Getting in the Weeds on Shifting Cannabis Policy

The sale and use of marijuana may be the most notable flouting of federal law since Prohibition.

Although federal law bars both activities, most states now expressly allow them for medical or recreational uses, or both. Two recent developments create an even more short-term disconnect between federal law and state practice but also may provide a path out of the morass.

First, in November, Congress enacted a sweeping hemp product ban that will reclassify most inhalable or ingestible hemp products as “marijuana” beginning Nov. 12, 2026. Second, the Trump administration then issued an executive order directing the U.S. attorney general to reschedule cannabis from Schedule I to Schedule III under the Controlled Substances Act (CSA), which would ease federal restrictions without fully legalizing cannabis.

These actions could significantly reconfigure federal policy and require insurers, brokers, and other financial institutions to reassess risk exposure and compliance expectations for clients in the cannabis business.

Cannabis Under Federal Law

Federal law has long divided cannabis into two categories:

• Marijuana, a Schedule I controlled substance subject to the CSA’s most stringent restrictions; and
• Hemp, which is exempt from Schedule I status if its delta-9 THC concentration remains below the statutory threshold.

Marijuana’s placement in Schedule I—substances deemed to have no medical use and a high potential for abuse—makes sales and other unauthorized activities directly or indirectly a felony. Hemp is the primary exception to the general rule categorizing cannabis as marijuana.

The 2018 Farm Bill amended the CSA to exempt hemp from the definition of marijuana and effectively legalized hemp and hemp-derived products at the federal level. The 2018 Farm Bill, however, defined hemp only by delta-9 THC concentration, not total THC concentration. This created a loophole that allows manufacturers to create hemp products with less than 0.3% delta-9 THC but high levels of other intoxicating cannabinoids. That enabled a market for hemp-derived edibles like CBD, vapes, and other consumables that could produce intoxicating effects.

Closing The Hemp Loophole

As these products proliferated, state and federal lawmakers raised safety concerns due to the lack of age restrictions, manufacturing standards, and labeling requirements for hemp goods. The new congressional definition eliminates that loophole by defining hemp by total THC concentration. Products with synthesized cannabinoids, those marketed or intended to produce intoxicating effects, and those containing more than 0.4 milligrams per container of total THC will fall outside the scope of lawful hemp as it is now defined.

This change is expected to eliminate most intoxicating hemp products from the market. Many items currently sold as hemp will be reclassified as marijuana and therefore subject to the Schedule I stricter rules.

Rescheduling Marijuana

The Trump administration’s push to reschedule cannabis under the CSA builds on earlier federal efforts by the Biden administration to reschedule marijuana. In May 2024, then-Attorney General Merrick Garland issued a proposed rule that would shift marijuana to Schedule III. The Drug Enforcement Administration (DEA) announced it would hold a rulemaking hearing on the proposal, but an administrative law judge postponed the hearing in January 2025. Nothing of note has happened since then in that matter.

The executive order does not itself change marijuana’s schedule. Rescheduling requires either a formal agency rulemaking from the DEA or legislation.

• Administrative rulemaking: The attorney general, via the DEA, may reschedule cannabis through the standard notice-and-comment rulemaking process. The DEA must obtain a scientific and medical review from the Health and Human Services Department (which it did in August 2023) and then issue and accept comments on a proposed rule.
• Legislation: Congress could amend the CSA to directly reschedule marijuana, bypassing the DEA. While possible, legislative rescheduling remains unlikely due to political gridlock and lack of bipartisan consensus.

Rescheduling cannabis to Schedule III would not legalize marijuana, but it would fundamentally change how federal law treats cannabis. For example, Schedule III drugs approved by the Food and Drug Administration (FDA) may be prescribed by physicians for legal medical use.

Even if cannabis moves to Schedule III, significant restrictions on its use, manufacturing, labeling, marketing, distribution, banking, and insurance would remain. There would, however, be some loosening of current prohibitions and lower risks for service providers of cannabis-related businesses (CRBs) that comply with the new federal legal structure.

Notably, it would be legal to provide services and products (e.g., banking and insurance) to CRBs that comply with Schedule III requirements. Federal law would still likely bar providing services to CRBs that continue to manufacture, distribute, or sell for recreational purposes, but criminal exposure would be lower by eliminating the criminal liability presumption for anyone aiding, abetting, or conspiring with a Schedule I drug business (intent to violate federal law would have to be proven for Schedule III liability). Likewise, anti-money laundering and asset forfeiture concerns would be reduced because revenues from compliant Schedule III businesses would not automatically be considered illegal proceeds.

At a high level, the Schedule III requirements include:

• FDA preapproval of marijuana as a prescription drug and compliance with other agency rules (e.g., manufacturing practices, labeling, and marketing restrictions);
• DEA registration for manufacturers and distributors;
• Recordkeeping and reporting (a biennial inventory of all stocks of controlled substances on hand and records of each controlled substance manufactured, received, sold, delivered, or otherwise disposed of); and
• DEA inspections for registration and “as circumstances may require.”

States would still have no new direct authority under the rescheduling (Schedule III drugs require FDA, not state, approval). It’s unclear what impact, if any, the move will have on state cannabis policy, except perhaps politically. For example, the 10 states that have not legalized medical marijuana may reconsider their approach.

Safer Banking

To add another layer of complexity, lawmakers could revive the Secure and Fair Enforcement Regulation (SAFER) Banking Act, which would give banks, insurers, and agents/brokers a safe harbor to provide financial services to state-regulated cannabis businesses.

The SAFER Banking Act would allow state-legalized cannabis businesses to purchase insurance services without subjecting the insurance professionals with whom they work to federal liability. The bill explicitly includes insurance and reinsurance within the definition of covered financial services. It also clarifies that transactions conducted by state-legal cannabis businesses are not automatically treated as proceeds of criminal activity under federal law.

Blunt Talk For Brokers

Treating most previously lawful hemp products as Schedule I marijuana would significantly expand the category of federally prohibited products. Those same products, if marijuana is moved from Schedule I to Schedule III, would remain prohibited under federal law for recreational use but legally authorized for medical use if compliant with the Schedule III requirements.

For agents and brokers, these policy shifts represent a mixed bag of new opportunities and new complexities:

• New insurability: Schedule III reclassification may make certain CRBs eligible for services they were previously too risky to receive. This could open access to a wider range of insurance products and services that carriers were previously unwilling to offer, including general liability coverage, property insurance, and errors and omissions/professional liability insurance.
• Increased exposure for hemp clients: At the same time, hemp products that once carried minimal legal risk may now be treated as marijuana, increasing regulatory obligations and compliance concerns. These concerns include potential exposure to allegations of aiding and abetting or conspiring to commit a federal offense; heightened anti-money laundering and Bank Secrecy Act scrutiny; and the possibility of asset forfeiture.
• Continued regulatory tension: Conflicting state and federal rules continue to create uncertainty and complicate insuring CRBs.

Until the DEA finalizes the rescheduling process, expect ongoing regulatory volatility.