Biggest Challenges for the Cannabis Industry in 2025

As cannabis sales in the U.S. are projected to surpass $50 billion in 2025, the industry faces the same challenges that have stunted growth trajectories in the past. From pending federal rulings to rising competition, cannabis operators must navigate complex terrain to be profitable.

Federal Rescheduling: A Potential Turning Point

The cannabis industry eagerly awaits a final ruling from the U.S. Drug Enforcement Agency (DEA). Proposed in 2024, the rule could reschedule cannabis from a Schedule I to a Schedule III drug under the Controlled Substances Act.

If enacted, cannabis would no longer be categorized with drugs like heroin but instead classified alongside substances like Tylenol with codeine. This change could have a profound impact on taxation.

Under current laws, cannabis businesses are subject to IRS Code Section 280E, which prevents them from deducting normal business expenses, leading to effective tax rates as high as 50%, compared to the standard 21% for most industries.

For instance, Greenlight Corporation, which operates 32 dispensaries nationwide, reports paying a federal tax rate double that of other industries. Rescheduling cannabis could significantly ease these financial burdens and encourage further investment.

Banking Restrictions

Despite generating billions in revenue, cannabis businesses still struggle with limited access to banking services due to federal laws. Most operators rely on cash transactions, which create security risks and operational inefficiencies.

Even if cannabis is rescheduled, additional legislative changes would be required to allow cannabis companies to access traditional banking.

Complex State-Federal Regulations

Cannabis businesses face a "legal maze" as state and federal laws often conflict. Since legal dispensaries cannot transport products across state lines, each state operation must remain self-contained, driving up costs and creating difficulties in normal company scaling.

The lack of nationwide standardization further complicates compliance, making it harder for businesses to scale.

Market Consolidation and Competition

Cannabis sales are projected to reach $50 Billion in 2025. Larger cannabis companies are rapidly consolidating the market, with major players acquiring smaller operators. Recent mergers, like Cansortium's acquisition of RIV Capital, reflect this trend.

Adding to the pressure, traditional industries like alcohol, tobacco, and pharmaceuticals are entering the cannabis space. These established companies bring deep pockets, nationwide distribution networks, and decades of regulatory expertise, making it harder for smaller operators to compete.

Federal court rulings in 2025 could further open state markets to national players, potentially squeezing out regional businesses.

Hemp Market Uncertainty

Legal hemp-derived THC products, such as edibles sold in convenience stores, are causing regulatory headaches. While cannabis products are tightly regulated, many hemp-derived products operate in a gray area, competing with their cannabis counterparts without the same oversight.

The pending Farm Bill reauthorization could clarify the legal status of these products, but uncertainty remains.

While federal rescheduling could bring tax relief and legal clarity, businesses still face significant obstacles to scaling their profitability. For cannabis operators, adaptability and innovation will be key to thriving in 2025 and beyond.