Federal Reclassification: What Trump's Executive Order Means for California Cannabis

President Donald Trump signed an executive order (EO) on December 18, 2025, directing federal agencies to expedite the reclassification of cannabis from Schedule I to Schedule III, representing a significant and measured step toward federal recognition of cannabis's medical value. 

What the Order Does (and Doesn't) Do

The executive order directs Attorney General Pam Bondi to complete the Drug Enforcement Administration's (DEA) ongoing rulemaking process as expeditiously as possible. This is crucial context: the Biden administration initiated this review in 2022, but the process stalled when Trump took office. The executive order is accelerating an existing process, not creating an immediate change. 

Schedule III classification (shared with substances like ketamine and Tylenol with codeine) recognizes moderate abuse potential and accepted medical uses. Still, cannabis remains federally restricted until the DEA publishes its final rule. The executive order explicitly states that it creates “no enforceable rights” and must be implemented in a manner consistent with existing law.

The president was explicit about what this doesn't do: “It doesn't legalize marijuana in any way, shape or form,” Trump stated.

Potential Benefits for Licensed Operators

For California's legal cannabis industry, the implications are significant…eventually. 

Schedule III reclassification could eventually exempt cannabis businesses from IRS Code Section 280E, finally allowing standard business expense deductions for rent, payroll, and operational costs. This has been a crushing burden on legal California businesses competing against illicit operators. The reclassification could also improve access to banking and attract institutional capital that compliance concerns have sidelined.

Additionally, expanded research pathways could strengthen the evidence base for cannabis medical applications, legitimizing the therapeutic products many consumers rely on.

A Separate Threat: The Hemp CBD Wildcard

Separately (and receiving less attention), the EO directs the White House to work with Congress on redefining access to “appropriate full-spectrum CBD products” while restricting products that pose “serious health risks.” This language opens a regulatory pathway that could define THC-containing hemp products outside the cannabis system. Because the order leaves “appropriate” and “serious health risks” undefined, Congress will likely determine where the line falls.

If lawmakers create a separate regulatory regime for hemp-derived THC products, it could undermine the regulated cannabis market. Operators need to monitor these discussions closely and ensure that any hemp product framework includes appropriate oversight, testing, and tax obligations.

Why Timing Matters

The path to reclassification will take months, potentially years. Public comment periods, hearings, and legal challenges are all part of the process. California operators can't bank on Schedule III benefits next quarter, yet they should position their businesses to capitalize on them when they arrive.

“This executive order represents a federal acknowledgment of what California operators have known for years: cannabis has legitimate medical and economic value,” said Amy O’Gorman Jenkins, Executive Director of the California Cannabis Operators Association (CaCOA). “Successful reclassification could relieve crushing federal tax burdens and help level the playing field against illicit competitors. That said, CaCOA remains focused on what completion of the DEA process actually looks like, not premature expectations. We are also closely watching the hemp regulatory pathway contemplated by this order and will work to ensure Congress does not create an end-run around the legal frameworks governing cannabis. In the meantime, CaCOA will continue advancing sensible state-level policies that stabilize the legal market today.”

The California Context

While federal progress moves forward, California's cannabis crisis still demands immediate attention. With 57% of jurisdictions banning retail and the illicit market dominating sales, federal reclassification alone won't save struggling legal businesses. State tax relief, expanded retail access, and aggressive enforcement against untaxed hemp products remain essential priorities for operators fighting to survive in 2026 and beyond.

GO DEEPER: California Cannabis 2025 Victories and 2026 Advocacy Roadmap

Federal recognition of cannabis's medical value is welcome progress. And yet, it's just one piece of a much larger puzzle California must solve to realize the promise of a thriving, legal cannabis market.