2025 could be a year of transformation for the cannabis industry.
With the potential rescheduling of cannabis on the horizon, a new era of opportunity awaits.
However, the industry faces key challenges that must be addressed to realize this potential fully.
Rescheduling and Regulatory Changes
A shift in federal drug policy could be on the horizon for the cannabis industry if it is rescheduled from a Schedule I to a Schedule III substance in 2025.
In May, the US Department of Justice initiated the process to potentially reschedule cannabis on the recommendations of the US Department of Health and Human Services (HHS).
In August, the US Drug Enforcement Administration (DEA) published a Notice of Proposed Rulemaking in the Federal Register, an important step in the formal process of rescheduling.
On November 26, after a public comment period, the DEA announced it would hold a formal hearing on the matter.
If successful, this move has the potential to significantly benefit cannabis businesses by removing barriers to essential services like banking and patent protection. However, the process has encountered delays and is now not expected to be finalized until late 2025.
On October 31, the trial was postponed from December 2 until early 2025 when Chief Administrative Law Judge John Mulrooney II challenged the process by which the DEA selected its witnesses, requesting more information on the qualifications of those set to testify.
“Indeed, the [Participant Letter] contains only a list of persons and organizations accompanied by one or more email addresses, without the benefit of notices of appearance, addresses, or even phone numbers,” the Judges order says, as reported by Marijuana Moment. Judge Mulrooney gave the DEA until November 12 to “provide its counsel(s) of record who will be appearing in these proceedings, as well as any known conflicts of interest that may require disclosure.”
On November 20, Judge Mulrooney ruled who could testify in the trial. The decision came after some witnesses withdrew their requests to participate. Nearly everyone on the list was approved, with only a few exceptions.
Following a motion to remove the DEA as a proponent of rescheduling on allegations that the agency conspired with a prohibitionist group — a charge the agency denies — Judge Mulrooney ruled that such a decision would be beyond the jurisdiction of the ALJ’s office. The resolution of this matter remains uncertain. A preliminary hearing to address procedural matters for rescheduling was held on December 2 with no witness testimony.
Adding to the complications, federal health officials denied the DEA’s request to have HHS officials testify at the 2025 hearing. This prompted the DEA to request that Judge Mulrooney subpoena HHS representatives, which was granted.
The outlook for cannabis reform, once seemingly straightforward, is now uncertain, particularly regarding the timing and likelihood of rescheduling.
During a roundtable discussion with cannabis industry leaders, Cannabis Science and Technology inquired as to how the results of this election might impact the rescheduling of cannabis.
Kim Anzarut, CEO and founder of Allay Consulting, replied “With Trump’s re-election, Trump might continue to leave cannabis policy largely to the states but could lean toward rescheduling if it proves to be a popular move that aligns with GOP support for states’ rights.”
Anzarut continued: “On the other hand, new leadership could prioritize rescheduling or even push for full legalization to align with social equity and justice reform efforts. Either way, the FDA and DEA are being directed to reevaluate cannabis’ current status, which will set the stage for the inevitable regulatory overhaul.”
David Vaillencourt, founder and CEO of The GMP Collective, chairman of S3 Collective and Vice-Chair of ASTM International Committee D37 on Cannabis Standards, also expressed his thoughts: “Trying to forecast what a Trump administration might do is like picking stocks based on a fortune cookie: amusing but unreliable.”
“That said, there is reason for cautious optimism. Trump’s pick for Secretary of Health and Human Services – assuming he is confirmed by the Senate – Robert F. Kennedy Jr. supports natural medicine and criticizes the FDA’s rigidness. Additionally, we saw Trump endorse Florida’s Amendment 3 to legalize adult-use cannabis. Whether this signals a genuine shift or a strategic move to outmaneuver (Ron) DeSantis is anyone’s guess,” he added.
Trump has signaled a willingness to support cannabis legalization, but several of his cabinet picks have either voted against measures to advance legislation related to the industry or spoken out against cannabis reform.
If rescheduling is successful, it would also remove the trigger for the Internal Revenue Service tax code 280E to apply, which prevents cannabis business owners from deducting regular business expenses.
Even if rescheduling efforts falter, the SAFER Banking Act, which passed a House vote with bipartisan support in 2023, could provide much-needed access to financial services. However, the act is unlikely to pass through the Senate before the current Congress ends on January 3, 2025, effectively sending the initiative back to square one.
Despite this setback, there may be renewed hope for banking reform as Rep. French Hill (R-AR), a supporter of cannabis banking legislation, has been selected to serve as chair of the House Financial Services Committee.
While the US grapples with these rescheduling and banking complications, Health Canada is proposing a series of changes to ease the administrative burden and reduce spending and wait times.
Some of the changes proposed in June include simplifying licensing, production and security clearance requirements, increasing production limits for “micro-cultivators” and making it easier for licensees to submit required reports to Health Canada. Comments submitted by the public are currently under review.
Market Expansion and Business Opportunities
The cannabis industry is primed for growth, with US sales projected to hit US$71.8 billion by 2028, according to Ocean Como’s 2024 Cannabis Industry report citing IBIS World data.
This upward trajectory will be fueled by legalization efforts, new market entrants and product innovation.
Research and product development will maintain their importance as the industry adapts. This creates opportunities for businesses specializing in research, testing and product formulation. The reclassification could also attract research funding from the healthcare and wellness sectors, interested in cannabis-based therapies and treatments.
Maridose, a DEA-licensed cannabis producer, launched a Series A funding round at the Benzinga Cannabis Capital Conference in October. Earlier, after the DEA initiated rescheduling proceedings in May, Maridose told Reuters that it had “been receiving more inquiries from both non-profits and commercial entities, including state-licensed cannabis firms.”
Market consolidation is set to continue in 2025, and mergers and acquisitions will create opportunities for both established players and emerging companies to expand market share and access new resources.
“Those who have the cash and ability to expand can find great deals from those who are out of time,” Steven Ernest, vice president of originations for Chicago Atlantic, said at MJBizCon in early December. “It is always darkest before the dawn, and now is the time to be aggressive and acquire cash flow-generating assets.’
At the state level, recreational cannabis is legal in 24 states, while medical cannabis is legal in 40. Minnesota is the only emerging market to date, with the launch of recreational sales slated to begin in 2025, although there have already been delays. A bill to legalize medical marijuana was also recently re-introduced in South Carolina.
The hemp sector, a significant part of the cannabis market, faces a dynamic landscape. While the 2018 Farm Bill legalized hemp cultivation, the proposed Rural Prosperity and Food Act takes a more restrictive approach to the definition of hemp by considering all forms of THC, not just delta-9, and capping the total THC content at 0.3 percent.
This potential shift could impact the regulation of CBD and other hemp-derived cannabinoids, creating both opportunities and challenges for hemp businesses as they adapt to changes.
Companies Worth Watching
Major players Curaleaf (TSX:CURA, OTCQX:CURLF), Trulieve (CNSX:TRUL,OTCQX:TCNNF), Green Thumb (CNSX:GTII, OTCQX:GTBIF), Verano (OTCQX:VRNOF) and Tilray (NASDAQ:TLRY,TSX TLRY) continue to dominate the retail and production space, holding significant market share.
Meanwhile, Canopy Growth (NASDAQ:CGC,TSX:WEED) possesses an advantage with its sizeable patent portfolio, a testament to its commitment to research and development.
Lesser-known retailer and producer Goodness Growth was rebranded as Vireo Growth (CSE:VREO, OTCQX:VREOF) in July and underwent a leadership transition in October. The company reported solid Q3 results, and CEO Amber Shimpa, expressed optimism about Vireo’s prospects, particularly in the burgeoning Minnesota market.
On December 18, the company raised US$75 million in equity financing and announced its intention to expand its market share with the acquisition of four single-state operators.
As the cannabis industry continues to mature, these and other companies will be battling for dominance in a rapidly evolving market.
Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.