Cannabis Market Transition: A 4/20 Reality Check for Investors

Rescheduling process introduces further uncertainty

In the days following the signing of an executive order directing the Attorney General to complete the rulemaking process to reschedule cannabis from Schedule I to Schedule III of the Controlled Substances Act “in the most expeditious manner”, cannabis stocks saw some of their largest single-day gains in years.

The rally was driven by the realization that moving to Schedule III would effectively end the IRC Section 280E tax penalty, which currently prevents cannabis companies from deducting normal business expenses.

The president issued the executive order in December 2025 following the passing of a negotiated funding bill by the House and Senate Appropriations Committees, which removed a previous House provision designed to block the administration from using federal funding to reschedule cannabis.

However, a more sober reality has replaced that initial high, as the status of cannabis rescheduling remains pending amidst legislative attempts to block the move. A coalition of lawmakers, including House Speaker Mike Johnson, has also voiced formal opposition.

The current political climate followed a chaotic episode in 2025, where the DEA’s Chief Administrative Law Judge, John Mulrooney II, accused the agency of failing to provide a basic list of witnesses and evidence and abruptly cancelled the evidentiary hearings just days before they were set to begin.

Meanwhile, the Centers for Medicare & Medicaid Services recently launched a pilot program to cover certain hemp-derived CBD products.

The Substance Access Beneficiary Engagement Incentive allows healthcare providers in certain models, like the Enhancing Oncology Model, to offer eligible hemp-derived CBD products to patients. The program caps product value at US$500 per year and excludes inhalables, but represents the first time a federal agency has created a structured pathway for cannabinoid access within the Medicare framework.

While this marks a historic step toward federal medical integration, it arrives just as the broader industry faces a regulatory cliff.

Under a provision passed within the funding bill in November 2025, the federal government is moving toward a total THC limit of 0.4mg per container, a standard that would effectively recriminalize the majority of hemp-derived gummies and drinks currently on the market.

The provision established a one-year grace period before enforcement begins. The November 2026 deadline serves as the final cutoff for manufacturers to either remove these products from shelves or face federal prosecution as the 0.4mg limit takes full effect.

Lawmakers have introduced bipartisan measures like the Hemp Planting Predictability Act to delay these bans until 2028. However, the FDA has already missed critical February 2026 deadlines for issuing clarifying guidelines, leaving stakeholders trapped in yet another state of regulatory uncertainty.

Discipline amidst capital hesitation

This 4/20 serves as a stark reminder of the distance between proposed regulation and clarity in the business of cannabis.

Anthony Coniglio, CEO of NewLake Capital Partners (OTCQX:NLCP), notes that the market remains in a transitional phase.

“We’ve seen improving sentiment around federal reform, but that hasn’t yet translated into meaningful changes in capital flows or valuations,” he explained to the Investing News Network in an emailed statement.

NewLake, a specialized real estate investment trust that provides capital to the US cannabis industry, is the second largest owner of cannabis real estate with more than US$435 million in deployed capital. The firm owns over 30 cultivation and retail properties across 12 states, with multi-state operators including Curaleaf Holdings (CSE:CURA), Cresco Labs Inc (CNSX:CL,OTC:CRLBF) and Trulieve Cannabis (CSE:TRUL,OTCQX:TCNNF) among its tenants.

“Institutional capital largely remains on the sidelines, and operators are continuing to navigate margin pressure, limited access to financing, and a complex, state-by-state operating environment.

Despite these headwinds, Coniglio notes a shift in how the industry’s major players are conducting business. “The industry is becoming more disciplined. We’ve seen companies become increasingly more focused on cash flow, balance sheet strength, and capital allocation as the market matures.”

“Looking ahead, the key for the balance of the year will be whether regulatory progress begins to unlock broader access to capital. If that happens, even incrementally, it can start to improve liquidity, support balance sheet repair, and make the sector more investable for institutions.”