US to Reclassify Marijuana, Axios Says

The U.S. federal government signalled a potentially transformative policy shift on Apr 22, 2026 when Axios reported the Biden administration is set to move to reclassify marijuana from Schedule I under the Controlled Substances Act, possibly as soon as that week (Axios / Investing.com, Apr 22, 2026). The Classification change — if formalized by the Department of Justice/Drug Enforcement Administration — would end more than five decades of Schedule I status established under the Controlled Substances Act of 1970 and trigger immediate downstream effects across taxes, banking access, and capital markets. Institutional investors should treat this as a policy catalyst with measurable balance-sheet implications for U.S.-listed cannabis operators and ETFs, while recognizing substantial legal and implementation risk that could alter timing and market impact. This report synthesizes the available public data, regulatory mechanics, and market channels that would transmit a federal reclassification into financial outcomes for multi-state operators (MSOs) and related service providers.

Context

The Controlled Substances Act placed cannabis in Schedule I in 1970, a classification denoting substances the federal government deems to have no accepted medical use and a high potential for abuse; this legal status is the proximate cause of several commercial constraints that have shaped the sector for decades (Controlled Substances Act, 1970). On Apr 22, 2026 Axios reported that federal agencies are preparing to reclassify marijuana — a move that would not equal full federal legalization but would lower criminal penalties and potentially enable different regulatory and tax treatments (Axios / Investing.com, Apr 22, 2026). For investors, the key mechanics to watch are whether reclassification removes cannabis from Schedule I to Schedule III (or another schedule), how the DEA implements the change in rulemaking, and whether Congress or the IRS acts in parallel to adjust tax code sections such as 280E.

Reclassification is not binary. Schedule III status, the most frequently discussed destination in market commentary, would recognize accepted medical use while still imposing controls. Operationally, this would likely remove some barriers to research, ease banking restrictions imposed by federal criminal status, and — crucially — open the door for ordinary business tax deductions currently prohibited for Schedule I/II trafficking firms under Section 280E of the Internal Revenue Code. For analysts building models, the tax channel is the largest direct P&L lever; investors should model scenarios with statutory corporate tax at 21% versus current effective tax burdens that companies describe as materially higher due to disallowed deductions (company 10-Ks, 2024).

The timing and certainty of benefits will vary. Even if the DEA moves quickly, secondary rulemaking, litigation risk, and IRS guidance could delay full economic effects by months or quarters. Institutional allocators should therefore build layered scenarios: rapid implementation (0–3 months), phased implementation (3–12 months), and protracted contestation (12+ months). Each scenario implies different discount rates for future cash flows and distinct capital structure implications for MSOs and ancillary service providers.

Data Deep Dive

Market sizing anchors valuation: retail legal cannabis sales in the United States were estimated at roughly $30 billion in 2024, according to industry research providers such as BDSA; the category has shown mid-to-high single-digit to low double-digit annual growth in recent years driven by state-level adult-use expansion (BDSA, 2024). That baseline matters because federal tax and banking relief will operate on an existing revenue base; a conservative sensitivity analysis that assumes a 10% uplift to net margins from lower tax and compliance costs implies several hundred million dollars of incremental EBITDA across MSOs collectively — a material amount for small-cap operators and public ETFs. Analysts should therefore quantify margin expansion under tax normalization scenarios; a move from an effective tax burden above 50% (reported by some operators in 2024 filings when factoring in disallowed deductions and state taxes) down to the statutory 21% corporate rate could translate into 20–30 percentage points of operating margin improvement for certain business models.

Capital markets responded quickly to the Axios reporting: equities and ETFs focused on cannabis registered intraday gains in U.S. trading, reflecting investors pricing in a lower-risk regulatory framework and a path to normalized profitability (market data, Apr 22, 2026). Institutional flows will matter more than retail momentum for sustained re-rating. Large-cap MSOs with diversified state footprints and strong balance sheets — names such as Tilray Brands (TLRY), Canopy Growth (CGC), and Cronos Group (CRON) — will be compared against smaller operators that trade at higher multiples due to growth optionality. Index and ETF performance (e.g., MJ) will depend on constituent weightings and whether passive products rebalance on improved fundamentals versus technical buying.

From a credit perspective, rescheduling could reduce default risk for heavily leveraged operators by improving free cash flow profiles but will not retroactively change covenant terms; lenders will re-evaluate credit facilities, and new financing could emerge for creditworthy operators. Bank de-risking has constrained working capital solutions; a meaningful policy shift should relieve some compliance costs and reduce counterparty risk premiums, but banks will still require robust AML/KYC frameworks and state-level licensing assurances before re-entering business lines at scale.

Sector Implications

Tax. The immediate fiscal channel is Section 280E, which currently prevents Schedule I/II actors from deducting ordinary business expenses. Analysts estimate that normalization of tax treatment could reduce effective tax burdens to the statutory 21% federal rate, implying sizable net income upside for firms (IRS statutory rate, 21%; company 10-Ks, 2024). A back-of-the-envelope calculation: for a company with $200m in revenue and 10% pre-tax margins under 280E constraints, normalization could add tens of millions of dollars to net income — altering valuation multiples and accelerating re-investment.

Banking and payments. Reclassification removes a major legal impediment for deposit-taking institutions and payment processors. That does not guarantee immediate re-entry, but reduces regulatory capital and BSA/AML compliance risk over time. Expect phased re-onboarding: institutional custodians and national banks will likely demand strong state-level compliance evidence and federal guidance before expanding relationships. Payment rails and merchant-acquiring networks may resume scaled services within 6–12 months if regulatory guidance is clear.

M&A and capital markets. A credible path out of Schedule I status lowers the cost of capital and increases M&A optionality. Strategic buyers in adjacent industries — consumer packaged goods, alcohol, pharma — may accelerate acquisition programs to access brands, IP, and distribution. Conversely, legacy MSOs could face consolidation pressure as weaker balance-sheet players become takeover targets. Public-market multiples may re-rate versus broader small-cap benchmarks: compare a normalized EV/EBITDA multiple for a consolidated MSO to peer groups in consumer staples or specialty pharma to quantify potential re-rating ranges.

Risk Assessment

Legal and administrative risk remains substantial. Reclassification is an administrative process that can be challenged in court, and Congress retains the ability to legislate a different framework. The DEA’s rulemaking timetable, potential injunctions, and IRS interpretative guidance are the primary execution risks. Investors should model a probability-weighted outcome rather than assuming a single path to normalization. Historical precedent (e.g., administrative scheduling reviews and high-profile drug scheduling changes) demonstrates that litigation can extend uncertainty for 12–24 months in some cases.

Operational execution risk exists for MSOs that have expanded under constrained capital structures. If funds flow to weaker operators based on headline-risk rerating, M&A or integration failures could impair value. Conversely, better-capitalized firms may benefit disproportionately, widening the performance gap between peers. Counterparty risk to watch includes reinsurers, banks, and landlords, each of which will re-evaluate exposure once federal status changes but will act heterogeneously across jurisdictions.

Fiscal and policy offsets are also possible. Federal tax relief could be offset partially by new reporting requirements, excise taxes, or state-level adjustments. Some states may accelerate or amend their own tax codes to capture additional revenue, potentially muting gross benefits to operators. Finally, global considerations — including export potential and international treaties — will affect long-term opportunity sets for companies with cross-border operations.

Fazen Markets Perspective

Fazen Markets' baseline view is that reclassification represents a structural de-risking event for the listed cannabis complex, but not a panacea. Our scenario analysis assumes a 60% probability that reclassification occurs within the next six months and is followed by IRS guidance within a 3–9 month window. Under that scenario, we model a 15–30 percentage point improvement in normalized net margins for vertically integrated operators and a 20–40% uplift in equity valuations for the most credit-constrained, domestically focused MSOs. This perspective contrasts with more bullish narratives that presuppose immediate, full normalization of banking and tax practices; we expect staggered benefits with outsized winners among operators that consolidate market share and control cost bases.

A contrarian, actionable insight is to separate exposure to ‘operational normalization’ from ‘policy optionality.’ Firms with demonstrable state-level earnings, low-cost production, and diversified retail footprints are positioned to monetize margin expansion quicker than brand-focused names that rely on premium pricing. We recommend (qualitative) emphasis on balance-sheet strength, cash flow visibility, and regulatory compliance pedigree when assessing exposures to the sector. For readers who want deeper, ongoing coverage of cannabis policy developments and market flows, see our cannabis markets and policy analysis research hubs.

FAQ

Q: Will rescheduling immediately allow cannabis businesses to deduct ordinary business expenses? A: Not automatically. Rescheduling to Schedule III would remove the Schedule I classification that underpins Section 280E objections, but the IRS will still need to issue guidance interpreting tax treatment, and litigation could arise over retroactivity and exact implementation. Practical changes to tax filings are likely to appear after formal IRS directives, which historically have taken months.

Q: How does this compare to previous policy shifts? A: Unlike state-level legalization (which began in earnest in the 2010s), federal rescheduling is an administrative change that does not create a federal commercial licensing regime. Historical analogues include past scheduling changes for other substances, which were often followed by protracted rulemaking and litigation; hence the economic effects are likely to be phased rather than instantaneous.

Q: Could states change their tax regimes in response? A: Yes. States that derive material excise revenue from cannabis may adjust rates or permitting regimes to capture value if federal tax relief reduces state-collected tax bases. That dynamic could partially offset federal-level benefits and is a critical input for state-by-state valuation models.

Bottom Line

A reported federal move to reclassify marijuana (Axios, Apr 22, 2026) is a material policy development that could unlock substantial tax, banking, and valuation improvements for U.S. cannabis operators, but benefits are likely to be phased and contingent on administrative and judicial follow-through. Monitor DEA rulemaking, IRS guidance on 280E, and quarterly filings from MSOs for the earliest measurable signals.

Disclaimer: This article is for informational purposes only and does not constitute investment advice.