President Trump suggested he'll loosen federal restrictions on marijuana use, something many Democrats and advocates have been pushing to happen for years.
Why it matters: Marijuana's reclassification would not only be one of Trump's most popular policy decisions yet, but it would likely eliminate the gray area long surrounding cannabis businesses and banks.
- Marijuana currently faces the same restrictions as heroin. Trump's potential reclassification would deem it as a less dangerous drug — on par with steroids.
Driving the news: Under Trump's new plan, which was first reported by the Washington Post, the president would reclassify marijuana, which is banned under federal law.
- Not only would reclassification ease regulations, but it would make it easier to conduct medical research and possibly create tax breaks for cannabis companies.
- Cannabis stocks surged in wake of Trump's potential shift.
- The change comes after the World Health Organization recently added a formal name to a deadly cannabis-related condition, which was adopted by the Centers for Disease Control and Prevention.
In general, federal laws supersede state laws. But most agencies refer to state laws when it comes to marijuana use.
Read more below for how states and federal law work for marijuana.
How federal marijuana laws work
The federal Controlled Substances Act classifies marijuana as a "Schedule I controlled substance," meaning the drug has high abuse potential and it cannot be accepted for medical use.
- This is the same category as LSD, ecstasy and peyote.
- The law specifically restricts the manufacture, distribution, dispensing, and possession of Schedule I substances — except for federal research purposes.
State of play: Under former President Biden, the Department of Health and Human Services recommended the Drug Enforcement Agency move marijuana from a Schedule I drug to Schedule III, which is what Trump is reportedly considering.
- The new designation would permit marijuana for medical use, per the National Institutes of Health.
- Other Schedule III drugs include ketamine, anabolic steroids and testosterone, per the DEA.
Federal vs. state marijuana laws
Federal law prohibits marijuana use, giving the DEA and other federal agencies the power to enforce laws around the drug.
- Threat level: Individuals charged with marijuana use or possession under federal law could face legal consequences, including the inability to purchase a firearm and the inability to qualify for federal housing, certain visas, and federal employment and military service.
What to know about state marijuana laws
Several individual states have legalized or decriminalized recreational or medicinal use of marijuana in the last few decades.
- Colorado and Washington were the first to approve recreational marijuana laws in 2012 for those 21 and older. Alaska, Oregon and the District of Columbia followed.
- In all, two dozen states, three U.S. territories and D.C. have legalized or decriminalized it.
Zoom in: Medicinal marijuana is legal in 13 states in addition to the states where marijuana has been legalized completely.
- Five states — Hawai'i, Louisiana, Mississippi, New Hampshire and North Dakota — have legalized or decriminalized weed for medicinal use and decriminalized it for other uses. This means that it's still illegal, but violators would face civil penalties or fines for recreational use, not criminal punishment.
- Eight states — Alabama, Arkansas, Florida, Oklahoma, Pennsylvania, South Dakota, Utah and West Virginia — allow marijuana for medicinal use, but other uses are not decriminalized, meaning those who use cannabis for non-medicinal reasons could still be punished.
Marijuana tax laws
The current federal restrictions have long kneecapped the cannabis industry.
- Cannabis company tax laws currently fall under Internal Revenue Code (IRC) Section 280E, which limits businesses' ability to claim standard deductions because of marijuana's Schedule I status.
- Though the companies still must pay federal income taxes, they cannot deduct operating expenses.
Many states regulate and tax legal marijuana sales and consumption despite the federal policy, per the Tax Foundation.
- Legalization in those states allows for consumption and generates significant tax revenue.
Because of these restrictions and gray areas, the cannabis industry has faced an uphill battle for years, Axios' Dan Primack writes.
- One of the most well-known cannabis companies, MedMen, filed for bankruptcy protection in 2024 due to the headwinds businesses face from Schedule I restrictions.
- However, the DEA rescheduling would not create national legalization or allow marijuana pharmacy sales.
What's next: A reclassification could eventually lead to interstate trade of cannabis and eliminate restrictions on cannabis research, among other benefits for the industry.
Congress and THC laws
The big picture: Congress can make laws that influence the cannabis industry, even if the classification process remains a federal policy decision.
- The spending bill that ended the government shutdown in November included a last-minute provision that criminalized several hemp-derived products outlined in the 2018 Farm Bill.
- Many states use hemp taxes to fund addiction services, county budgets and public health programs, experts told CNBC.
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What to know about the deadly cannabis hyperemesis syndrome
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The bill to reopen the government would shut down these THC products
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