The Cannabis Research Order: A Turning Point for Valuations?

Written by: Megan Ramey, CPA, CFF, ABV

Last month, the White House issued an Executive Order titled “Increasing Medical Marijuana and Cannabidiol Research,” a development that has the cannabis world buzzing. For industry watchers, it represents the most meaningful shift in federal policy in years, even if it doesn’t go as far as full legalization.

As valuation professionals, our focus isn’t just on headlines; it’s on what this change means for risks, cash flows, and value drivers. For valuation purposes, the significance of the Order lies in how it informs regulatory risk and long-term assumptions, rather than in any immediate operational change.

 Here’s what the Executive Order actually does:

• It directs federal agencies to complete the process of moving marijuana from Schedule I to Schedule III  under the Controlled Substances Act.

• It pushes for expanded medical cannabis and CBD research using real-world evidence.

• It calls for clearer federal frameworks for hemp- and CBD-derived products.

It does not legalize cannabis federally. It does not automatically change tax law. And it does not resolve banking and interstate commerce issues. But it does represent the first instance of federal acknowledgment of medical use, which has implications for regulatory risk and valuation.

Schedule I classification has long been a major source of risk in cannabis valuations because it implies no accepted medical use and a high potential for abuse. By contrast, Schedule III recognizes medical utility and lower abuse potential, which reduces regulatory uncertainty.

The planned shift to Schedule III will ease restrictions on clinical research and encourage greater participation from healthcare professionals and academic institutions. Over time, this should also lessen the perception of federal opposition, supporting a reduction in the regulatory risk premiums commonly applied in valuation models. For valuation, that means we can begin to adjust assumptions in models where regulatory penalties and stigma have been significant drivers of discount and capitalization rates.

One of the most impactful effects of rescheduling, if it ultimately happens, could be on tax treatment. Under current law, businesses involved in activities related to Schedule I or II controlled substances are prohibited from claiming most ordinary business deductions under Internal Revenue Code Section 280E. This has artificially inflated effective tax rates for compliant cannabis businesses compared to any other “legal” industry.

Schedule III status creates a plausible path out of 280E, which would dramatically improve after-tax cash flows for many operators. That said, the Order itself doesn’t change tax law. For valuation purposes, this means any potential tax relief should be considered a possible scenario to model, not assumed as certain in the base forecast.

 In practical terms, we create two scenarios for valuation:

• Base case — assume no change to the current 280E tax rule.

• Scenario case — assume tax relief takes effect during the forecast period

This lets decision-makers see how much value could change if tax treatment improves, without assuming it will definitely happen.

Who Stands to Benefit Most?

Here’s where the valuation impact matters:

• Medical and research-focused companies: They benefit from less regulation and more research opportunities.

• CBD and hemp businesses: Clearer rules lower legal risks and support more stable valuations.

• Recreational-only companies: They’ll see little change for now since big issues like legalization and banking are still unresolved.

What This Doesn’t Fix

It’s important to ground the enthusiasm in reality. The Order:

• Does not legalize cannabis federally.

• Does not eliminate structural banking constraints.

• Does not resolve state-federal conflicts.

These issues, and the risks they create, remain in our models and assumptions until they are addressed through legislation or further action.

Bottom Line

The December 2025 Executive Order represents a positive step for cannabis valuations, especially for companies focused on medical and research applications. It lowers regulatory risk and adds valuable flexibility around tax treatment and growth outlooks. That said, these changes will take time to materialize and should be carefully incorporated into valuation analyses, with close attention to timing and execution risks.

If you’d like to explore how this development might impact your valuation models or discuss scenario planning for cannabis-related assets, please don’t hesitate to contact Cogence Group or reach out to me directly, Megan Ramey.