By Anthony Coniglio, co-founder, president and chief executive officer of NewLake Capital Partners

For years, the cannabis industry has been defined by a paradox. Demand continues to grow and legalization has expanded across most U.S. states, yet federal policies still distort taxes, limit access to capital and complicate operations.

The proposed rescheduling of cannabis from Schedule I to Schedule III does not resolve that contradiction overnight. It does, however, mark a clear and meaningful step forward. It reflects broad public support for medical cannabis and growing alignment across political parties. More importantly, it signals an effort to create a durable regulatory framework rather than a symbolic policy shift.

That distinction matters. This is a structural change that alters how the industry is financed and evaluated. Much of the attention around rescheduling has focused on Section 280E, the federal tax provision that prevents cannabis businesses from taking standard deductions. Removing that burden would improve reported profitability, but the immediate impact is often overstated.

Many operators have already adapted. Instead of fully paying 280E taxes, companies have frequently accrued those liabilities on their balance sheets. As a result, rescheduling is unlikely to produce a sudden influx of cash.

The real impact is forward-looking. Removing 280E improves future cash flow visibility, reduces leverage pressure and strengthens credit profiles. This is fundamentally about the future of the industry, not a short-term boost to earnings.

In practical terms, rescheduling functions as a sector-wide credit event. By improving prospective cash flows across the industry, it has the potential to strengthen credit profiles at a scale rarely produced by a single regulatory change.

Today, cannabis is not a niche market. The cannabis-infused products market alone is projected to grow from $33.62 billion in 2025 to approximately $41.44 billion in 2026, a 23.2% increase. Yet the industry still lacks the efficient access to capital available to most sectors of comparable scale. 

In 2025, about 94.8 percent of capital raised by U.S. cannabis operators came in the form of debt, much of it used to refinance existing obligations rather than fund expansion. That reflects a market focused on maintaining balance sheets, not building new capacity.

Rescheduling does not change that overnight, but it does make the sector more investable. Greater regulatory certainty and improved financial profiles allow investors to underwrite future cash flows with more confidence. Over time, that can bring new capital into the industry, recapitalize balance sheets and support more disciplined growth.

Cannabis demand already exists. What determines growth is access. From 2018 to 2021, the industry expanded rapidly as new states adopted medical programs and many converted to adult use. That pace slowed as fewer states came online and capital became more constrained. The next phase of growth will be driven less by policy announcements and more by execution at the state level.

In markets where retail access has expanded, the pattern is consistent. More dispensaries create greater competition, which brings down prices and makes legal products more competitive with the illicit market. As pricing becomes more attractive, consumers shift to regulated channels and overall legal sales volumes increase.

That dynamic is already visible in mature markets such as Massachusetts. As retail competition expanded, the average price of adult-use cannabis fell sharply, making regulated products more accessible to consumers. Even with continued price compression, the state generated a record $1.65 billion in adult-use sales in 2025, supported by a record number of transactions. The lesson is that lower pricing does not necessarily mean weaker demand. In a competitive legal market, it can help drive greater consumer participation and shift more purchases into regulated channels. 

Rescheduling supports this trend by improving access to capital and reducing uncertainty. Operators are more likely to invest in new stores and expanded infrastructure. Activity is also increasing in states that previously lagged adoption, including Texas and Georgia, while others such as Pennsylvania may move toward adult-use programs. Even so, growth is unlikely to occur all at once. It is more likely to be gradual and uneven, developing over time rather than through a sudden surge in demand.

Another factor shaping the market is competition from hemp-derived and synthetic THC products. Federal loopholes have allowed these products to be sold nationally, often outside regulated dispensary systems. That has diverted demand from state-legal operators. As federal policy tightens around these products, some of that demand is expected to return to regulated markets. Not all of it, but enough to influence growth trends in the near term.

Until the transition to Schedule III is fully implemented, operators may still face important tax and compliance complexities. Companies that sell both medical and adult-use products may need to clearly separate those revenue streams to fully capture available tax benefits. Larger operators with more advanced systems may be better positioned to manage that process, while smaller operators could face higher compliance costs. 

Potential federal requirements could also increase operational burdens. New rules related to registration, tracking or distribution could add complexity and cost. Depending on how those rules are implemented, smaller operators could be at a disadvantage compared with larger, vertically integrated businesses. These are important considerations. While rescheduling improves the overall framework, it does not eliminate structural challenges within the industry.

Several critical questions are still unresolved. It remains unclear how adult-use cannabis will be treated under a Schedule III framework. The potential for retroactive 280E relief is uncertain. The role of federal agencies, particularly the DEA, continues to evolve. Interstate commerce, while frequently discussed, appears to remain years away. These details will determine how much of rescheduling’s potential is ultimately realized.

Beyond financial and regulatory changes, there is a broader shift underway. For decades, cannabis has carried institutional stigma. Medical education has largely ignored it, and many physicians have had limited exposure to its clinical applications.

Rescheduling begins to change that dynamic. It creates space for more research, more education and more informed medical conversations. Over time, that could expand the total addressable market. This will not happen quickly. It is a long-term process that unfolds over years, not quarters.

Rescheduling will not fix the cannabis industry overnight. It will not eliminate capital constraints immediately or simplify the state-by-state regulatory structure.

What it does is establish a foundation the industry has lacked for decades. It improves credit quality, makes the sector more investable and creates the conditions for capital to return in a more durable way.

More importantly, it begins to change how cannabis is viewed. As federal policy evolves, so does the willingness of physicians to engage, patients to access and policymakers to expand programs. That process will take time, but it is already underway.

The result is not a sudden inflection point, but a long-term shift. For an industry that has operated under uncertainty for years, that movement toward normalization and stability may prove to be the most meaningful change of all.

Anthony Coniglio is co-founder, president and chief executive officer of NewLake Capital Partners, a cannabis-focused real estate investment trust that provides capital to state-licensed operators through sale-leaseback transactions and build-to-suit projects. Since co-founding the company in 2019, he has helped build NewLake into one of the largest independent owners of cannabis real estate in the United States and is a frequent speaker and advocate on cannabis policy, capital markets and industry regulation.