Cannabis Market Changes: 4/20 Reality Check for Investors

Rescheduling process brings further uncertainty

In the days following the signing of executive Order After 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 biggest single-day gains in years.

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

The President issued the executive order after passage of a funding bill negotiated by the House and Senate Appropriations Committees in December 2025, which removed a previous House provision designed to prevent the Administration from using federal funding to reschedule cannabis.

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

The current political climate follows 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 canceled evidentiary hearings just days before they were to begin.

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

The Substance Access Beneficiary Engagement Incentive allows healthcare providers in some models, such as the Enhancing Oncology Model, to offer eligible hemp-derived CBD products to patients. The product price in the program is set at US$500 per year and does not include inhalables, but it represents the first time that a federal agency has created a structured pathway for cannabinoid access within the Medicare framework.

While this is a historic step toward federal Medicare integration, it comes 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 0.4 milligrams per container, a standard that would effectively decriminalize the majority of hemp-derived gummies and drinks currently on the market.

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

Lawmakers have introduced bipartisan measures such as the Hemp Planting Forecast Act to delay these restrictions until 2028. However, the FDA has already missed the crucial February 2026 deadline to issue clear guidelines, leaving stakeholders stuck in yet another state of regulatory uncertainty.

Discipline amid capital hesitation

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

Anthony Coniglio, CEO of Newlake Capital Partners (OTCQX:NLCP), said the market is still in a transitional phase.

“We have seen an improvement in sentiment around federal recovery, but this has not yet translated into any meaningful change in capital flows or valuations,” he told 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 over US$435 million in deployed capital. The firm has more than 30 cultivation and retail properties in 12 states, whose tenants include multi-state operators including Curaleaf Holdings (CSE: CURA), Cresco Labs (CSE: CL, OTC: CRLBF) and Trulieve Cannabis (CSE: TRUL, OTCQX: TCNNF).

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

Despite these headwinds, Coniglio has noticed changes in the way the industry’s major players conduct business. “The industry is becoming more disciplined. We have seen companies focus more on cash flow, balance sheet strength and capital allocation as the market matures.”

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