In light of President Donald Trump’s December executive order urging for the reclassification of cannabis to a Schedule III narcotic, the nation likely stands to see a green wave – and local cannabis companies stand to benefit.

Currently, cannabis is a Schedule I narcotic – on par with heroin, LSD and ecstasy – which the U.S. Drug Enforcement Administration defines as “drugs with no currently accepted medical use and a high potential for abuse.” Acknowledging “credible scientific support to substantiate the use of marijuana in the treatment of pain, anorexia … and nausea and vomiting induced by chemotherapy,” Trump’s executive order is a major step in the years-long battle for federal change within the cannabis industry.

Aside from increasing access to the substance, the shift in the federal classification would drastically change how cannabis companies are able to operate, and the stock market has taken note. Following news reports on Dec. 11 teasing Trump’s executive order, publicly traded cannabis firms saw their stocks skyrocket.

That includes Glass House Brands, the Long Beach-based cannabis giant that has about 1,200 retailers, works with nearly 600 brands and owns close to 6 million square feet of cultivation facilities. Between Dec. 11 and 12, the company’s stock jumped 59.7% and has remained up ever since.

While public cannabis companies are used to seeing stock fluctuations in line with the rumor mill, Kyle Kazan, chairman and chief executive of Glass House, characterized this most recent development as “definitive news.” He expects the new classification to take effect within two months. 

Operating a business under the scrutiny of Schedule I classification comes with hurdles, which many attribute to the widespread failure of cannabis companies. This includes limited access to banking services, a timid investment environment and exorbitant federal tax fees.

According to December data from the state Department of Cannabis Control, 32% of annual cannabis business licenses in California are now inactive. 

“Working in that Schedule I environment puts all kinds of barriers up for people to start businesses and it makes it, I would say, 10 times as hard to start a cannabis business than any other business,” Kazan said. “I take my hat off to the folks that have been able to not only build a company but (also) sustain one in this very difficult environment.”

Once California legalized cannabis and new businesses began to emerge, the complexities of running these companies became evident, said Ryan Miklusak and Tim Rademaker, vice presidents of cannabis banking at Sun Valley-based Mission Valley Bank. Miklusak took note of what he called “insane fees for traditional banking services” and wanted to find a more cost effective and efficient solution.

Trying to provide these services was not unheard of, but because of the newfound need, others in the space were operating under the principles of supply and demand and charging steep prices as such, Rademaker said. Some cannabis companies accepted that reality while others “still flew under the radar having their bank accounts at Wells Fargo, Bank of America or Chase and just hoping not to get caught,” he said.

Those who opted for financial services with private funders were typically offered short duration loans with interest rates between 15% and 25%, Rademaker said. 

“It’s like paying Ritz-Carlton pricing for a room at a Motel 6,” he said.

Balancing that debt burden in a new, highly competitive market creates challenges to becoming profitable. While Miklusak and Rademaker implemented some strategies to lower costs and streamline services, there’s only so much they can do while still adhering to federal requirements.

“It’s expensive for us to bank cannabis,” Rademaker said. “We spend a lot of money on every account every month and a lot of time, which is why we have to charge a fee today because the bank has to recuperate that cost.”

Banks who work with cannabis companies must create suspicious activity reports (SARs) every three months detailing each of their cannabis clients’ “amount of deposits, withdrawals and transfers in the account,” among other identifying information for those involved in the business, according to the Financial Crimes Enforcement Network.

As it stands, the time and costs associated with meeting compliance to bank a cannabis company exceeds that of arms manufacturers, adult entertainment and tobacco, Rademaker said.

While Miklusak doesn’t think the reclassification of cannabis will eliminate every hurdle, he does anticipate less scrutiny and lower costs – and as a result, an increase in the number of financial institutions willing to work with these companies.

Kazan agrees.

“We’re expecting that banking access will get easier,” he said. “We’re huge so we get to bank with normal banks, but a lot of our customers can’t, and that’s insane.”

Another substantial impact of the cannabis reclassification to Schedule III will be the drug’s release from certain federal tax code gridlocks – namely section 280E of the U.S. Internal Revenue Code. This essentially prohibits cannabis companies from writing off standard business expenses from their gross income. The law only pertains to Schedule I and II substances, and so the reclassification would exempt cannabis companies from this bottleneck, resulting in major savings for small and large cannabis companies alike.

For Green Qween, a dispensary chain with locations in downtown L.A. and West Hollywood, being able to write off rent and payroll will make a world of difference.

“When reclassification takes effect, Green Qween will finally access these tax savings, which will have a significant impact on our bottom line,” said Alexis Areias, chief executive of the company.

The possibility of allowing customers to use credit cards would also bolster cannabis companies’ performance metrics. Kazan estimates the incorporation of credit cards would result in an additional 20-25% in Glass House’s overall revenue. 

These developments can also further unlock banking access because for a bank to take on a cannabis client, the business needs to have demonstrated high performance, Rademaker said.

“So, if you’re a company and you’re straddled with private debt, your margins are slim, your cash flow is challenged and your track record is less than five years old, traditional banking models don’t really work,” he said.

However, the tax relief from 280E exemption and increased sales activity through credit cards could significantly improve those balance sheets, given that currently on the federal level, “a dispensary is paying something like 65-75% effective tax rate,” he said.

Miklusak also points to these savings as a means to reduce the cost of selling legal cannabis over time. In late 2024, Mendocino County Sheriff Matt Kendall told the Los Angeles Times that the state’s cannabis black market was “as big and bad as ever.”

“Hopefully with the decrease in taxes and potentially the opening of new consumers and investment dollars … companies are able to reduce prices and compete against the black market and reduce its market share,” Miklusak said.

On the investment side of things, there seems to be consensus that reclassification would open a lot of doors. 

Andrés Rigal, Green Qween co-founder and chief visionary officer, expects “renewed interest” from investors evaluating the cannabis industry. “The reclassification is part of our investment conversations, especially as we eye new markets,” he said.  

Kazan also believes investors stand to benefit in getting involved in an industry that many have shied away from, now that a number of roadblocks will likely be mitigated as the reclassification takes place. 

“(Because the industry is not yet being embraced by the huge investment banks – who, with quant trading and everything, kind of skew values – I think a retail investor today can get a more fair shake investing in the cannabis industry than they might be able to get if they invest in something where they’re dealing with the massive funds,” Kazan said.

As for his own firm’s expansion, Kazan is excited for the possibility of both interstate and international commerce, adding that he is already in talks with European markets. 

In a broader sense, he hopes this will empower more entrepreneurs to get involved in the space.

“We believe that cannabis makes the world a better place,” Kazan said. “…I’m really excited about (the reclassification), and I certainly hope people that have had those cannabis dreams watch as the landscape gets a little bit easier and decide to give it a shot.”