The U.S. cannabis industry faces five major hurdles holding back its growth, even as sales are projected to reach a record $50 billion or more in 2025. While a final rule due later in 2025 from the U.S. Drug Enforcement Agency (DEA) about how cannabis is scheduled looks to be a crucial moment for the sector, banking restrictions, complex regulations, market consolidation, and rising competition from established industries won’t go away, no matter what the DEA’s rule ultimately says.
Here’s what investors need to know.
Key Takeaways
Federal Rescheduling: A Turning Point for Cannabis?
The cannabis industry has been eagerly awaiting a final rule from U.S. Drug Enforcement Agency, proposed in 2024, that would reschedule marijuana from a Schedule I to Schedule III drug under the U.S. Controlled Substances Act. If the rule goes through, cannabis would no longer categorized alongside drugs like heroin but those like Tylenol with codeine instead.
That step alone would dramatically reshape the industry’s finances. Cannabis businesses pay about double the federal tax rate of traditional companies because of IRS Code Section 280E, which prevents them from deducting normal business expenses. For example, Kansas City-based Greenlight Corporation, which operates 32 dispensaries nationwide, has said it faces an effective 50% federal tax rate compared with the standard 21% for firms in any other industry.
The State-Federal Cannabis Legal Maze
Since legal dispensaries can’t transport products across state lines, operations in each state, even those owned by the same company, must be completely self-contained, driving up costs.
Access to Financial Institutions
Despite generating billions in sales, most banks are leery of working with cannabis companies given the legal environment. As such, most cannabis businesses are forced to run much like off-book operations, counting stacks of cash and struggling to access basic bank accounts.
The problem isn’t just about deposits—the steady stream of cash running through these companies creates security risks and operational headaches.
Even with cannabis rescheduling, the industry would still need additional changes to federal statutes to access financial services.
Problems Around Hemp
With the Farm Bill reauthorization pending, there’s significant uncertainty around the future of hemp-derived cannabinoids. This includes the legal status of intoxicating hemp-derived THC edibles that have flooded convenience stores and gas stations nationwide.
The problem? These products often get sold with minimal oversight and compete with their highly regulated cannabis cousins. Many states have responded with a patchwork of solutions—some banning these products outright, others imposing strict testing requirements, and others leaving it up in the air about how they’ll regulate this rapidly growing market.
Market Consolidation
The industry is also facing pressures to consolidate as larger companies buy up smaller operators. Recent mergers of major operators like Cansortium with RIV Capital are part of this trend, with more in the offing.
Rising Competition from Traditional Industries
Relatedly, established alcohol, tobacco, and pharmaceutical firms, seeing the money to be made, have been quietly positioning themselves as major players in the industry. These established companies bring massive advantages: deep pockets, nationwide distribution networks, and decades of experience navigating complex regulations.
In addition, federal courts are due to rule in 2025 on lawsuits by larger cannabis companies to open up various states to more out-of-state firms. If they prevail, that would essentially open the floodgates for large national companies to enter state markets, potentially forcing out smaller regional firms that will find it hard to compete.
The Bottom Line
The cannabis industry faces significant challenges. While the proposed rescheduling of cannabis could provide some tax and legal relief, the industry will still have to navigate a complicated patchwork of state regulations, limited banking access, and increasing competition.
Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Cannabis remains federally illegal in the U.S., and laws vary by state and country. Readers should consult local regulations and qualified professionals before making any decisions regarding the cannabis industry.
