schedule I to Schedule III; the change is scheduled to begin in Q2 of next year.
- Schedule III classification aligns cannabis with drugs like ketamine and testosterone, easing some research controls and potentially increasing federal funding for studies.
- Rescheduling could alter application of Internal Revenue Code Section 280E, allowing many cannabis businesses to claim ordinary business deductions instead of being taxed on gross profits.
- Michigan faces a new 24% wholesale tax on adult-use marijuana starting Jan. 1, which will combine with existing state taxes and affect margins.
- Banks have been hesitant to serve marijuana companies because of federal illegality; rescheduling may reduce that barrier but banks will await regulatory clarity.
- Michigan adult-use sales began in 2019; since then the market has seen oversupply, falling prices and slower sales growth, increasing pressure on smaller operators.
- Industry leaders and the Michigan Cannabis Regulatory Agency call for prompt, clear federal guidance to resolve tax, banking, research and equity issues.
Background
Federal drug scheduling places substances into categories that determine research controls, criminal penalties and regulatory oversight. For decades marijuana sat in Schedule I, defined as having no accepted medical use and a high potential for abuse; that classification restricted academic and clinical research and carried collateral regulatory consequences for businesses and patients. Schedule III drugs are treated as lower risk and include medicines such as ketamine and certain anabolic steroids; they are subject to fewer research restrictions and different prescribing and funding rules.
States have moved ahead of federal policy: Michigan implemented adult-use sales in 2019 and is one of 24 states to legalize recreational cannabis. That patchwork of state legalization alongside federal prohibition created persistent friction — banks, insurers and investors often treated state-legal cannabis commerce as high risk, and businesses could not access ordinary tax deductions because of Internal Revenue Code Section 280E. The net result has been constrained capital access, higher operating costs, and an industry that in many places still operates largely in cash.
Main Event
The executive order issued Thursday directs the FDA to re-evaluate marijuana’s scheduling and moves federal policy toward reclassification to Schedule III, with administrative changes expected to take effect in the second quarter of next year. The White House framed the order as recognition that many Americans report medical benefits from cannabis for chronic pain and other conditions. Officials emphasized that this is an administrative reclassification, not a nationwide legalization of recreational use.
Michigan regulators responded cautiously: the state’s Cannabis Regulatory Agency said it is reviewing the president’s order and urged federal authorities to provide “clear guidance and thoughtful implementation” on banking, research, taxation and social equity. Executive Director Brian Hanna said the development could advance federal debate but warned that implementation details will determine whether practical problems for patients and businesses are resolved.
On the ground in Michigan, operators and banking partners signaled optimism mixed with restraint. Jerry Millen, owner of the Greenhouse Dispensary in Walled Lake, predicted a rise in clinical studies and broader corporate interest. Ross Sloan, a cannabis banking officer at Dart Bank, said rescheduling would likely allow businesses to deduct ordinary operating expenses under normal tax rules — a change that could materially improve profitability for many operators.
Analysis & Implications
Research: Moving cannabis to Schedule III should loosen some regulatory hurdles for clinical trials and academic studies, making it simpler to secure federal grants and institutional review board approvals. That could accelerate high-quality research into cannabis’ effectiveness for chronic pain, inflammation and neurological disorders — areas already cited in peer-reviewed studies — and reduce reliance on small, state-funded investigations. Expanded research may also clarify dose-response relationships, side-effect profiles and interactions with other medications, informing clinical practice and product standards.
Taxation and finance: Reclassification could change how Section 280E is applied, allowing many state-legal cannabis businesses to claim routine business deductions rather than being taxed on gross receipts. That shift would likely lower effective tax rates for qualifying businesses, improve cash flow, and make financial statements more comparable to other industries. However, the tax impact depends on IRS guidance and possible legislative or regulatory clarifications; absent coordinated rules, disputes and uneven enforcement could persist.
Banking and capital: Banks are expected to revisit risk models for cannabis customers after rescheduling, but institutional engagement will depend on federal banking regulators’ instructions and banks’ own compliance determinations. If clearer guidance arrives, more banks could offer deposit, lending and payment services, reducing cash handling risks and lowering transaction costs. Likewise, rescheduling could invite larger investors and corporate entrants, increasing competition and the pace of product innovation — a mixed outcome for smaller operators facing price pressure.
Market dynamics in Michigan: The policy change arrives amid oversupply, softening prices and slower sales growth since Michigan’s 2019 adult-use rollout. A likely consequence is consolidation: better-capitalized firms and new entrants could expand quickly if regulatory and tax barriers ease, while marginal operators may seek bankruptcy protection or acquisition. The state’s 24% wholesale tax, scheduled to begin Jan. 1, will also affect margins and could shape how benefits from federal rescheduling are distributed across producers, processors and retailers.
Comparison & Data
| Attribute | Schedule I (marijuana) | Schedule III (examples) |
|---|---|---|
| Medical acceptance | Formally none | Accepted medical uses (e.g., ketamine, testosterone) |
| Research controls | Strict, limited federal funding | Fewer restrictions, broader funding potential |
| Tax treatment (Section 280E) | No ordinary-business deductions for sales of Schedule I | Eligible for standard deductions in practice |
| Typical federal penalty risk | High criminal penalties historically | Lower scheduling penalties |
The table summarizes how reclassification changes the regulatory and financial context: research becomes more accessible, tax treatment may align with other industries, and federal prosecutorial priorities may shift. These structural shifts do not remove state-level taxes like Michigan’s new 24% wholesale levy, nor do they guarantee instant changes in bank behavior.
Reactions & Quotes
“As soon as it goes into place, you’re going to start to see more studies. You’ll see attitudes start to change even more around cannabis.”
Jerry Millen, Greenhouse Dispensary owner (industry)
Millen framed the reclassification as a turning point for credible clinical investigation and mainstream business interest.
“This development has the potential to move the federal marijuana policy debate forward…but without coordinated, practical implementation it will not unilaterally resolve the challenges faced by patients, businesses, financial institutions, or state regulators.”
Brian Hanna, Executive Director, Michigan Cannabis Regulatory Agency (state regulator)
Hanna stressed that actionable federal guidance will determine whether the theoretical benefits materialize in practice.
“Business owners currently pay taxes on gross profits rather than net income. Most businesses are able to deduct operating expenses — that could change.”
Ross Sloan, cannabis banking officer, Dart Bank (banking)
Sloan highlighted the likely tax and cash-flow implications if Section 280E no longer applies as before to rescheduled products.
Unconfirmed
- Exact IRS interpretation: It is not yet confirmed how quickly or completely the IRS will change enforcement or guidance regarding Section 280E after rescheduling.
- Bank adoption timeline: There is no firm timetable for when large banks will expand services to cannabis firms; individual banks will act at different speeds based on risk assessments.
- Corporate market entry: While rescheduling may encourage corporate investment, the scale and timing of large corporate entrants into Michigan remain uncertain.
Bottom Line
Federal reclassification of cannabis from Schedule I to Schedule III is a significant administrative shift that could expand clinical research and materially alter the business landscape for Michigan marijuana operators. The most tangible near-term effects may be increased research activity and a pathway to standard tax deductions, which would ease pressure on profitability for many firms. However, the extent to which banks, investors and regulators change behavior depends on the specific federal guidance and regulatory steps that follow the order.
For Michigan stakeholders, the order offers opportunity and risk in equal measure: better access to research funding and potential tax relief on one hand, and a wave of competition and policy uncertainty on the other. Business owners, patients, banks and regulators should track federal implementing rules closely in the months ahead and prepare for a phased transition rather than an immediate reset.