The basics:

• Ahead of the new Trump administration, the legalized cannabis industry is speculating about potential policy changes.
• Industry stakeholders appear cautiously optimistic, as they believe the new president may reduce regulatory burdens and foster a more favorable environment for cannabusinesses.
• Two key areas of possible change are banking reform and the potential reclassification of cannabis from a Schedule I to a Schedule III controlled substance.

Ahead of President-elect Donald Trump’s return to the White House Jan. 20, the legalized cannabis industry is speculating about potential policy changes. During his first term, the Republican engaged in limited activity regarding the burgeoning sector. Since Trump left office in 2020, cannabis has continued to become more broadly accepted across partisan lines.

A recent Pew Research Center poll found an overwhelming share of U.S. adults (88%) say marijuana should be legal for medical or recreational use. And, over half of Americans say legalizing marijuana for either medical or recreational use is good for local economies.

Currently, 24 states – including New Jersey – have made cannabis legal for medicinal and recreational use.

State-regulated cannabusinesses across the country employ more than 440,000 workers on a full-time basis and that “number is expected to triple over the next five years,” cannabis industry staffing platform Vangst reported recently.

All regulated marijuana products on the market in the U.S. are also grown and manufactured here. By 2027, sales of “made in America” grown and manufactured cannabis is projected to hit $53.5 billion, according to trade publication Marijuana Business Daily.

While on the 2024 campaign trail, Trump voiced support for cannabis, “smart regulations” and ending “needless arrests and incarcerations.”

Trump also said that, as president, he would favor reclassifying marijuana as a Schedule III controlled substance and “work with Congress to pass common sense laws,” including banking reform for cannabusinesses. He also reiterated his belief in each state’s right to approach legalization.

Cautiously optimistic

As a result, industry stakeholders appear to be cautiously optimistic about another Trump term — because they believe he may make it easier for cannabis businesses by reducing regulatory burdens and fostering a more favorable environment for growth.

“The wait and see mentality is the prevalent mentality that we’re hearing from our clients. The sort of natural assumption is to assume that a Republican administration is going to be a bit more hesitant to change at the level that we’re talking about when it comes to cannabis legalization,” said Ryan Magee, a partner at Newark-based McCarter & English LLP whose specialties include cannabis law.

“But we have heard conditional statements from our president-elect on the campaign trail that seems to express some degree of open-mindedness to those changes that have been being talked about across administrations and across the political aisle,” he said.

“So, I think nobody is betting on a particular end result and certainly not betting on a particular way that it’s going to play out. And I think my business clients that are in the space are holding tight and are eager to see, if not fascinated, to see how things are going to shake out,” Magee said.

Guillermo Artiles, a partner at McCarter & English who chairs the firm’s government affairs practice and leads the cannabis group, said, “On the government affairs side, I think we are very interested and excited about the potentials here with the president. I think he traditionally, as a Republican, one would ordinarily not be so excited about an incoming president as it relates to the cannabis industry.”

“But I think with President-elect Trump, that’s not the case. I think there is excitement here. I think he’s got a pretty open mind on a lot of things on the business front and on the entrepreneurial front,” Artiles said.

“And then I think from generally the deregulation front. Obviously, we all know about the Elon Musk and Vivek Ramaswamy appointments, and while those are just to speak to government inefficiencies and removing red tape, I think in many ways, and along that same continuum, you could see him taking on some of the bolder issues that are out there,” he said. “And then, I think, legalization, rescheduling, all of that really comes into play and not just from a conceptual purpose.”

Joshua Bauchner, a partner and chair of Roseland-headquartered Mandelbaum Barrett PC‘s cannabis & psychedelics practice group, said, “I think the industry is definitely something that people are taking more seriously as we’re seeing it legitimized … I think people are now recognizing the sky’s not falling and that cannabis use has not caused the social safety net to falter.”

He went on to say, “Made in the USA? All cannabis is growing here and sold here — it is a thousand percent made in the USA. The border? Legalized cannabis at the state level reduces the flow of illegal cannabis over the southern border, and of course, it reduces the flow of people bringing illegal cannabis. Jobs? The cannabis space employs almost a half million people nationwide. It’s massive – larger than the coal industry and solar industry.”

“So, unlike a lot of industries that might be stagnant, the cannabis industry … creates new jobs, which I think is very much a consideration for this administration, and frankly, he’s a populist president,” Bauchner said. “If you’re populist president and you want to serve and respect the needs of the citizenry, you’d be hard pressed to find something with an 88% approval rating across political demographics.”

“I think this cannabis checks a lot of the boxes with respect to administration’s policies and both policies and politics,” he added.

Banking reform

Since marijuana remains classified as an illegal drug by the federal government, traditional financial services are out of reach for the cannabis industry as Federal Deposit Insurance Corp.-backed banks are barred from doing business with dispensaries, growers, distributors and wholesalers.

Right now, licensed cannabis businesses have few options when comes to banking services like handling payroll, opening a checking account, and borrowing money in a safe and secure manner. That means many have been forced to operate exclusively in cash, which makes them vulnerable to violent crime and affects the ability of federal regulators to monitor activities like tax evasion and money laundering.

The current restrictions also make it challenging for state agencies to collect taxes and oversee businesses effectively.

As more and more states legalize the use of medical and recreational cannabis, pressure is growing on federal lawmakers and banking regulators to provide the cash-dependent cannabis sector with access to regulated banking services.

Nearly two dozen attorneys general – including New Jersey’s Matthew Platkin – have called on Congress to pass the SAFER [Secure and Fair Enforcement Regulation] Banking Act, saying it will enable economic growth, facilitate state oversight of tax obligations and reduce public safety risks associated with high-value, cash-based businesses.

Despite passing numerous times in the U.S. House of Representatives, the bipartisan bill continues to await U.S. Senate floor action. However, as of Jan. 3 Republicans have majorities in both houses, which could make it easier to advance agenda items.

Artiles believes banking access is one of the “most obvious” areas for reform because “it speaks to who he [Trump] is as an economically driven, capitalist-oriented individual.”

“I think he leans in through more of a true market access capitalist sort of lens rather than from an equity perspective,” Artiles said, adding, “Depending on how this Republican-led legislature works with the president, you can really see a pathway.

“If you get that, I think that’s the real sort of unlock for the industry … from where the industry is right now – on a state-by-state basis – there is success at the state level. But I still think there are massive frustrations and limitations, most of which are solvable with a true normal monetary policy that applies to every other industry being applied to the cannabis space.”

“All indications are as a Republican led legislature, they are going to play ball with him and that SAFER banking is probably one of the first things the industry can get behind and be excited about,” Artiles said.

Bauchner said, “If we take a step back and we look at some of the overarching policy positions of this administration, one of them is deregulation … and allowing the states to develop their own regulatory scheme, whether it’s permissive or prohibitive. So, the banking piece enables the states to do what they need to do in that regard, which I think is congruent with what a Trump administration is claiming it wants to do. It allows the federal government to get out of the way with its restrictions and regulations on the banks and allows for the states to do what they’re going to do.”

Surprise support

While campaigning, Trump took many by surprise when he came out in support of the Biden administration’s rescheduling push.

In a social media post, he said, “As president, we will continue to focus on research to unlock the medical uses of marijuana to a Schedule 3 drug.”

While federal law continues to prohibit cannabis as a Schedule I drug under the Controlled Substances Act, U.S. enforcement priorities have evolved over the past 15 years. The move by states to establish legal markets has resulted in a complex and confusing legal and regulatory landscape in which state and federal laws conflict.

Earlier this year, the U.S. Department of Justice recommended what could be the most significant change in marijuana’s legal status under federal law since 1970 – reclassifying it as a Schedule III controlled substance.

Under the framework published in the Federal Register, cannabis would no longer be considered a Schedule I narcotic – a category reserved for drugs that have no accepted medical use and high potential for abuse.

As a Schedule III substance, cannabis would join a category that includes certain opioid-based pain medications, testosterone and anabolic steroids. However, it would remain illegal under federal law unless Congress decides to make legislative changes.

Rescheduling cannabis would make researching the drug easier — something that public health officials and scientists have sought for years. Studying cannabis to identify concrete medical benefits could open the door for pharmaceutical companies’ involvement with the sale and distribution of medical marijuana in states where it is legal.

For the $34 billion cannabis industry, the change would free business owners from Section 280E of the federal tax code. The rule prohibits legal cannabis companies from deducting most basic business expenses.

Industry watchers believe a key factor for rescheduling will be who ultimately serves in Trump’s cabinet. Robert F. Kennedy Jr. – Trump’s nominee to lead the Department of Health and Human Services – supports cannabis legislation. But his attorney general pick, Pam Bondi, has opposed cannabis reform.

Chad Chronister, a Florida sheriff who has favored decriminalizing small amounts of marijuana, was selected to head the Drug Enforcement Administration. However, he withdrew his name from consideration in early December amid GOP criticism of his actions enforcing lockdowns during the pandemic.

A second choice has not yet been named.

Wait and see?

When it comes to rescheduling – or even descheduling – Artiles suspects it could be an area Trump “may shy away from depending on who the new DEA head is.”

Magee said, “The fact that the DEA rescheduling process and hearings are already underway makes me think that the president or people in the legislature would like to see how that pans out before pursuing more wholesale change from there.

“We’re watching it happening, we have dates that we can count on and we have evidentiary hearings that are going to be occurring where we, as a public, are going to learn more about, for example, the medical upside of cannabis. So, if I were in those shoes, I would want to see how these hearings play out and then start making decisions from there,” he said.

Bauchner said, “It wouldn’t surprise me if they allowed the process to run its course, but then at the end of that process did whatever they wanted to do, even if there was the recommendation to reschedule. Again, if that just creates a whole host of new regulations, frankly it’s going to increase the size of government. … More broadly, it’s an administration that’s talking about letting people and local governments be free from federal interference. That’s why I think rescheduling won’t help. Because rescheduling, as opposed to de-scheduling, would increase government interference.”

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He continued, “I don’t think there’s going to be any strict adherence to whatever the DEA sets. This is the president-elect who is told one thing, but with his pen stroke is happy to do the exact opposite and let the chips fall where they may.”

Bauchner went on to say that while Trump has “expressed smart regulations for cannabis and interest in ending needless arrests and incarcerations” he doesn’t know if there’s a need to move forward with the change.

“If we continue to adhere by … a basically a hands-off policy, why take the time? Why waste the political capital on it if it becomes unnecessary? For all intents and purposes, it’s already de-scheduled. It’s been decriminalized. The federal government is not enforcing the federal drug laws against cannabis. The state governments where it’s been decriminalized and legalized aren’t enforcing it,” he said.

“De-scheduling for purposes of making it so it’s not a controlled one substance and making it so it’s not criminal has no value if you’re already not enforcing the law. Why waste the political capital on it? Across political demographics, nobody cares anymore. It’s decriminalized. Stores are selling it legally. It’s done. The fight is won. So, that’s why I think now this administration and its agenda really works nicely with that,” he said.

As for decriminalization, Artiles said it’s not easy to know what to expect.

“He’s the toughest individual to provide advice on because he’s essentially a wild card,” he said. “He doesn’t follow any sort of established rules that we all sort of follow traditionally.”

Artiles noted that the party’s perspective has been largely opposed to decriminalization. However, since Trump has “sort of expressed interest in it,” Artiles said he could “see him very well doing that.”

Magee said, “I think New Jersey was a bit of a unique animal in that they approached decriminalization somewhat distinct from legalization. Ultimately, we pursued both and we tracked them both relatively simultaneously to each other, but we saw them as distinct issues. And I think if you are looking at a federal level and you’re looking at change at that level, I think you’re probably more likely to see neither of those addressed in isolation and more likely to see them being addressed in tandem.”

“I think at a federal level, you’re most likely to see decriminalization attached to some sort of legalization framework,” Magee said.