What would a move from Schedule I to Schedule III really mean for the cannabis industry and for insurance markets? As federal discussions continue, retail agents face rising questions from clients. This article explores the practical implications, limitations, and what retail partners should be doing right now.
Recent discussions about moving marijuana from Schedule I to Schedule III under the U.S. controlled Substances Act have generated significant attention across the cannabis industry. While this potential shift represents a meaningful regulatory moment, it is critical to understand what it actually changes and, more importantly, what it does not. Many retail agents are fielding questions from clients anticipating dramatic insurance market shifts, but federal rescheduling should not be viewed as an immediate catalyst for widespread transformation.
RESCHEDULING: A REGULATORY ADJUSTMENT, NOT FEDERAL LEGALIZATION
Under current law, marijuana’s classification as a Schedule I substance places it in the same regulatory tier as heroin, LSD, and other drugs deemed to have no accepted medical use. Moving cannabis to Schedule III would formally acknowledge accepted medical use at the federal level and ease certain tax burdens
However, rescheduling does not legalize cannabis federally, nor does it authorize interstate commerce, change FDA approval requirements, or loosen banking restrictions without further action from the U.S. Treasury and Department of Justice. For insurers, reinsurers, and financial institutions, the distinction between rescheduling and legalization is significant
WHAT SCHEDULE III WOULD CHANGE
According to the Cannabis Regulators Association (CANRA), shifting cannabis to Schedule III would:
- Recognize accepted medical use under federal law
- Remove the applicability of IRS 280E, allowing cannabis operators to deduct ordinary business expenses
- Potentially streamline Drug Enforcement Administration (DEA) requirements for cannabis-related research
This could improve operator financial stability and, over time, may produce cleaner financial reporting, increased investment, and better capitalization. But none of these improvements automatically translates into immediate underwriting shifts.
WHAT SCHEDULE III WOULD NOT CHANGE — CRITICAL FOR INSURANCE
A Schedule III designation would not:
- Legalize recreational or medical cannabis at the federal level
- Permit interstate commerce
- Change FDA testing or drug-approval pathways
- Modify banking rules or FinCEN guidance absent new Treasury action
- Reduce carrier reputational concerns
- Alter criminal penalties for trafficking
- Standardize product safety regulations
For retail agents, the key takeaway is that core underwriting assumptions remain largely intact.
INSURANCE IMPACT: WHY RESCHEDULING IS A SIGNAL, NOT A SWITCH
Insurance markets respond to loss data, regulatory clarity, capital requirements, and reinsurance confidence, not political announcements. While rescheduling is a meaningful signal of federal re-evaluation, it does not immediately recalibrate property, liability, or workers’ compensation risk.
From an insurance perspective:
- Carrier appetite will remain selective in the near term.
- Reinsurers are unlikely to materially shift capacity without agency guidance.
- Coverage expansions will be incremental, not sweeping.
- Underwriting will continue to rely heavily on risk controls, site conditions, and loss history
Cannabis remains a complex exposure class, and classification alone does not mitigate that complexity.
LINE-BY-LINE OUTLOOK: WHAT MIGHT (SLOWLY) CHANGE
Property + Business Interruption
- Fire risk, electrical load, and construction quality remain the defining issues.
- Incremental flexibility in limits may precede pricing changes.
- Mainstream carriers may explore layered or quota share participation before direct writings.
Crop + Stock Throughput
- Rescheduling does not legalize interstate transport.
- Chain-of-custody, security, and documentation standards remain unchanged
- Expansion in insurance take-up will depend more on lender requirements than federal scheduling.
Product Liability + Recall
- FDA rules remain unchanged, and recalls will continue to be underwriting-intensive.
- Market standardization is a long-term possibility but not an immediate outcome.
Directors & Officers (D&O)
- D&O trends are driven more by capital markets and governance than by scheduling
- Public market access remains constrained, limiting dramatic capacity changes.
Workers’ Compensation (WC)
- WC is the least impacted line.
- Class codes and claims trends already fit existing frameworks
WHY CAPACITY WON’T IMMEDIATELY EXPAND
While the industry may hope rescheduling will encourage more carriers and reinsurers to participate, several barriers remain:
- Interstate commerce remains prohibited, limiting scalability.
- FDA rules stay in place, affecting product standardization
- Banking uncertainties continue, unless Treasury acts independently
- Many carriers maintain reputational risk concerns.
- Loss data remains fragmented, complicating actuarial models.
These factors historically delay major capacity shifts, even following significant regulatory announcements.
UNDERSTANDING MARKET EXPECTATIONS: WHAT THE DATA SHOWS
Cannabis businesses continue to operate in a unique risk landscape. Despite strong growth, profitability challenges, largely tied to 280E, have been well-documented. Removing 280E through rescheduling may improve financial resilience, but insurers still need stable loss patterns before altering appetite. While these tax savings would meaningfully enhance operator margins, underwriting adjustments require demonstrated, long-term operational improvement, not just regulatory change.
WHAT RETAIL AGENTS SHOULD BE DOING NOW
As questions around rescheduling increase, retail agents can play a crucial role in setting expectations and guiding clients effectively. Agents should:
- Avoid framing rescheduling as an immediate insurance “unlock.”
- Help clients prepare for a post-280E environment with stronger financial transparency.
- Emphasize compliance, documentation, and risk control.
- Set expectations for gradual, not immediate, underwriting evolution.
- Engage wholesalers early to identify where capacity actually exists.
The opportunity for retail agents lies not in anticipating sudden market expansion, but in preparing clients for sustainable, well-structured insurance placements.
CRC’S ROLE: TRANSLATING POLICY INTO PRACTICAL INSIGHT
CRC acts as a bridge between regulatory developments, carrier and reinsurance sentiment, and practical underwriting execution. As rescheduling discussions progress, CRC’s role is to help retail agents separate signal from speculation, ensuring that insureds understand both the opportunities and the limitations ahead.
BOTTOM LINE
Rescheduling cannabis to Schedule III would lift meaningful federal hurdles, most notably 280E tax constraints and barriers to research, but it stops far short of federal legalization. Interstate commerce remains prohibited, product standards remain unchanged, and insurers will continue to evaluate the industry through a cautious, data-driven lens. Any shift in capacity or pricing will be gradual, unfolding only as regulatory alignment and credible loss data mature. CRC remains a strategic partner in helping retail agents separate signal from speculation. For actionable guidance on navigating cannabis risks, connect with your CRC Specialty producer today
CONTRIBUTERS
- Tony McIntosh is the President of Starwind Cannabis. He has over 20 years of industry experience, including retail property and casualty brokerage experience, and over a decade of delegated underwriting expertise.
- Eric Morrison is an Executive Vice President with Starwind Cannabis. He has over 20 years of insurance experience and plays a key role in creating cannabis insurance solutions.
- Preston Philips is a Broker with CRC Group’s Denver office. He specializes in Cannabis risks, Hospitality and Entertainment, Manufacturing and Retail, and Real Estate
- Michele DeLuca is an Associate Broker with CRC Group’s San Francisco office, specializing in Casualty placements
- Tracy Ruchty is an Associate Broker with CRC Group’s Seattle office, specializing in Property risks.
ENDNOTES
- Top Cannabis Industry Statistics 2025, Bizplanr, https://bizplanr.ai/blog/cannabis-industry-statistics
- Marijuana Tax Revenue by State, The Motley Fool, November 21, 2025. https://www.fool.com/research/marijuana-tax-revenue-by-state