The Time is Now: Why Schedule III Could Ignite the Cannabis Capital Markets

By Tiby Erdely

Back in our article Be Greedy When Others Are Fearful, we made the case that 2025 could be a banner year for cannabis investors. We argued that valuations were at historic lows, capital markets had dried up, and disciplined investors had a rare window to back resilient operators.

Now, that thesis just got a major tailwind.

Over the weekend, President Trump confirmed his administration is actively considering reclassifying cannabis from Schedule I to Schedule III of the Controlled Substances Act and that a decision could come “within weeks”. (source)

For months, we’ve told our investors and stakeholders this was coming. Today’s headlines validate that conviction. And if S3 happens, it could fundamentally reshape the industry’s economics and perception.

Why S3 Matters for Investors

Tax Relief That Actually Moves the Needle.

Section 280E has been a major drag on profitability, forcing cannabis companies to pay taxes on gross profit without deducting normal expenses. For many, that’s meant effective tax rates approaching 80%. Reclassification to Schedule III would eliminate this penalty, aligning rates closer to the 21% corporate level and immediately boosting free cash flow, freeing capital that can be reinvested into operations, growth, and returns to shareholders.

Lower Borrowing Costs and Easier Access to Capital.

With stronger cash flows and cleaner balance sheets, lenders will view cannabis companies as lower-risk borrowers. That should mean reduced interest rates and better financing terms. Today, some operators pay teens to over 20% on debt. Post-S3, those numbers should drop significantly, opening the door for more competitive capital and industry expansion.

Better Liquidity and Broader Investor Participation.

Rescheduling could encourage more mainstream brokerage firms to handle U.S. cannabis equities again, improving liquidity and market participation. While full uplisting to major exchanges still requires additional legal changes, S3 makes that conversation more credible and potentially sooner than many expect. A broader investor base benefits operators and long-term shareholders alike. Additionally, we would expect to see strategics from adjacent industries look to enter the space via acquisitions or minority investments.

A Political Signal That Shifts the Conversation.

If a Republican president moves cannabis to Schedule III, it will help strip away lingering political stigma. That shift could pave the way for broader reforms from unlocking traditional banking access via SAFE Banking to expanding medical programs in currently restrictive states like Texas, Georgia, and Alabama.

The Resurgence of Cannabis Capital Markets.

Fear and uncertainty have defined cannabis investing for the last two years. That fear has pushed valuations to levels we haven’t seen since the early days of the industry. EV/Revenue multiples have collapsed from ~6x highs to around 1x for many operators. The U.S. legal cannabis market is still growing. Public opinion is overwhelming, 88% of Americans support legal medical or recreational use (Pew Research). In other words: the fundamentals never stopped improving. It’s the market sentiment that’s been broken, until now.

We’ve Been Ready. We Remain Ready. 

At KEY Investment Partners, we’ve stayed bullish through the noise because we understand how market cycles work. Tough times create the best vintages if you have patience, diligence, and the right portfolio construction.

Capital will return to this sector. When it does, it won’t trickle it will flood. The investors who are positioned early will be the ones rewarded.

S3 is not the finish line. It’s the starting gun. And for disciplined cannabis investors… the time is now.