Big changes have been on the horizon for the cannabis industry in the United States. The federal government proposed reclassifying cannabis, moving it from Schedule I to a less restrictive category, a major shift in how cannabis is perceived at the federal level.
Cannabis is currently classified alongside drugs like heroin and LSD, which are considered to have no medical use and a high potential for abuse. That strict classification has historically posed numerous challenges for cannabis businesses, especially when it comes to basic financial services like banking or loans. A leap to Schedule III would put the plant and its products in the same class as medical treatments such as codeine and anabolic steroids.
The impact on financial services could be significant. Banks previously hesitant to work with cannabis-related companies might change their stance. A FinCEN report from May 2024 showed only about 706 banks and credit unions actively served marijuana-related businesses, a small fraction of the more than 11,600 FDIC-insured institutions and NCUA-insured credit unions nationwide.
Background on cannabis regulation
Cannabis was not always controversial in the United States. Before the 20th century it was widely used for medicinal and recreational purposes. The landscape changed with the Marijuana Tax Act of 1937, which effectively criminalized marijuana, and again with the 1970 Controlled Substances Act, which categorized cannabis as a Schedule I drug.
Despite federal restrictions, states began opposing the national policy in the late 20th century. California legalized medical marijuana in 1996, and as of May 2024 the NCSL reported medical marijuana legal in 38 states and recreational use legal in 24 states and Washington, D.C.
The divergence between state and federal law created a complex regulatory environment, particularly for financial services. Federally regulated banks largely shied away from cannabis-related businesses, forcing many to operate on a cash-only basis with the operational and security challenges that brings.
How Schedule I status hits banking & financial services
1. Banking access
Because cannabis remains a Schedule I drug federally, federally insured banks face significant legal risks serving cannabis businesses, including potential money-laundering exposure. Most avoid the sector entirely, forcing businesses to accept payments primarily in cash, which complicates payroll, taxation and security.
2. Financing & loans
Without banking relationships, cannabis businesses struggle to access traditional financing such as business loans or lines of credit. Private lenders that do serve the industry often charge higher interest rates, and businesses are excluded from federal assistance programs like Small Business Administration loans.
3. Insurance & risk management
Many nationally chartered insurers hesitate to engage with the cannabis industry because of its federal legal status. Those that do often charge premium rates, raising operational costs and limiting risk management.
4. Credit card processing
Due to federal prohibition, most major card networks do not process transactions for cannabis-related products. Where processing exists, cannabis businesses face rates of 7% to 10%, far above the typical 1.5% to 3.5% in other industries, plus heavy transaction fees and rolling reserves covering one to two months of processing revenue. Chargeback thresholds run much lower than in traditional commerce, pushing many merchants toward cashless ATMs or expensive cash handling that can drive total costs above 9%. That strain highlights the urgent need for specialized rate and fee reduction in the sector.
5. Investment hesitancy
The uncertain regulatory environment deters institutional and individual investors, despite the industry’s lucrative potential. This web of restrictions stifles growth and the broader economic potential of the industry.
The reclassification proposal in detail
No official reclassification has occurred. The proposal recommends moving cannabis from Schedule I to Schedule III, a class reserved for substances with accepted medical use and lower potential for abuse.
The push gained momentum after an August 2023 recommendation by the Department of Health & Human Services to the Drug Enforcement Administration, part of a broader initiative to amend federal cannabis policy. The DEA has yet to finalize it and is not obligated to follow the recommendation. This is not the first attempt: in 2016 the DEA rejected a similar petition to reschedule marijuana.
Moving to Schedule III would alleviate many current restrictions:
- Banking & finance. Fewer hurdles to checking accounts, loans and credit lines, reducing the industry’s dependence on cash.
- Taxation. Reclassification would exempt cannabis businesses from IRS Section 280E, which blocks business expense deductions for enterprises trafficking Schedule I or II substances. Businesses could claim deductions and credits like any other legal business.
- Research & development. Schedule III status would substantially ease cannabis research, enabling more comprehensive scientific study.
Implications & opportunities for fintechs
1. Expansion of financial services
With reclassification, cannabis businesses could finally access banking services and card acceptance. Fintech companies have an opportunity to build payment solutions tailored to the sector, including secure, transparent transaction systems that stay compliant with state regulations.
2. Regulatory compliance & reporting
The legal landscape varies by state. Fintechs can offer tools that track sales and inventory accurately while keeping pace with changing regulations, plus stringent anti-money-laundering and know-your-customer protocols with continuous monitoring.
3. Data security & privacy
As cannabis companies move online, securing sensitive customer data becomes paramount. Platforms that protect and anonymize customer information help businesses build trust with their clientele.
4. Custom financial products
The unique risks of the cannabis industry, like crop failure or regulatory changes, require equally unique financial products. Fintechs can collaborate with insurers on tailored policies, and cannabis-focused investment funds may emerge as stigma decreases.
5. Integration with existing financial systems
The goal is for fintech solutions to work smoothly with traditional financial systems, through APIs and strategic partnerships with established institutions, making it easier for banks to serve these businesses without undue risk.
6. Educational & advisory services
Ongoing legislative change requires continuous advisory services. Fintech firms can position themselves as experts in cannabis finance with consultative services, webinars and educational resources.
Overlooked implications
1. Intensified market competition
Lower barriers to entry could bring an influx of new players, intense competition, price wars and market saturation, pressuring existing businesses’ profitability.
2. Increased regulatory oversight
Schedule III acknowledges medical utility but also subjects cannabis to stricter FDA regulation around production, marketing and distribution, driving up operational costs and barriers to entry.
3. Shifts in consumer perception
Reclassification could shift cannabis from a stigmatized substance to a recognized medicinal product, changing spending patterns and potentially reshaping the recreational market.
4. Operational challenges for small businesses
Heightened competition and complex regulatory requirements could disproportionately affect smaller operators, pushing them to the margins unless they innovate or find niches.
5. Enhanced research opportunities
Reclassification could open the door to more comprehensive research, fostering better understanding of cannabis’s medical benefits and risks and leading to new treatments.
6. Legal & compliance costs
Businesses will likely face new costs adapting to legal standards, from revamping operational practices to investing in compliance infrastructure, particularly burdensome for smaller players.
Key challenges to consider
1. Regulatory complexity
Even as a Schedule III substance, cannabis remains federally controlled. State and federal conflicts would persist, leaving a patchwork of compliance requirements that could confuse and burden businesses.
2. Continued research limitations
The DEA still controls the licensure process for cannabis research, which can delay or restrict permitted studies.
3. Economic & market challenges
Tax relief and banking access may disproportionately benefit well-capitalized businesses, squeezing out smaller, minority-owned or less-funded operations, while FDA oversight adds new financial pressures.
4. Social & cultural impact
Reclassification reduces stigma but does not eliminate it. Federal control as a Schedule III drug still implies health risks that can influence public opinion.
5. International implications
A U.S. shift could prompt other countries to reevaluate drug policies, but global treaties complicate change and could put the U.S. at odds with international agreements.
FAQ
Which body controls drug classifications?
Drug scheduling in the U.S. is primarily overseen by the DEA, operating under the Department of Justice.
What is the current status of cannabis reclassification?
As of October 2026, cannabis remains a Schedule I drug. HHS recommended moving it to Schedule III, but the DEA has not finalized the change.
Would reclassification change state laws?
No. Cannabis would remain federally controlled regardless of state laws, which differ by state and local legislation.
What are the opportunities for fintechs?
Banking, insurance, payment processing and compliance tools tailored to cannabis businesses.
Would reclassification help research?
It could ease access for researchers, but significant barriers remain and the DEA still controls licensure.
What are the economic implications?
Tax deductions and banking access could ease financial challenges, but increased oversight and competition could pose new ones.
Could blockchain and crypto play a bigger role?
Potentially. Blockchain offers transparency for tracking sales and compliance, and cryptocurrencies could serve as an alternative payment method for privacy-minded customers.
VeriFee’s strategic response
We are actively monitoring the situation and evaluating its implications for our clients and the broader fintech and payment processing sectors. As specialists in payment cost reduction, we stay ahead of regulatory changes that impact our industry:
- Regulatory analysis. We work with legal and compliance experts to analyze the potential Schedule I to Schedule III shift and its implications for payment processing in the cannabis industry.
- Strategic consultations. We hold discussions with key stakeholders, including financial institutions, to prepare for possible changes in banking and financial services for cannabis businesses.
- Technology adaptation. Our technology team keeps our systems adaptable to changes in cannabis’s legal status, including compliance, risk assessment and fraud prevention updates.
While the DEA’s final decision is pending, we are not waiting to prepare. Should reclassification occur, VeriFee and our clients will be ready to navigate the new territory, reduce payment-related expenses and find more traditional payment solution options. Reach out with specific questions about how these changes might affect the cost of payments for your business.
Related reading
CBD processing is back on the menu →
