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Hemp, hemp, hooray! The cannabis industry rejoiced earlier this year when the Department of Justice officially reclassified state-licensed medical marijuana from Schedule I to Schedule III — placing it in the same category as testosterone, rather than heroin.
But the real game-changer for the industry would be expanding Schedule III status to adult-use recreational cannabis, which the DOJ reviewed during formal administrative hearings in July. A broader reclassification would potentially pave the way for more tax relief, as well as additional collateral and financing options for stressed cannabis borrowers.
LevFin editor Bill Weisbrod grinds down the situation with deputy LevFin editor Sasha Padbidri in this episode of Cloud 9fin’s Syndication Nation.
Have any feedback for us? Send us a note at podcast@9fin.com. Thanks for listening!
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**Bill Weisbrod**
Hello, everyone. I am Bill Weisbrod, the US LevFin editor with *9fin,* and welcome to the *Cloud* *9fin* *Syndication* *Nation* podcast where we unpack all things LevFin related. On today's episode we have LevFin deputy editor Sasha Padbidri who will discuss her recent reporting on the broader rescheduling of cannabis and its impact on cannabis borrowers. Welcome, Sasha. Thanks for joining us and excited to talk through your story.
**Sasha Padbidri**
Hey, Bill. Thanks for having me. And yeah, I'm really excited to ... unwrap this one.
**Bill Weisbrod**
So to start off, what does rescheduling mean and why is this happening?
**Sasha Padbidri**
That's a really good question. So basically, in the context of what's happening in the cannabis industry, rescheduling refers to this federal push to shift marijuana or cannabis from a Schedule 1 drug to a Schedule 3 drug. What that means is that right now cannabis is classified as a Schedule 1 drug, which places it in the same league as LSD and heroin. And if this push is successful, cannabis will end up in the same category, Schedule 3, as Tylenol with codeine and testosterone. So that is going to be a huge deal for the industry if and when that happens. So basically, my story is talking about the consequences of what that would look like for cannabis debt borrowers.
**Bill Weisbrod**
So to be clear, we're talking about recreational, not medical, correct?
**Sasha Padbidri**
Yeah, we are. So just to clarify things for people, as of the 23rd of April, medical marijuana was moved from a Schedule 1 drug to a Schedule 3 drug. So right now, I think the broader rescheduling refers to also moving recreational cannabis into the same category and putting all cannabis essentially in the same box, which is Schedule 3.
**Bill Weisbrod**
So the DOJ and the DEA were leading these hearings, as you reported, on potential reclassification. They wrapped up their hearings on July 15th. When should we expect a ruling from them?
**Sasha Padbidri**
That's another great question. Basically, just to give everyone a brief glimpse into this legal timeline, this entire rescheduling is only happening because of President Donald Trump's executive order from December 2025, which was put in place to expedite the reclassification of cannabis. That was how the final order on the 23rd of April actually came about that moved medical cannabis into the schedule three category. Right now, sources don't really have a clear timeline on when we should expect a ruling, but they said that there is a potential that it could happen sometime in the fall at the earliest, just, you know, given how slow these things are. And there will definitely be a lot of paperwork and there might be people pushing back on anything that's happening in this process. So, yeah, I think later this year is the base case at the very earliest. But TBD.
**Tax relief**
**Bill Weisbrod**
As you mentioned in your story, tax relief could free up cash. Federal reclassification has some significant tax implications for companies in the cannabis space. What exactly is the impact on how these companies pay taxes or would it would be the impact?
**Sasha Padbidri**
Basically speaking, post rescheduling, they would be able to deduct their G&A and OpEx against taxable income before taxes apply. So that will bring meaningful savings for the company. As it stands, they can't get relief under Section 280E of the federal tax code. So they are forced to deduct only COGS rather than SG&A expenses. So this is going to definitely free up some cash for cannabis companies if a broader rescheduling happens.
**Medical and recreational split**
**Bill Weisbrod**
And as we discussed, as you mentioned earlier, medical cannabis companies have already received federal reclassification. So how much does that actually help if recreational cannabis still isn't included in that?
**Sasha Padbidri**
I think that just complicates things for cannabis companies that offer both medical and recreational cannabis, because it creates difficulties in terms of trying to separate their revenues and products just to ensure that they can still get some tax relief, at least on the medical side. So yeah, that comes with its own accounting complications. So that's why a broader rescheduling would benefit everyone.
**Bill Weisbrod**
So benefit both medical, medicinal and recreational companies or companies that do both, presumably. And so as we know, in debt markets, assets are important and IP is important and branding and trademarks can be part of IP. So what does it mean for cannabis companies if federal trademarks can become available after the rescheduling? Like how big of an aspect of this would that be?
**Trademarks as collateral**
**Sasha Padbidri**
When I was doing the reporting for this story, my sources said that right now it's not a big market because there are no federal trademarks as of yet. They don't exist. So that can only take place if a broader rescheduling happens. And that means that it could open up conversations for cannabis companies to use IP as a form of collateral for any sort of future secured financing that they might wish to do. That would be a pretty big deal because like I said, it's not been done in this space yet, even though it's very common in LevFin. It's just not done in the world of cannabis.
**Bill Weisbrod**
And so would that be trademarking and borrowing against the IP of specific strains or like, are logos and brand type stuff? Like what would that be specifically?
**Sasha Padbidri**
You know, that's a good question. And I did ask my sources. So because they don't really exist yet, it's really hard to speculate. But yeah, it would definitely be for core branding and IP assets. Definitely for certain strains, for certain infused products, especially. And, when you talk about at least on the medical side, anything that could be used as relief for certain conditions.
**Who lends to cannabis borrowers?**
**Bill Weisbrod**
Gotcha. So, *yeah,* I mean, bringing this back to debt again, which is, you know, our our specialty, how active are cannabis companies, both recreational and medicinal corporate borrowers and what type of institutions typically lend to them, either within the syndicated LevFin market that we cover or other types of lenders?
**Sasha Padbidri**
According to *9fin* data, we've tracked about 25 different companies that have cannabis debt that range from both loans or senior secured notes, etc. Some of this debt has already been restructured. I think one of the examples that I mentioned in the story was **Ayr Wellness**, and they have an exit term loan facility from their 2025 restructuring, for example.
But roughly speaking, those 25 companies have between one or two billion dollars, US dollars of debt. And there's very small portion with Canadian-denominated debt. And to answer the second part of your question as to what types of institutions typically lend to them, your traditional Wall Street-type banks aren't lending to these firms. So they've typically had to rely on alternative lenders. And a lot of them also use lines of credit backed by sales or revenue to secure cash.
**Bill Weisbrod**
It sounds like these cannabis producers, cannabis companies, up and down the supply chain are actively raising debt in a variety of ways. How would the rescheduling affect their ability to access debt markets and to service more debt?
**Sasha Padbidri**
That's a good question. I think that the broader rescheduling will help hopefully take away some of the stigma that's associated with cannabis currently being a Schedule One drug. Hopefully once it becomes Schedule Three drugs, banks might feel more comfortable lending to them. And I think more importantly, and this is something that I did not address in the story, cannabis companies can't file for Chapter 11 bankruptcy. And based on what we've tracked in our *9fin* database, any of the cannabis debt that has been marked as restructured is due to them restructuring out of court. So hopefully if they're able to be rescheduled to a Schedule Three drug, hopefully that will pave the way for them to eventually file for Chapter 11 in the future. Whether or not this will actually materialize, I don't know, but maybe that is one way they will be able to service their debt in the future.
**Bill Weisbrod**
Yeah. That is obviously a very significant nuance when it comes to lending to that industry. So, that would be a significant development for sure. Well, thanks, Sasha. Everyone, please check out Sasha's piece. It's titled High Stakes — Rescheduling to Test Cannabis Borrowers on the *9fin* site.