What cannabis investors should watch for in 2025

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While 2024 brought its share of volatility, regulatory uncertainty and market pressures for the cannabis industry, this year offers potential opportunities alongside continued challenges.

From a new administration in the White House, federal rescheduling developments and state-level momentum to banking reform prospects, M&A activity and the challenges posed by intoxicating hemp products, investors will have to navigate a complex industry landscape while staying focused on these key areas expected to shape the industry in the year ahead.

1. A mixed bag at the state level

Federal policy reform grabs headlines, but the real action remains at the state level.

Ohio’s adult-use rollout will likely progress steadily, but rather than dramatic growth spurts, expect a more gradual expansion as regulators iron out product availability and advertising restrictions.

In Pennsylvania, hopes for adult-use legalization persist, but it’s difficult to predict the outcome as state legislators debate the adult-use framework to implement and the role of social equity in any legalization bill.

Kentucky has been awarding operator licenses, and 2025 will be important as this new medical marijuana program gets ready for launch.

Nebraska voters recently delivered more than 70% support for a medical cannabis ballot initiative and the contours of an MMJ program will begin to take shape in 2025, notwithstanding ongoing litigation regarding the ballot initiative.

Another surprise contender for medical cannabis is North Carolina, where the state Senate approved a 2024 medical cannabis bill.

Optimism should be tempered, however, as leadership in the North Carolina House has been reluctant to advance the bill.

For investors, keeping a close eye on these state developments is essential.

Incremental changes in key markets could drive localized opportunities for growth, especially for those ready to adapt to state-specific regulations.

2. Federal rescheduling is a matter of ‘when,’ not ‘if’

The long-anticipated reclassification of marijuana to Schedule 3 remains likely under President-elect Donald Trump’s administration.

Even with key leadership appointments at the U.S. Drug Enforcement Administration, the Food and Drug Administration and the Department of Health and Human Services still pending confirmation, Trump has clearly stated his support for rescheduling.

While the cannabis sector might not get a full-throated advocate in these roles, it’s unlikely to see appointees who obstruct progress.

Rescheduling would reduce tax burdens under Section 280E of the Internal Revenue Code, but it wouldn’t solve the industry’s capital-access issues.

A more comprehensive transformation will require broader banking reform, inclusive of specific protections for custody agents.

3. A glimmer of hope for banking reform?

Legislation such as the SAFE Banking Act remains stalled, but Trump’s explicit support for banking reform could get that bill signed into law.

It also helps that the incoming administration and members of the incoming Congress are focusing on a deregulation agenda that’s part of the bill’s Section 10 language.

Given Trump’s support for states’ rights, the incoming administration could potentially champion the States Reform Act, which allows individual states to determine their own marijuana policies without federal interference.

Introduced in 2023, this legislation aims to decriminalize marijuana at the federal level, removing it from the Controlled Substances Act, and regulate it similarly to alcohol.

The likelihood of these bills becoming law in 2025 is low, but depending on the administration’s priorities, they could be on the table before the midterm elections.

4. Will mergers and acquisitions be a path to growth?

M&A activity is poised to accelerate in 2025.

Many operators have optimized their balance sheets and trimmed expenses.

As organic growth slows, strategic acquisitions offer a pathway to scale, streamlined operations and improved margins.

We’re also likely to see larger deals aimed at consolidating market share, increasing top-line revenue and driving efficiencies.

This could better position operators to tackle upcoming debt maturities in late 2025 and in 2026.

5. Market stabilization and pricing pressure

Competition will remain intense, but the industry might experience stabilization as weaker operators bow out.

Many businesses that held on, hoping for swift regulatory reform, are running out of runway.

This could alleviate oversupply in certain states, helping to stabilize pricing.

However, pricing pressure will continue to challenge margins, and the industry’s overall health will depend on how well operators manage costs and optimize their offerings.

Investors should look for companies demonstrating resilience and adaptability in this environment.

6. The intoxicating hemp challenge

Unregulated intoxicating hemp products continue to pose challenges.

The potential passage of a new Farm Bill could close the loophole allowing these products to compete with regulated cannabis.

However, with the December extension of the Farm Bill, a powerful farming lobby and a fragmented cannabis industry, the outcome remains uncertain.

Forward-thinking operators might adopt a “can’t beat them, join them” approach.

Companies with capital to spare, such as Curaleaf Holdings and Green Thumb Industries, are exploring low-dose THC beverages and hemp-derived products.

This segment offers growth potential for those willing to diversify and risk funding a business line that could be legislated out of existence.

7. Trump administration a wild card for policy, taxes

Cannabis, like other industries, is trying to figure out what a Trump administration will mean for policy and regulation.

While Trump signaled support for the industry during his presidential campaign, it’s unknown how important marijuana policy will be during his next term.

So, we should be prepared for unexpected turns in the administration’s approach to the industry.

Those who stay informed, flexible and strategic will be best positioned to thrive in the year ahead.

Anthony Coniglio is the president, CEO and a board member at Connecticut-based NewLake Capital Partners, an internally managed real estate investment trust. He can be reached at info@newlake.com.