Marijuana’s Move to Schedule III: What it Really Means for Cannabis Insurance

The cannabis world is buzzing about a possible move to reclassify marijuana from Schedule I to Schedule III under the Controlled Substances Act. If it happens, it will be a meaningful shift—especially for taxes and market access—but it will not be a magic wand. For insurers, brokers, risk managers, and cannabis operators, the likely impact is best understood as a set of incremental tailwinds alongside new complexities.

The Real Upside: Investment, Taxes and (Some) Stigma Relief

The most immediate, concrete benefit of Schedule III is tax relief for cannabis businesses. Moving marijuana off Schedule I should effectively eliminate the punitive application of Section 280E, allowing cannabis businesses to deduct ordinary and necessary business expenses. That alone improves cash flow, margins, and valuations, which are foundational inputs for underwriting and for investor confidence. More profitable, better‑capitalized insureds are generally better risks.

A second expected benefit is investment and capital access, though exuberance should be tempered since marijuana will remain a controlled substance. A Schedule III designation lowers perceived legal and compliance barriers for many financial institutions. Banks are more likely to support lending and full-suite banking services, exchanges may become more receptive to listings, and traditional institutional investors who were sidelined by Schedule I may re‑enter. That doesn’t “legalize” the business model, but it meaningfully reduces friction in capital formation and mergers and acquisitions.

Finally, Schedule III provides another nudge toward mainstreaming. For many carriers, reputational concerns have already faded in recent years. The hard issues for most insurance companies have been federal illegality, banking and comfort on reinsurance.

Common Misconceptions: Temper the Hype

Rescheduling is important but beware of irrational optimism. Cannabis equities have been volatile for years, and the “shine” has been off the sector for a while for fundamental reasons that include oversupply, competition from the illicit market and intoxicating hemp products, taxes, and state‑level fragmentation. Schedule III doesn’t immediately fix any of those, except taxes.

Rescheduling also does not “legalize” marijuana, which would remain a federally controlled substance. Criminal prohibitions and the restrictions within the Food, Drug, and Cosmetic Act would still apply. State cannabis regimes do not disappear or merge into a federal framework. In the near term, they keep operating as they do today.

One more important nuance is that Schedule III aligns marijuana with a “prescription drug” paradigm at the federal level. That means Food and Drug Administration and Drug Enforcement Agency rules matter more, not less. Adult‑use programs, where products are sold outside an FDA‑approved drug pathway, are not magically harmonized with federal law. If anything, this could complicate adult‑use markets over time if federal agencies decide to more actively regulate in line with the approved‑drug model. Expect more questions than answers at first.

Insurance Market Impacts

Rescheduling will not make underwriting any easier. The underlying real-world risks—property, product safety, operational controls, compliance posture, supply chain integrity—do not become simpler because the schedule number has changed. In some ways, the risk calculus becomes even more complicated as companies retool, expand, or take on new exposures in response to tax relief, capital inflows, and improved access for cross-border operations. Transitional risk is real: new SKUs, larger facilities, more complex logistics, and evolving regulatory oversight all create execution risk and the potential for claims.

At the same time, rescheduling should unlock capacity and higher limits in key insurance lines. Commercial property and business interruption coverage stand to benefit as more carriers and financiers lean in, facilities scale, and new portfolio‑level programs become feasible.

Director and officer coverage is another likely beneficiary. Improved stock performance, fresh investment, and a reopening of public markets may support larger D&O towers and more competitive pricing. But with growth comes scrutiny. Directors and officers will be navigating a more complex environment, not a simpler one. New factors will include an evolving federal posture, potential FDA signaling on product categories, interstate commerce litigation pressure, and shifting disclosure expectations around regulatory risk and tax normalization. Securities claims, M&A litigation, and regulatory investigations will remain central D&O exposures.

Expect a more nuanced story in liability lines. Better access to scientific study funding and clearer federal posture can help, but product liability will continue to grapple with labeling, dosing, recalls, alleged health risks, and increasing claim exposure.

Reinsurance is a major lever. Access to Bermuda and the London syndicates should improve as the specter of Schedule I recedes, and Anti-Money Laundering/Bank Secrecy Act sensitivities ease. That could support larger property limits, expanded quota shares, and more stable excess capacity. Still, reinsurance appetites will track with data quality of the clarity on federal enforcement. The more consistent the legal and financial structures, the easier it will be for reinsurers to participate confidently.

What Changes – and How Fast – for Insurance Buyers

Change is likely to be incremental, not sudden. Specialty surplus markets that already serve cannabis will expand first. New entrants will likely phase in cautiously, test loss experience, and lean on reinsurance to scale. Coverage innovations will roll out stepwise, often tied to lender requirements and improved financial transparency.

Expect a potential pattern of gradual capacity expansion in property/BI and D&O, with improved limit availability for well‑capitalized and controlled risks. Also expect steady but selective growth in reinsurance participation, especially where data quality and controls are demonstrably strong. There may be continued caution in casualty lines where loss experience, science, and regulatory oversight are still evolving.

The Risk Backdrop: Health Claims and Hemp Uncertainty

The timing of rescheduling coincides with heightened attention to alleged health risks associated with cannabis use, including cannabis‑induced psychosis, cannabis use disorder, cannabinoid hyperemesis syndrome, and cardiovascular concerns, among others. Plaintiffs’ lawyers are watching these themes closely, and we are already seeing cases in the U.S. and abroad that center on warnings adequacy, labeling, and marketing. For insurers that provide product liability and recall cover, this argues for a tighter underwriting focus on warnings, testing, quality systems, and adverse event tracking.

Another looming variable is the new federal ban on intoxicating hemp products set to take effect in November 2026. The enforcement path is uncertain, but the practical impact on retail channels, online sales, and supply chains could be significant. The federal hemp ban implicates overlap exposures for wholesalers, distributors, and brands that straddle marijuana and hemp product categories. Coverage terms, exclusions, and cargo/stock‑throughput programs will need careful attention as the market digests how that ban is implemented.

Bottom Line for the Cannabis Insurance Market

Key takeaways:

Underwriting does not suddenly get easier under Schedule III. Transitional risk, evolving federal oversight, and product‑safety litigation pressures all persist and, in some areas, intensify.
Capacity should improve, particularly in commercial property, business interruption, and D&O, supported by better access to banking and reinsurance capacity.
D&O is poised for real movement if valuations and deal flow rebound, but board‑level risk management becomes more—not less—complex in a shifting regulatory environment.
Market change will be incremental. Expect a measured increase in entrants, offerings, and limits rather than a flood of cheap capacity.
Watch the health‑risk narrative and the 2026 hemp shift. Both will shape casualty underwriting, warnings standards, and coverage negotiations.

Rescheduling is a meaningful step toward normalizing the business of cannabis. For insurance, it’s a green light to proceed, cautiously and with both hands on the wheel.

Stewart is cochair of Wilson Elser’s national Cannabis Law Practice, and regional managing partner of the firm’s Los Angeles and Orange County offices.

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