August 14, 2025

The U.S. Cannabis Market – Q2 2025 Update

The second quarter of 2025 brought both turbulence and strategic clarity to the U.S. cannabis landscape. While federal reform remains stalled, the fight over hemp-derived cannabinoids intensified at the state level, most notably in Texas. Meanwhile, Florida’s path toward adult-use cannabis regained momentum, and across the industry, the market is consolidating around best-in-class operators.

TEXAS HEMP CRACKDOWN INTENSIFIES, THEN STALLS—FOR NOW

In Q2, Texas lawmakers advanced—but ultimately vetoed—a bill aimed at banning intoxicating hemp-derived products like delta-8 and high-dose edibles¹. While the veto paused enforcement, a revised framework is already underway to cap THC content per serving and restrict unregulated sales through headshops and gas stations².

This shift is critical for investors: it signals a growing regulatory divide between the hemp-derived market and the licensed cannabis industry. Hemp products often operate outside the rigorous compliance standards that define state-licensed cannabis businesses—the very businesses Chicago Atlantic backs. As states tighten hemp rules, licensed operators gain competitive ground, benefiting from clearer regulation and reduced market confusion.

For Chicago Atlantic, this is a tailwind. It reinforces our thesis that disciplined capital deployment into compliant, state-sanctioned operators will outperform in a maturing market.

FEDERAL RESCHEDULING: COLE CONFIRMED, BUT THE PROCESS STALLS

Federal cannabis reform remains in flux. The DEA’s proposed move to reclassify cannabis as a Schedule III substance is still pending, with no formal hearing scheduled. In June, former DEA veteran Terrance Cole was sworn in as Administrator. While Cole has acknowledged the need to “move forward,” he has yet to offer concrete timelines or commitments.³

However, recent developments suggest momentum may be building. President Donald Trump stated during an August press conference that his administration is “looking at” marijuana rescheduling and expects to make a decision “over the next few weeks”. He also reportedly discussed loosening federal restrictions at a private fundraiser attended by cannabis industry leaders.

For Chicago Atlantic, the message remains clear: our strategy does not hinge on federal reform. Whether rescheduling happens or not, our focus is on state-level opportunities and disciplined capital deployment. Regulatory clarity at the federal level may eventually unlock new efficiencies, but our portfolio is already aligned with operators who thrive under current conditions.

FLORIDA INCHES TOWARD THE 2026 BALLOT

While the federal government stalls, Florida continues to be a bellwether for state-led reform. As of June 30, the Smart & Safe Florida campaign reported collecting over 70% of the verified signatures needed to place adult-use cannabis legalization on the 2026 ballot⁴. With the state’s high population, conservative leanings, and medical cannabis infrastructure already in place, this initiative is closely watched as a potential game-changer for the Southeastern U.S. market.

INDUSTRY CONSOLIDATION AND A NEW COMPETITIVE LANDSCAPE

As capital remains tight and growth slows in saturated markets, the cannabis industry is undergoing a profound consolidation. Top-tier operators—those with strong balance sheets, operational discipline, and regulatory agility—are emerging as the dominant players in their categories. Whether it’s cultivation, retail, branded products, or ancillary services, the market is no longer rewarding scale alone—it’s rewarding excellence.

This industry is no longer just selling cannabis. It’s competing for the privilege of serving the cannabis consumer. At Chicago Atlantic, we remain focused on partnering with these category leaders—the operators that combine compliance, quality, and consistency to outperform in an increasingly sophisticated marketplace. We’re not just investing in cannabis—we’re investing in its future stewards.

WHAT’S NEXT?

The developments in Q2 2025 underscore a pivotal moment for cannabis investing. Regulatory shifts—particularly the tightening of hemp laws in conservative states—are creating a more favorable competitive environment for state-licensed cannabis operators. This regulatory clarity reduces uncertainty and enhances the value proposition of compliant, vertically integrated businesses.

Meanwhile, the federal rescheduling delay reinforces the importance of a strategy that does not rely on near-term reform. Chicago Atlantic’s disciplined approach remains focused on fundamentals: strong operators, sound governance, and scalable business models.

The consolidation trend further validates our thesis. As weaker players exit and top-tier operators gain market share, the opportunity to deploy capital into resilient, high-performing businesses grows. State-level momentum signals future growth markets where early positioning can yield outsized returns.

Chicago Atlantic is not just navigating the volatility—we’re capitalizing on it. Our portfolio is increasingly concentrated in companies poised to lead the next phase of cannabis industry maturation, seeking to drive long-term value through strategic capital allocation.

Sources: 
1 – Texas Tribune, “Abbott Vetoes Hemp Regulation Bill Amid Industry Backlash,” June 2025
2 – Dallas Morning News, “Texas Lawmakers to Reintroduce Hemp Restrictions with Dosage Caps,” July 2025
3 – Politico, “New DEA Chief Cole Hedges on Cannabis Reform,” June 2025
4 – Smart & Safe Florida Campaign Update, June 30, 2025