Last Updated on January 8, 2025 by
Cocaine kingpins and other state-regulated marijuana businesses may no longer be subject to IRS taxes starting in 2025. As medical marijuana grows popularity around the country, many patients in locations such as Columbus are actively looking for a reputable Medical Marijuana Doctor to help them navigate the process of acquiring legal access.
Licensed marijuana operators may also lose their ability to compete with mainstream retailers who sell THC products that are intoxicating and fall under the federal definition of hemp.
The modest demands are tax reform and some sort of resolution to the conflict between hemp and marijuana.
For many business owners in the $32 billion state-regulated marijuana sector, however, a future in which these persistent issues are finally fixed would be a utopia.
That reflects the steady advancement in cannabis reform in 2024.
Reflecting on the Year Gone By
In 2024, the cannabis industry made little headway.
The Drug Enforcement Administration postponed reclassifying marijuana as a legitimate medicine until this year, and Congress failed to pass legislation addressing the drug.
The idea that simple and accessible reform initiatives have reached their limit is supported by the fact that voters overwhelmingly rejected adult-use legalization, including in Florida, where marijuana multistate operators spent almost $150 million in a futile attempt.
However, significant changes are imminent.
President-elect Donald Trump is on the verge of becoming the first president to sign a bill legalizing marijuana for adult use, and relief from the tax burden of Section 280E is closer than ever.
Here are our predictions for the cannabis sector in 2025:
- Schedule 3 is coming
Marijuana’s reclassification as a Schedule 3 drug must be completed by 2025.
After hearing lengthy arguments from opponents of changing marijuana’s status under federal law, a DEA administrative law judge will rule on the proposal in May 2024.
Whatever the ruling, there will probably be legal challenges.
Additionally, Trump’s new DEA administrator has the authority to disregard the judge’s decision, whatever it may be.
- Marijuana-friendly president
For the first time since Donald Trump took office in 2017, Republicans will take control of all three branches of government this month.
Thanks to a September 2024 social media post in which the then-candidate endorsed Florida adult-use legalization Amendment 3, a podcast appearance, and pretty much nothing else, many marijuana industry operators and investors publicly believe that Trump will be the most marijuana-friendly president in history.
Cannabis reform does not appear to be at the top of Trump’s agenda based on his current appointments.
Pam Bondi, a former Florida attorney general who once approved a report indicating marijuana use causes fentanyl use, will serve as his attorney general, subject to confirmation by the U.S. Senate.
Additionally, Sen. Jon Thune, another ardent opponent of marijuana reform, will lead the Senate in place of Mitch McConnell, whom Democrats have twice accused of obstructing SAFER Banking’s inclusion in a budget bill for a lame-duck session.
According to constitutional scholars, a president’s powers are limited to administrative rescheduling.
However, that is predicated on accepted conventions and conceptions of the authority of the position.
House Speaker Mike Johnson would probably set up hearings for marijuana banking reform if the president didn’t abruptly order him to.
However, given the Trump administration’s long list of urgent problems, including the border crisis and fentanyl, some analysts predict significant action won’t occur until after the 2026 midterm elections.
“We’re likely to see a focus on more conservative priorities, especially in the first part of the year, given that the White House, Senate, and House are all controlled by Republicans,” stated Michael Teller, chief operating officer of the advisory firm The Panther Group, based in Atlanta.
“As a result, initiatives like SAFE Banking will be neglected.”
- Showdown with the IRS
In a June memo, the IRS clarified that due to Internal Revenue Code Section 280E, cannabis businesses are still required to pay their entire tax obligations and are not eligible for the majority of standard business deductions on their federal returns.
Almost all of the major marijuana MSOs then proceeded to file for those deductions regardless.
While some cannabis-focused tax accounting firms support that approach, many seasoned tax lawyers believe it’s a recipe for disaster.
All of this culminates in a huge tax battle that will establish standards for the industry as a whole.
- California tax crisis
The state franchise tax board is probably the largest creditor of the California cannabis industry, not individual stockholders or bondholders.
California’s Department of Tax and Fee Administration is owed an incredible $1.3 billion by licensed marijuana businesses.
In addition, unless the state Legislature steps in, the state’s 15% excise tax will rise to 19% on July 1.
Beginning in 2026, state spending is expected to surpass revenue by $20 billion, making lawmakers reluctant to sever a vital revenue stream or extend the deadline for past-due bills.
Operators have long lamented that high taxes have a cascading effect that is impeding legalization by reducing the margins of legitimate operators and encouraging consumers to purchase cheaper cannabis on the black market.
No reckoning has taken place as of yet.
Larger tax bills are due at a time when California is desperately short on funds, so a showdown might be inevitable.
- Hemp-derived THC crackdown
State officials have acted decisively on marijuana, even though Congress did not take any significant action in 2024, such as proposing a new Farm Bill to close the hemp loophole that federal lawmakers unintentionally created with the 2018 Farm Bill.
Officials in Texas, Tennessee, and other states where intoxicating hemp products have gained popularity feel that the current situation cannot be maintained, despite California Governor Gavin Newsom signing a comprehensive ban on them.
“We are hopeful that lawmakers will use this additional time to create safe and sound regulations for hemp-derived intoxicants,” said Matthew Melander, president of Sun Theory, a cannabis company based in Denver.
Eventually, observers think that the only way to address the problem is to regulate THC, no matter where it comes from.
However, that might go beyond 2025.
“If current trends leaning toward more restrictions and prohibition continue, 2025 could be a tough year for the entire cannabis market (hemp and marijuana),” said Ryan Oquin, vice president of sales at Hometown Hero, a hemp company based in Texas.
- Supreme Court-bound
Prominent lawyers for Chicago-based MSO Verano Holdings Corp. and three plaintiffs from Massachusetts were arguing before a U.S. Circuit Court of Appeals judge in late December that federal marijuana prohibition is legally unsound, while the majority of the cannabis industry flocked to Las Vegas for MJBizCon.
A 2005 Supreme Court ruling that they maintain needs to be reviewed and overturned is at the center of their claim that the federal government’s ban on marijuana is unconstitutional.
Judges in lower courts have not yet been persuaded by that theory; they maintain that only the Supreme Court has the authority to reverse a ruling, and that is precisely where the plaintiffs intend to take their case.
But before the plaintiffs can appeal to the Supreme Court, they must first be denied by the U.S. Circuit Court of Appeals.
A Supreme Court petition and possibly another historic federal ruling could soon follow that rejection, which is expected to occur in 2025.
- State Marijuana Reforms Hit the Pause Button
Pennsylvania lawmakers promised to vote on legalizing marijuana for adults sometime this spring.
However, that pledge has already been made, but to no avail.
Only state legislatures like the one in Harrisburg, Pennsylvania, will have a chance to legalize adult use after significant losses in South Dakota, North Dakota, and Florida.
Additionally, legislators have been hesitant to advance legalization, with a few notable exceptions, like Delaware and Minnesota.
Even if they do, things will move slowly because neither the Minnesota nor Delaware markets are yet operational.
