8 Predictions for the Cannabis Sector for 2025

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Marijuana Politics
9 January 2025

2024 was a rough year for cannabis investors, but 2025 could be much better. Here are my top eight predictions for the cannabis sector for the year ahead.

It’s been a rough ride for cannabis investors. Will the new year bring better price action? I think so. Here are my top eight predictions for the cannabis sector for 2025.

8 Cannabis Sector Predictions for 2025

1. Cannabis rescheduling goes through

Promises made, promises kept. Trump loves a “deep state” challenge. Put these two together, and it seems probable that rescheduling could happen in 2025.

The background: The U.S. Department of Health and Human Services (HHS) recommended that the Drug Enforcement Administration (DEA) and the Department of Justice move cannabis to Schedule III from Schedule I under the Controlled Substances Act.

This would be a big sector catalyst. IRS rule 280E prohibits the deduction of operating expenses against revenue from the sale of Schedule I substances. By definition, moving cannabis to Schedule III would neutralize this rule, adding tens of millions of dollars to cannabis company cash flow and earnings.

An administrative law judge inside the DEA will hold hearings on the pros and cons starting January 21 through early March. Oddly, the DEA is procedurally designated as an advocate for this change, even though it is pretty clearly opposed. The bias seems strong enough that cannabis companies and advocates have been filing legal challenges to get the DEA removed from the hearings process.

Whatever the outcome there, the DEA seems like a good example of the “deep state” opposing the policy objectives of elected officials, and by extension, voters.

Trump favors rescheduling. Trump has a low opinion of deep-state actors. That sets up the DEA for a knockdown by the Trump administration.

Bryan Lanza who worked in Trump’s 2024 election campaign and is now a lobbyist for the U.S. Cannabis Council (USCC) recently told Insider Cannabis rescheduling could be finalized in March. That timeline seems ambitious given the weighty Trump agenda that does not seem to feature cannabis reform as a high priority. But action by the end of 2025 is possible if Trump keeps his word (“promises made”).

Subjectively, I put the odds of rescheduling by year’s end at 70%.

2. Banking reform fails

Banks are generally prohibited from serving cannabis companies. Stores have to operate in cash, which makes them crime targets. It also complicates financing. For years, banking reform that would change this, called SAFER Banking, has been kicking around Congress. Cannabis advocates have been unable to convert the bill into law.

That seems unlikely to change this year. If Democrats failed to get this through when they controlled one or both sides of Congress, why would approval be any more likely under a Republican-controlled Congress?

Yes, incoming leaders of the Congressional Cannabis Caucus Rep. Dina Titus (D-NV) and Rep. Ilhan Omar (D-MN) have solid records as cannabis reform advocates. Titus says she wants to help the federal government “catch up” to states by advancing cannabis policy reform. Omar supports federal legalization. She cosponsored legislation to de-schedule cannabis.

Whatever their influence, it won’t stack up against Senate Majority Leader John Thune (R-SD), who says he is “not a fan” of SAFER Banking. Or House Speaker Mike Johnson (R-LA) who opposes cannabis reform.

True, Trump endorsed SAFER Banking during the election campaign. Trump also backed Florida’s initiative to legalize recreational cannabis, which makes him all-in on cannabis reform. But it is not clear he wants to spend political capital getting SAFER Banking through Congress.

I put the odds of SAFER banking getting approved this year at 15%.

3. Pennsylvania legalizes recreational use

Surrounded by states with legal sales, Pennsylvania hold-outs on legalization cave, accept the inevitable, and go for the tax revenue. The legislative pathway for this is uncertain as we enter 2025. But Gov. Josh Shapiro (D) says he will once again support cannabis legalization in his budget address in February.

“All the states around us have approved or are in the process of approving recreational marijuana,” says Shapiro. “Folks are going across state borders to purchase it and paying taxes to those states. They should be keeping their money right here in Pennsylvania.”

States with medical use (like Pennsylvania) that convert to recreational-use legalization see cannabis sales ramp up sharply. In theory, this should benefit cannabis companies. The problem is, states often then greenlight lots of stores, which increases supply and puts downward pressure on prices, a negative for cannabis operators.

The upside is that ongoing state legalization intensifies the cultural momentum behind the normalization of cannabis use. This puts pressure on federal-level politicians and agencies to enact reform. Federal changes like rescheduling, banking reform and decriminalization or legalization would be real catalysts for cannabis stocks.

I put the odds of Pennsylvania legalizing rec-use at 75%.

4. Price compression continues

Hungry for tax revenue, states continue to permit lots of new stores after they legalize. The additional supply puts downward pressure on prices – even in surrounding states.

Ohio is a good example. When stores started selling rec-use cannabis in August 2024 (medical was already legal), cannabis cost $9.40 per gram of flower. Prices dropped to $7.01 per gram by year’s end, says the Ohio Division of Cannabis Control.

Ohio is the rule, not the exception. The average price of cannabis flower in Oregon continued to fall sharply last year, hitting an all-time low of $3.51 per gram in December, according to the Oregon Liquor and Cannabis Commission. That was the third straight month of price declines. For context, when the state first began opening rec-use stores in 2016, cannabis cost $10.50 per gram. Prices have also fallen sharply in Michigan and Massachusetts, hitting $4 and $4.50 per gram respectively.

At some point, cannabis prices fall so much that it is no longer cost-effective to fund new supply, and prices find a floor. Companies that figured out how to lean out enough to survive in that environment will be the winners. We are not there yet.

I put the odds of further price compression this year at 95%.

5. Hemp drinks fall flat

Pardon the pun, but the “buzzy” new product in the cannabis sector this year will be intoxicating drinks containing THC derived from hemp.

Consumers love tasty drinks. And intoxicating hemp-based drinks have a market advantage in that they are technically legal. Federal lawmakers accidentally created a hemp loophole in the 2018 Farm Bill. States are pushing back. California has banned intoxicating hemp products, and it won’t be the only one.

However that plays out, hemp drinks won’t really contribute much to revenue growth this year. Once the new product “buzz” wears off, hemp drinks will just be another subcategory of edibles, which place third as a favored delivery mechanism, well behind flower and vapes.

I put the odds of underwhelming hemp drink revenue growth this year at 80%.

6. Sports leagues and workplaces continue to loosen rules around cannabis use

This will be important to cannabis investors because it supports the ongoing cultural momentum behind the normalization of cannabis use. This puts pressure on politicians to enact reform.

We’ve already seen the National Football League (NFL), the National Collegiate Athletic Association (NCAA), the Ultimate Fighting Championship (UFC) and the Nevada State Athletic Commission (NSAC) loosen the rules around cannabis use and testing. Expect more to come.

Major League Baseball (MLB), the National Basketball Association (NBA) and the Women’s National Basketball Association (WNBA) are OK with CBD product partnerships and endorsements.

Facing a shortage of police force recruits, Montgomery County, MD, wants to loosen restrictions on past cannabis use for applicants. Recruits are now disqualified if they used cannabis in the past three years.

“Past cannabis use is not a consideration in Virginia, so officers who can’t work in Montgomery County go across the river to Fairfax County, where they can work,” points out Montgomery County Executive Marc Elrich. California, New Jersey, Nevada and Arizona have all loosened cannabis use rules for police recruits in recent years.

I put the odds of these trends continuing in 2025 at 95%.

7. Polls continue to show increased support for legalization

That’s been the trend among people from all age groups and political parties. Even traditional holdouts like older conservatives are coming around. The trend will continue. This matters to cannabis investors because sooner or later, politicians respond to the wishes of voters. It’s already happening. For the first time in 2024, both presidential candidates supported all the key reforms: Rescheduling, SAFER banking, and legalization of rec-use.

I put the odds of public support for legalization moving higher this year at 100%.

8. Cannabis stocks get back into an uptrend

Drawing on its asynchronous nature as an asset class, cannabis stocks finish the year as one of the market’s top-performing sectors, especially if there is significant progress on rescheduling and state-level legalization.

To learn more about the cannabis companies I’m investing in now, subscribe to Cabot Cannabis Investor today.

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