Federal Cannabis & Hemp Update

Executive Order 14370, Marijuana Rescheduling, and the 2026 Hemp Reckoning

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Quick Summary:

Federal cannabis and hemp policies are beginning to diverge in meaningful ways. Momentum toward rescheduling marijuana to Schedule III signals potential progress for state-licensed cannabis operators, with the promise of improved tax treatment, expanded research opportunities, and more stable long-term operating conditions—once the process is finalized. At the same time, stricter federal hemp rules set to take effect in November 2026 present real challenges for the intoxicating hemp market, underscoring a shift toward a more regulated, compliance-driven landscape across both sectors.

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On December 18, 2025, President Trump signed Executive Order 14370, “Increasing Medical Marijuana and Cannabidiol Research.” The Executive Order is intended to accelerate the federal process of moving marijuana from Schedule I to Schedule III under the Controlled Substances Act (CSA). Importantly, the EO does not itself reschedule marijuana. Rescheduling must still be completed through the DEA and DOJ rulemaking and hearing process, and as of January 2026 the rule is not final.¹

Separately, Public Law 119–37, enacted on November 12, 2025, amends the statutory definition of lawful hemp. When these changes take effect on November 12, 2026, they are expected to eliminate large portions of the hemp-derived intoxicating cannabinoid market, unless Congress intervenes.²

Bottom line: Marijuana rescheduling represents a potential tailwind for state-licensed cannabis operators, particularly on taxation and research. In contrast, the hemp-derived cannabinoid market faces a hard federal regulatory cliff in November 2026.

What the EO does

• Directs the Attorney General to move the marijuana rescheduling rulemaking process forward “as expeditiously as possible,” consistent with applicable law.¹

• Frames federal cannabis policy around medical marijuana and cannabidiol research, citing Schedule I status as a barrier to scientific study and patient access.¹

• Instructs senior White House officials to engage Congress on potential updates to the hemp definition, with the stated goal of preserving access to appropriate full-spectrum CBD while limiting products viewed as high-risk.¹

What the EO does not do

• It does not legalize adult-use cannabis at the federal level.³

• It does not automatically legalize state cannabis dispensaries or convert state medical “recommendations” into federally recognized prescriptions.⁴

• It does not override or delay the hemp definition changes enacted in Public Law 119–37.²

Why Rescheduling to Schedule III Matters

If marijuana is ultimately moved to Schedule III, several practical consequences follow:

• Research barriers are reduced. Schedule III substances are subject to fewer restrictions than Schedule I substances, making it easier for universities, hospitals, and pharmaceutical companies to conduct clinical research.⁵

• Marijuana remains a controlled substance under the CSA. DEA registration, compliance obligations, and oversight would still apply—just under a different scheduling framework.⁶

• Section 280E tax relief. Section 280E applies only to Schedule I and II substances. Rescheduling to Schedule III is widely expected to allow state-legal cannabis businesses to deduct ordinary and necessary business expenses going forward, subject to IRS guidance and the final rule’s effective date.⁷

Implications for State Cannabis Programs

If marijuana is ultimately rescheduled to Schedule III, state-licensed operators could see gradual tax and cash-flow improvement as Section 280E is eliminated, though the timing will depend on the final rule’s effective date and subsequent IRS guidance.⁸ Rescheduling would also ease barriers to research, making it more feasible to form partnerships with universities, hospitals, and pharmaceutical companies, which supports medical-use positioning, clinical validation, and longer-term product development.⁵

At the same time, several structural constraints would remain unchanged in the near term. Most state-legal cannabis products would still be unapproved by the FDA, and Schedule III substances are typically prescribed and dispensed through federally compliant medical channels that do not align with how state markets currently operate.⁴ Banking and capital markets access may improve incrementally, but rescheduling on its own does not create a comprehensive statutory safe harbor or fully resolve institutional risk concerns.⁸

Hemp: The Larger Federal Shift Is Already Locked In

Public Law 119–37 revises the definition of “hemp” under federal law.² Legal analyses and Congressional Research Service (CRS) guidance indicate that, once effective, the revised definition will exclude many hemp-derived cannabinoid products currently sold in the market.⁹ Beginning November 12, 2026, products that fall outside the new definition will no longer qualify as hemp and will instead be regulated as marijuana under the Controlled Substances Act.⁹

While Executive Order 14370 acknowledges concerns about preserving access to appropriate CBD products, it does not amend the underlying statute. Any material change to the federal hemp definition would require new congressional action.¹⁰

Key Dates

• December 18, 2025 — Executive Order 14370 signed¹¹

• December 23, 2025 — EO published in the Federal Register¹

• January 2026 — Marijuana rescheduling remains pending; administrative process ongoing³

• November 12, 2026 — Revised federal hemp definition takes effect⁹

Practical Takeaways

For state-licensed cannabis operators, it is prudent to begin planning now for post-280E accounting and tax strategies, with the understanding that actual implementation will depend on the final rescheduling rule’s effective date and subsequent IRS guidance.⁶ In the near term, regulatory momentum is likely to favor medical, research-oriented, and compliance-forward positioning rather than immediate or broad federal commercialization opportunities.¹

For hemp-derived cannabinoid businesses, November 2026 should be treated as a firm regulatory deadline unless Congress acts to modify federal law.⁹ The remaining runway should be used strategically to reformulate products, pivot toward clearly compliant CBD offerings, diversify product lines, or pursue consolidation and exit options in anticipation of a significantly more restrictive federal environment.⁹

Sources

1. Federal Register, Increasing Medical Marijuana and Cannabidiol Research (Dec. 23, 2025)

2. Public Law 119–37, 119th Congress (Nov. 12, 2025)

3. Ropes & Gray, Blowing Smoke? White House Orders Completion of Marijuana Rescheduling… (Jan. 2026)

4. JD Supra, Rolling Forward: Cannabis Reform Takes a New Turn

5. Ohio State Moritz College of Law, Federal Marijuana Rescheduling: Process and Impact

6. Vicente LLP, Cannabis Rescheduling Explained

7. Congressional Research Service, Legal Consequences of Rescheduling Marijuana

8. Reuters, Cannabis at an Inflection Point: Federal Rescheduling, Hemp Crackdowns… (Jan. 14, 2026)

9. Congressional Research Service, Changes to the Statutory Definition of Hemp and Issues for Stakeholders

10. American Presidency Project, Executive Order 14370

White House, Fact Sheet: President Donald J. Trump Is Increasing Medical Marijuana and Cannabidiol Research