November 10, 2025
The U.S. Cannabis Market – Q3 2025 Update
REGULATORY SHIFTS & STRATEGIC OPPORTUNITIES
The third quarter of 2025 brought accelerated regulatory changes and strategic openings for disciplined investors. While federal reform remains uncertain, state-level developments and industry consolidation continue to validate Chicago Atlantic’s approach: focus on compliance, fundamentals, and strong risk-adjusted returns.
STATE-LEVEL MOMENTUM: VIRGINIA & MINNESOTA LEAD THE WAY
We believe that Virginia’s election of a Democratic governor in Q3 has laid a clear path toward adult-use legalization. This positions Virginia as a future growth market and creates opportunities for early capital deployment into retail infrastructure.
We are hopeful that official commencement of adult-use sales makes Minnesota a bellwether for the rest of the Midwest. With only two existing operators, the state offers the potential for significant upside for Chicago Atlantic to support retail expansion and capture market share early.
REGULATORY CRACKDOWN ON INTOXICATING HEMP PRODUCTS
Q3 saw an aggressive wave of state actions targeting intoxicating hemp-derived cannabinoids (Delta-8, Delta-10, THCA, THC-O):
TEXAS: Senate Bill 3 enforcement began in September, banning all hemp products containing THC outside licensed cannabis channels.1
CALIFORNIA: Emergency regulations effective September 23 prohibit intoxicating hemp products from general retailers.2
ARKANSAS & TENNESSEE: Reinforced bans and transitional enforcement on THCA products.
OHIO: Governor Mike DeWine signed an executive order on October 14, temporarily banning intoxicating hemp products for 90 days. Enforcement is paused pending a court ruling, but legislative momentum is strong with Senate Bill 56 introducing age limits, testing standards, and a 10% excise tax.3
OTHER STATES: Utah, Maryland, Oregon, Colorado, and Nevada all expanded restrictions on synthetic cannabinoids.
This tightening regulatory environment favors licensed cannabis operators and underscores Chicago Atlantic’s thesis: compliance and operational excellence will drive long-term value.
FEDERAL REFORM WATCH: PRESIDENT TRUMP SIGNALS ACTION
On August 11, 2025, President Donald Trump stated his administration is “looking at” marijuana rescheduling and expects a decision “over the next few weeks.” While timing remains uncertain, this was the first public indication of potential movement toward reclassifying cannabis from Schedule I to Schedule III. 4
Chicago Atlantic’s strategy does not hinge on federal reform, but any progress could unlock efficiencies and improve capital access. Incremental reforms such as rescheduling are unequivocally positive catalysts for Chicago Atlantic’s funds.
INDUSTRY CONSOLIDATION & CAPITAL MARKETS: QUALITY OVER SCALE
Capital scarcity and slowing growth in saturated markets are accelerating consolidations. Top-tier operators with strong balance sheets and regulatory agility are emerging as category leaders. The market now appears to be rewarding operational excellence, not just scale.
Q3 saw the announcement of some major public operator refinancing activity, including Cresco Labs, who executed significant refinancing transactions in Q3 to manage debt maturities and improve liquidity.5
While Chicago Atlantic participated selectively, we continue to find better risk-adjusted opportunities on the private side, where disciplined structuring and strong collateral provide superior downside protection potential.
CONSUMER & MARKET TRENDS
Cannabis continues to gain market share from alcohol, particularly among Gen Z consumers, underscoring strong long-term demand fundamentals. Legal sales are hitting new milestones, with Illinois surpassing $2 billion and both Ohio and New York reporting record adult-use revenues.6 Florida’s Smart & Safe campaign remains on track for the 2026 ballot, signaling potential growth opportunities in the Southeast.7
LOOKING AHEAD
Developments in Q3 highlight a pivotal moment for cannabis investing. We see increasing regulatory clarity at the state level reducing uncertainty and enhancing the value proposition of compliant, vertically integrated businesses. Early positioning in emerging markets such as Minnesota, Virginia, and Florida offers the potential for outsized returns, while disciplined capital allocation remains essential amid refinancing trends and liquidity pressures in public markets.
By focusing on private transactions with strong covenants and collateral, Chicago Atlantic continues to seek strong risk-adjusted returns. We are not just adapting to change in the market —we are actively shaping the next phase of cannabis finance through strategic capital deployment and partnerships with both established and promising operators.