January 24, 2026
The U.S. Cannabis Market – Q4 2025 Update
There are rare moments when an industry moves from uncertainty to visibility. Not overnight, and not without friction, but decisively enough that capital, operators, and regulators begin to behave differently.
U.S. cannabis has entered one of those moments.
As we close Q4, three developments stand out not as incremental progress, but as structural change. Together, they form one of the strongest regulatory and economic tailwinds the industry has seen in decades.
RESCHEDULING: A HISTORIC FEDERAL INFLECTION POINT
On December 11, 2025, President Donald Trump publicly confirmed that his administration would move to reclassify cannabis from Schedule I to Schedule III, directing federal agencies to begin the rescheduling process. This represents the most significant federal shift in cannabis policy since the War on Drugs began.1
This matters because Schedule III status directly addresses the single most punitive feature of the current federal framework: Section 280E. Its removal would allow cannabis operators to deduct ordinary and necessary business expenses, immediately resetting after-tax cash flow profiles across the industry.
The downstream effects are substantial. Improved net margins strengthen balance sheets. Credit quality improves. Default risk declines. Capital becomes more efficient. Importantly, this occurs without requiring federal legalization.
Equity markets responded favorably leading up to the executive order. Higher equity valuations are credit positive for our portfolio, strengthening borrower balance sheets, increasing collateral coverage, and improving refinancing optionality.
For private credit, this is a rare setup. Operator fundamentals improve materially, while capital scarcity is likely to persist. Traditional lending channels remain constrained. The result is a window where credit performance improves without sacrificing pricing discipline or structural protections.
That is an environment we know well.
THE CLOSING OF THE HEMP LOOPHOLE: COMPETITIVE NORMALIZATION
In November 2025, Congress advanced appropriations language effectively banning intoxicating hemp-derived THC products, closing a long-standing regulatory loophole that allowed these products to operate outside state-licensed cannabis systems.2
For years, intoxicating hemp products operated as cannabis in all but name. They bypassed licensing regimes, testing requirements, and tax structures that regulated operators were required to follow. The result was consumer confusion, regulatory strain, and an uneven competitive landscape.
That era is ending. Federal and state enforcement is now converging around a simple conclusion: intoxicating cannabinoids belong inside regulated cannabis frameworks.
Licensed operators regain pricing power. Brands regain trust. Compliance once again functions as a moat rather than a cost center. Retail channels stabilize. Long-term planning becomes possible.
VIRGINIA AND THE NEXT PHASE OF STATE EXPANSION
Following Virginia’s 2025 gubernatorial election, renewed executive and legislative alignment has materially increased the likelihood of adult-use cannabis sales beginning in 2026.3
Cannabis policy is not reversing. It is expanding methodically, driven by tax revenue, consumer demand, and regulatory pragmatism.
Each new adult-use market creates demand for infrastructure, working capital, and disciplined growth financing. These are moments where early relationships matter, long before markets mature and pricing compresses.
OUR POSITIONING
Chicago Atlantic was built for environments where fundamentals improve faster than capital availability. We prioritize downside protection through hard assets, cash flow, and disciplined structuring, while maintaining exposure to upside through equity participation and long-term relationships.
Rescheduling, competitive normalization, and continued state expansion do not require us to change our strategy. They reinforce it.
The cannabis industry is entering a more institutional phase. Less speculative. Less chaotic. More durable.
That is where we do our best work.
We appreciate your continued trust and partnership and look forward to updating you as these tailwinds continue to translate into fundamentals.