Last month, President Trump signed an executive order seeking to reclassify marijuana as a Schedule III drug. Cannabis is currently Schedule I, alongside drugs the DEA defines as having no currently accepted medical use and a high potential for abuse. Trump’s order fast-tracks the reclassification, and it could significantly change the industry, opening new doors for cannabis research and easing a punishing tax burden faced by businesses that grow and sell the product. The order may also act as a counterbalance to the quickly closing “hemp loophole,” a provision in Congress’s shutdown-ending resolution that will ultimately put tighter restrictions on what products cannabis businesses can sell.
Beau Whitney is the chief economist at Whitney Economics, an Oregon-based cannabis and hemp consulting organization. Mason Walker is the CEO of East Fork Cultivars, an Oregon cannabis and hemp business. They join us to talk about how these ongoing changes could shape the future of the cannabis and hemp industries.
Note: The following transcript was transcribed digitally and validated for accuracy, readability and formatting by an OPB volunteer.
Dave Miller: From the Gert Boyle Studio at OPB, this is Think Out Loud. I’m Dave Miller. Last month, President Trump signed an executive order seeking to reclassify cannabis as a Schedule III drug. It’s currently a Schedule 1 drug, which the DEA defines as having no accepted medical use and a high potential for abuse. The reclassification could open new doors for medical marijuana research and ease the tax burden for cannabis businesses. Beau Whitney is a chief economist at Whitney Economics, an Oregon-based cannabis and hemp consulting organization. Mason Walker is the CEO of East Fork Cultivars, an Oregon cannabis and hemp business. They both join me now. It’s great to have both of you on Think Out Loud.
Beau Whitney: Thanks, Dave.
Mason Walker: Yeah, thanks.
Miller: Beau, first, can you just explain what the president’s executive order does?
Whitney: Well, there were a couple of things, but the main issue was he requested that his attorney general try to accelerate the completion of the rescheduling process and a lot of people interpreted that as an immediate change in the scheduling, but that’s not really the case. But that was the main item from that, was the acceleration of the process to completion.
Miller: So, Mason, where had we already been? What’s already been in the works in terms of that process?
Walker: The rescheduling process really started in 2022 when then President Biden instructed the Department of Health and Human Services to review cannabis research, make a recommendation to the DEA, who oversees the schedule of drugs and substances. They put forth that recommendation in 2023, recommending that the DEA move cannabis from Schedule 1, stating that it has no medical value and a high profile for abuse to Schedule III, meaning that it has some recognized medical value and a low to moderate profile for abuse.
That sort of lingered and sat from 2023 until late 2025, when President Trump issued his executive order in December and as Beau said, instructed the DOJ to move this thing forward. It was sort of a rare example of a bipartisan movement on a science-based objective, executive direction, and now it sits with the DOJ. It sits with the Department of Justice to actually move this forward and as I understand it, there’s two ways that can happen, but as Beau stated that nothing has happened yet.
Miller: What had you been expecting?
Walker: As a cannabis and hemp operator for a decade, we’re part of a movement. It’s a multi-decade movement to try to legitimize and get recognition for cannabis as a real therapeutic medical application. It’s sort of a watershed moment, this formal recognition from the U.S. federal government that yes, cannabis does have medical value, and we should move to legally recognize that. I think it is something to celebrate. As far as the real business impacts, it remains to be seen and it’s hard to know exactly what it may look like. Hopefully we’ll learn about that in the year to come.
Miller: I wanna talk a lot more about the business impacts, but Beau, what had you been expecting?
Whitney: I’ve been analyzing the cannabis industry for about 11, 12 years now, and every year that I’ve been in this full federal legalization has been five years out. And I heard five years out just recently as well, before this executive order.
Miller: And just to be clear, we’re not talking about full federal legalization here. We’re just talking about the reclassification of a drug.
Whitney: Correct. There’s been always this talk about reform, but it’s always been something in the future. I’ve been advising my clientele to be operationally disciplined and adhere to the rules that are right now and then wait and see what happens because this could be an extended process, or it could be something that happens quite quickly.
Miller: All right, so, let’s get to some of the specific business pieces here. What has it meant for state legal cannabis businesses that cannabis is a Schedule 1 drug?
Whitney: Well, one thing is that it’s taxed very heavily at the federal level because of this tax policy that was promulgated in 1984. It’s called 280E. It essentially taxes, it doesn’t allow for common business deductions on your taxes at the federal level. And when you tax really heavily there, then it really hurts the margins and profitability of the existing operators. It’s most pronounced at the retail level, but it filters down to the manufacturing and cultivation levels as well.
Miller: What’s an example of a tax break that, I don’t know, a tomato grower or a dahlia grower can get that a cannabis grower cannot?
Whitney: Well, that person can write off their marketing, their labor, their advertising, their legal expenses, their rents and stuff, and not all of that is available to the cannabis operator. That makes their effective tax rate much higher than any other ordinary business like your dahlia or your tomato farmer.
Miller: What’s the reason for that? I mean, what’s the historical reason? How did that tax provision come to be?
Whitney: Well, it was actually passed unanimously in Congress, but it was meant to be punitive against drug dealers. It wasn’t just a cannabis policy, it was a drug policy. It was meant to be punitive to make it so difficult to operate in this space and pay your taxes that it would disincentivize involvement altogether. Well, after all these years, 40 years, that hasn’t worked out so well.
Miller: Also, that was at a time when there wasn’t this weird legal gray area where a bunch of states had state legal adult marijuana, recreational marijuana businesses. That didn’t exist. If this was about cocaine dealers or marijuana dealers in the ‘80s, that there was no legal business that could be taxed anyway, right?
Whitney: Yeah, it was the middle of the war on drugs. But that policy from a tax perspective has not evolved over the last 40 years. Well, just as you’re saying, the market has evolved considerably even just in the last decade.
Miller: Mason, can you give us a rough dollar figure for how much more you pay in taxes than you would if you were a grower of dahlias?
Walker: Well, it changes year to year. Our company is mostly on the production side, so we have a farm in southern Oregon.
Miller: You’re sort of a wholesaler.
Walker: Yes, we’re a brand, we’re makers, we’re not a retail business. So this will really benefit retailers the most, and that’s because most of a retail company’s staffing is considered sales or marketing expense. So if you think about a retail representative when you go into a store and you buy something, whether it’s a coffee shop or a cannabis dispensary, that person’s salary, under 280E, you couldn’t deduct. And now if and when cannabis gets rescheduled to Schedule III, those retail businesses will actually be able to deduct the payroll of their retail staff members, and that will be significant for retail operators.
For us as a brand that most of our staff is considered cost of goods, the people that actually make the things. And so our tax burden has been significant, but not nearly as significant as retailers. But just a random figure, I know there was a study a few years ago that the effective tax rate, federal tax rate on cannabis businesses can be as high as 70% as a corporate tax rate, and that should fall down to something that’s more average in line with like, say, a coffee shop.
Whitney: That might have been part of the study that I published. For perspective on a national basis, the cannabis industry pays an additional $2.8 billion just in 2024 alone as a result of this tax policy, $2.8 billion. And every year that sales grow nationally, then that difference between ordinary businesses and cannabis businesses, that difference grows.
Miller: Are these taxes being paid right now?
Whitney: Well, it’s so much of a burden on margins and the like that it’s literally taxing people out of business, and in some instances, it’s creating all these externalities. For example, in Oregon, if you don’t pay your taxes, you don’t get your license renewed. And so there’s an incentive to pay your taxes, obviously, even at the federal level. However, what that’s doing is it’s forcing operators, especially at the retail level, to choose between paying their taxes or paying their vendors. So it’s having this ripple effect.
There’s an additional $3.8 billion of delinquent accounts payable in this country as a result of that. So it’s having this ripple effect. That $3.8 billion, it’s delinquent, so people are taking their vendor payments and applying it to their taxes instead, because they can get a zero-interest loan by not paying their vendors versus getting a 30 or 40% loan from unsavory lenders in this space.
Miller: Mason, in his remarks a few weeks ago, the president said this: “The facts compel the federal government to recognize that marijuana can be legitimate in terms of medical applications when carefully administered.” He added that reclassification would make it far easier to conduct marijuana-related medical research. It’s notable that in the entire executive order, he didn’t mention recreational industries at all. Industries that are operating in 24 states and the District of Columbia, so half of the country in terms of states and I think well more than half in terms of population. Why do you think that is?
Walker: We’re still in this early stage of cannabis legalization. This process really started about 13 or 14 years ago when some enterprising states, Colorado and Washington, decided they would legalize cannabis despite federal government saying you can’t, and we’re still sort of picking up the pieces from that move. Every year that goes by, cannabis gets more normalized. It’s a very uniting topic in this country. It’s a very popular product, regardless of age, geography, political affiliation, cannabis is very popular and I think we’re still very early in this process, and there are going to be these awkward friction points between the states that have moved to normalize and legalize and the federal government’s catching up.
The medical side of the executive order is really exciting for me. Our company came out of the medical movement in Oregon. Oregon was one of the first states in the country to have a medical cannabis program before a recreational program. And while this doesn’t overnight lead to a lot more domestic U.S. based cannabis scientific and medical research, I think in the medium term it really will.
Moving it to Schedule III means that it has acknowledged medical value, and all of a sudden, perhaps federally funded research universities will be more likely to take up serious peer-reviewed studies on cannabis. In the medium to long term, I think that will be really beneficial, not just for existing cannabis operators to have legitimacy of our businesses, but also for consumers, for aging seniors, for veterans, for pets that have anxiety, all these things that we anecdotally know cannabis can help with, we’re going to see real research be put towards because of the rescheduling.
Miller: Beau, what are you thinking that reclassification would mean for medical research?
Whitney: Oh, I think it’d be great. Keep in mind though that there’s other countries that have been deeply involved in the cannabis space and doing research for a long time. However, the U.S. doesn’t necessarily consider those research findings. They confine their rules and regulations to only research that’s conducted in the U.S. So this will help catch things up relative to, say, Canada or Israel or the Netherlands or what have you.
And so this is actually a good thing, but it doesn’t necessarily mean… Oh, and one thing to note is that when there’s access to cannabis in states, it’s been shown through studies with the National Institute of Health that Medicare and Medicaid expenditures, healthcare expenditures, decrease 10 to 11%. And so people are using cannabis as a proactive medicine to address pain, anxiety, inflammation. And as a result, they’re not being, there’s not these interventions in the emergency room, for example. So the healthcare costs in the states where they have legal access to medical and adult use, they go down pretty significantly.
Miller: Mason, we’ve been talking about this executive order, but back in the summer, there was a federal move that went, in some ways, in the opposite direction. There was a provision in the resolution that reopened the government to close what was known as the hemp loophole. Can you explain what happened here?
Walker: Yeah, to not get too far into the weeds, hemp was legalized in the U.S. in 2018 and defined as cannabis that has low THC, a low profile for intoxication. That really happened as a support for the industrial uses of the hemp plant in building materials, in pet bedding, in protein-rich foods. The grain and the fiber of the plant are amazing for these things and had been illegal for many decades, was re-legalized in 2018. But what happened was loopholes in the language of that law in 2018, it was part of the farm bill, led to the proliferation of intoxicating hemp products available across the country, in kind of famously, in gas stations or corner stores available to children in brightly colored packaging.
So the move that you just described was a law that was intended to reverse and close that loophole, unfortunately appears to be throwing the baby out with the bathwater and the move not only would close the loophole that allows for THC and hemp products sold across the country, but would also eliminate legitimate wellness products, full spectrum CBD rich products that are well recognized and available at grocery stores across the country.
There’s a big movement right now, this year, to sort of correct that. And another part of the executive order that directed for the rescheduling was also directing Congress to fix this mistake. Not necessarily to open back up the hemp THC loophole, but to fix access for full spectrum CBD products, therapeutic wellness hemp products that right now would stand to be illegal as of November of this year.
Miller: If Congress doesn’t do that, and at this point you’d have to be somebody who doesn’t mind risk to bet that Congress will do anything, would you as a hemp grower feel confident planting hemp right now?
Walker: It is a very stressful time as a hemp grower. We grow 10 acres of organic certified hemp every year in Josephine County, in southern Oregon at our farm, and we’re not sure what this planting season looks like. We’ve had confidence going into every season since 2018, and this year us and our peers in Southern Oregon… Oregon grows thousands of acres of hemp and the hemp growing industry in Oregon employs thousands of people as well and there’s wild uncertainty right now, a lot of stress, and we’re on the clock. The farming season for hemp really kicks off in March and April, so we’re hoping for some clarity and some rule changes within the next two, three months, far ahead of the actual date in November when these products become illegal.
Miller: Broadly, what has it been like to run a business with all of this uncertainty?
Walker: We’ve been doing this for a decade and so we’ve been really used to uncertainty and operating a business as best we can in a space where regulations can change like the wind. It does feel particularly precarious right now, especially with this hemp move and with the rescheduling uncertainty. It’s not great for sleep, I’ll say that, but I do have faith that the broader movement is moving in the right direction.
Even when we have setbacks like this hemp law and uncertainty around rescheduling, it does feel like the wild popularity of cannabis is being more and more legitimized. There’s a reason that people like this plant because it helps a lot of people, and I think we’re marching in the right direction, and it’s early yet. I think that’s my mantra. We’ve been doing this for a decade. I’m tired, but we’re here for the long term and I really believe we’re slowly moving in the right direction.
Miller: Beau, what other changes is the industry lobbying for?
Whitney: There’s an effort to have reasonable regulations, age-gating, testing, making sure that there’s public safety addressed, and then keeping this out of the hands of kids. But the current legislation, as it is right now, would eliminate the market opportunities for 95 to 97% of the products. And that would displace over 328,000 workers. So the industry right now is in this period of uncertainty. Right now, from what I’m seeing, it’s forcing banks to reexamine whether or not they offer banking services. Investors are not investing in the infrastructure even for fiber and grain. Farmers are not necessarily considering planting.
This is kind of seizing up the entire supply chain. So there are other aspects of this. They redefined the bill, the definition of hemp. But they also forced the FDA to define what is intoxicating versus what is not, and they’re on the clock as we speak. So there’s a lot to be considered in all this, but right now states are jumping in and trying to align their state laws with federal law, and as a result, the impact is not going to be felt in November. It’s being felt right now.
Miller: Beau and Mason, thanks very much.
Whitney: Thanks, Dave.
Walker: Thank you, thanks for having me.
Miller: Beau Whitney is chief economist at Whitney Economics. Mason Walker is co-owner and CEO of East Fork Cultivars.
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