The Trump administration has relaxed federal controls on medical cannabis, a move that could provide substantial tax relief and unlock new investment in the sector. This policy shift reclassifies medical cannabis products from a category of highly addictive drugs, such as heroin, to a lower-risk class of medicines, similar to prescription Tylenol, under the oversight of the Drug Enforcement Administration (D.E.A.). While this change does not federally legalise medical cannabis, it marks a significant regulatory adjustment.
Federal Reclassification and Tax Implications
The reclassification is anticipated to cut tax bills for some medical cannabis businesses by up to half. Companies selling cannabis have historically faced effective tax rates around 70 percent, more than double those of other businesses, due to being taxed largely on income rather than profits. Under the new category, businesses licensed to sell medical cannabis can claim common tax deductions for expenses such as rent and payroll, according to accountants and tax lawyers. A broader reclassification, which the Trump administration has initiated a process for, would extend these benefits to recreational cannabis.
The Treasury is reportedly considering making this tax relief retroactive, which would provide a significant boost to the industry. Whitney Economics, a cannabis research firm, reported that legal cannabis companies collectively owed the Internal Revenue Service (IRS) US$2.24 billion in 2025. Publicly traded companies, including Trulieve, Florida’s largest medical cannabis company, and Curaleaf, based in New York, accounted for over US$1.6 billion of this in federal taxes, according to their financial disclosures.
Despite the positive outlook, the specifics of implementation remain unclear. The Treasury and IRS have yet to issue detailed guidance, though the D.E.A. has begun allowing businesses to register. Questions persist regarding how businesses that sell both medical and recreational cannabis will be treated. Joe Andreae, chief executive of CULTA, a Maryland-based cannabis company, noted the challenge of delineating between the two segments under the new rules.
Industry Response and Investment Outlook
Industry stakeholders have largely welcomed the administration’s acknowledgment of the medical benefits of cannabis, viewing it as a foundational step toward broader reform. Patrick Rea, managing director of Poseidon, a cannabis-focused venture capital firm, indicated that the tax relief will enhance the industry’s appeal to investors, making it more viable for generating returns.
Nationally, cannabis businesses have faced rising supply-chain costs and a glut of legal crops, leading to price declines. Economist Beau Whitney reported that 24 of the 40 states with legal medical or recreational cannabis saw revenues decline in 2025. A substantial tax break could offer critical support, with Austin Ownbey, a Washington, D.C.-based partner at Akerman LLP, suggesting it could render some businesses profitable or more profitable.
Many cannabis companies have delayed filing taxes in anticipation of rescheduling. Jeffrey Schultz, a cannabis lawyer at Foley Hoag LLP in New York, has advised clients with IRS extensions to consider further delays and those who have already filed to explore amending their returns, as they may not owe the full amount previously calculated.
Reduced tax burdens could also enable cannabis companies to invest more in research necessary for Food and Drug Administration (FDA) approval, which would facilitate federal prescription of cannabis-based treatments. Executives from Trulieve, Curaleaf, and Tilray, a New York-based company with cannabis operations in Canada, have expressed intentions to fund research into cannabis-based treatments for conditions such as cancer, nerve pain, and seizures. Kim Rivers, chief executive of Trulieve, highlighted the industry’s evolution, stating that the rescheduling acknowledges the regulated and nuanced nature of the business and the demand for research-backed products.
Remaining Hurdles and Recreational Cannabis Concerns
The initial reclassification notably excluded recreational marijuana. Shawn Hauser, co-chair of the cannabis practice at Vicente LLP, explained that the treaty powers used by the Trump administration to bypass the bureaucratic rule-making process limited the reclassification to medical cannabis. The administration is pursuing similar changes for recreational marijuana, with a hearing scheduled for June 29, though this is expected to face opposition from anti-legalization groups such as Smart Approaches to Marijuana.
Businesses focused solely on adult recreational use are concerned about potential competitive disadvantages. Eddie Brennan, president of Beak & Skiff, a New York-based company with cannabis and hemp products, expressed apprehension about being excluded from the reclassification benefits. Additionally, the company is preparing for a potential national ban on hemp products containing more than 0.4 milligrams of THC per container, which could significantly reduce its market reach.
Despite the reclassification, medical cannabis remains federally illegal, requiring either an act of Congress, FDA approval, or removal from the federal controlled substances list for full legality. This ongoing federal illegality continues to deter banks, institutional investors, and insurance companies, limiting financial services access and increasing borrowing costs for cannabis businesses. Consumers are often required to use cash or PIN debit for transactions, as major payment processors like Visa and Mastercard do not permit cannabis transactions. Even the D.E.A. requires medical cannabis businesses seeking federal registration to submit application fees via PayPal or bank transfer. Efforts in Congress to provide protections for financial institutions serving state-licensed businesses have not yet succeeded. The interaction between federal reclassification and existing state laws also presents complexities, with economist Beau Whitney noting that “There’s just a lot of questions, a lot of murkiness,” adding: “The devil’s in the details.”
Disclaimer: This article is for informational purposes only and does not constitute medical advice. Hemp Gazette does not provide medical recommendations, diagnoses, or treatment plans. Always consult a qualified healthcare practitioner before making any decisions regarding your health or any medical condition. Statements concerning the therapeutic uses of hemp, cannabis, or cannabinoid-derived products have not been evaluated by Australia’s Therapeutic Goods Administration (TGA). Medicinal cannabis products in Australia are accessed via prescription pathways under TGA regulation.
