What Will Rescheduling Mean, Really?

Cannabis-based businesses have been stuck in purgatory for years, waiting for the federal government to follow through on what it’s been signaling for over a decade: moving cannabis from a Schedule I substance to a Schedule III. It’s a major step forward, but let’s be clear — this isn’t legalization. Not even close.

What many consumers don’t realize is that rescheduling is not legalization. Yes, it’s a step forward. Yes, it makes things easier for the industry. However, cannabis will still be a federally controlled substance — just one controlled a little less tightly.

Here at The Green Letter, we’re breaking down what rescheduling actually means for the industry, the community, and the people most affected.

What Will Be Legal, Where?

Some states seem to be working backwards. Texas legislators are moving to ban any products with even a trace amount of THC, and Massachusetts bills are lumping non-intoxicating CBD into bills meant to regulate high-THC products. Other states like Idaho still ban THC entirely, and others from Nebraska to North Carolina allow only Farm Bill-compliant products with no access to traditional cannabis.

Consumers in these states are likely excited about potential rescheduling; however, what is not widely understood is that rescheduling likely won’t make a difference in strict states. Why? Cannabis legality is primarily governed at the state level; this is why states like California and Colorado have been able to decriminalize and legalize cannabis despite the current Schedule I ranking. When the schedule changes, illegal states still have the right to maintain current bans on both medical and recreational use, unless their own legislators decide to change course.

Impacts On Conducting Businesses

Currently, businesses selling a Schedule I substance are not allowed to deduct major business expenses like rent, employee salaries, or marketing campaigns when filing taxes. This means cannabis businesses are often paying tax rates of 60% to 80% — exponentially larger than the average business tax cost of about 21%. 

Rescheduling would eliminate the IRS Code 280E, allowing business taxes to be paid at a lowered rate and offering six-figure savings for many. Ideally, these savings would eventually be passed along to the consumer, but it may take some time. After operating at smaller-than-ideal margins, businesses may need some time to improve those margins, reinvest in their business, and put some money in the bank as a cushion. In addition, federal rescheduling would still prohibit interstate commerce, and product supply chains will still be limited until Congress removes blocks prohibiting cannabis to cross state borders, which could keep supply costs somewhat elevated.

Dollars that stay in the hands of business owners also allow easier expansion, but acquiring loans to do so may still be a challenge. Many companies in the industry struggle to find banks that will provide business loans, business checking accounts, and payroll services. While rescheduling may somewhat ease this challenge, full banking access may not be available until the government either completely legalizes cannabis or fully passes the SAFER Banking Act. 

Advancements in Scientific Research

As a Schedule I substance, scientists must jump through hoops to perform research that could advance the industry, and potentially advance medical treatments for a slew of health conditions. Researchers must acquire the challenging DEA Schedule I registration, wait many months for protocol approvals, and source materials from DEA-approved suppliers rather than actual dispensaries. 

Rescheduling would allow scientists access to a much broader range of cannabis products from flower to edibles to vapes and more. Easier protocols would mean scientists would be examining relevant samples, would be able to conduct large-scale clinical trials, and potentially acquire further funding for studies. Additional private or university labs may have opportunities to begin various studies on cannabinoids, terpenes, and delivery methods, accelerating research that could lead to enlightening new developments while strengthening the legitimacy of cannabis’ therapeutic claims.

Increased Regulation and Strict Protocols

Schedule III substances, as mentioned above, are still subject to federal regulation. In this case, there are pros and cons to FDA oversight. As we’ve heard from multiple interviewees in The Green Letter, many operators say the industry can still feel like the Wild West when it comes to industry standards — processes, labeling, extraction methods, and more vary widely from state to state. While existing labs offer certain testing protocols, samples are not always provided in a consistent manner. These inconsistencies lead to brands operating and labeling products in ways that may be manipulated to position certain products in a specific light, and could leave out important details that consumers deserve to understand.

While FDA oversight would improve consistency in testing and labeling – improving consumers’ experiences – brands will likely have to make some major changes in the way they test, package, and label their products. We already hear so much about compliance, but that word will take on a stronger meaning as increased regulations are applied. Product formulations may have to be reworked, flower may require various additional testing, labels may need to include specific required details, and marketing claims will need to be substantiated. In the long term, this will improve consumer confidence, but brands will have to do a lot of legwork upfront to shift their processes.

Medical Benefits – or Big-Pharma Concern?

Increased regulation consistencies, business opportunities, and scientific research could lead to incredible opportunities for cannabis to be integrated into the medical field. Existing brands could expand product lines, new businesses could arise to manufacture products specifically for treatment of certain conditions, and doctors could begin prescribing cannabis to support their patients. At first glance, this seems like an overwhelming benefit to combatting big pharma and supporting natural approaches to wellness.

Well — not quite. We all know what big pharma companies are capable of, and if access to cannabis allows integration into their existing product lines, what does that mean for the industry’s small businesses community and its natural healing ideology?

Acceptance of cannabis can expand because of big pharma’s influence, but that’s only the tip of the iceberg. Ripple effects could mean dangerous positioning for nature-based or family-owned businesses, as big pharma’s overwhelming influence could also mean an immediate market-share grab. These massive corporations can easily outspend mom-and-pop companies, coordinating partnerships with major hospitals and pharmacy chains. It’s not like big pharma isn’t aware of the potential benefits of cannabinoids; rather, they are likely lying in wait for the right time to swing into the market and become the leading industry driver. Not only could this ruin the industry’s small business community, it could also shift the entire industry narrative of prioritizing holistic, natural, plant-based healing to the plant being a pharmaceutical commodity.

What About People with Prior Convictions?

Here’s where the disappointment hits hardest: rescheduling doesn’t touch criminal records. It doesn’t clear past convictions. It doesn’t free anyone still incarcerated for cannabis-related offenses. It doesn’t even stop state-level prosecutions in places where cannabis remains illegal.

While like New York have taken steps toward automatic expungement or record-clearing, the federal government has not. Rescheduling does nothing to correct past harms. That will require dedicated criminal justice reform — legislation like the MORE Act, or a full decriminalization policy that includes retroactive relief. Until that happens, people who were punished under outdated laws will continue to carry the burden.

So Where Do We Stand?

Unfortunately, still in purgatory, but perhaps a bit closer to its exit. Rescheduling from I to III means there is a potential to increase momentum in the direction of full legalization, but there will continue to be hurdles to jump. Businesses will still face challenges in everything from banking to marketing, and consumers in illegal states could not see any changes at all. Medical applications could expand and provide additional relief to millions of people, but big pharma could eradicate the industry’s holistic narrative. The number of individuals incarcerated may decrease, but rescheduling has no inherent order to release those currently incarcerated. 

As a community, we must all do our homework, and we must continue advocating for the industry we’d like to see. What standards do we need to put in place now so we are ready to meet protocols as they change? What conversations do we need to have with local and state representatives to increase the likelihood of reducing illegalities? As the market will likely expand, what can brands do now to maintain their visibility and customer base?

If you have a moment, we would love to hear your thoughts. The Green Letter will continue to stay on top of these major shifts, and elevate the voices of those in cannabis. Stay tuned!