Cannabis Rescheduling, the Hemp Loophole, and the Future of the Industry

Inside a wide-ranging Adam Dunn Show conversation with cannabis attorney Thomas Howard

TL;DR

• Schedule 3 ≠ legalization: Cannabis stays federally controlled; the main win is 280E tax relief for licensed operators.
• THCA loophole closing (slowly): Farm Bill updates aim to count total THC, but new gray areas around genetics and testing remain.
• Banks are the real regulators: Even legal products face account closures and payment-processing barriers.
• States still run the show: Strong markets continue as usual; restrictive states use federal ambiguity to delay reform.

Cannabis reform in the United States is entering one of its most confusing—and consequential—phases yet. In a candid, long-form episode of The Adam Dunn Show, industry veterans sit down with cannabis attorney Thomas Howard, host of Cannabis Legalization News, to unpack what’s actually happening behind the headlines. From Schedule 3 rescheduling and hemp-derived THC products to banking, genetics, and enforcement realities, this conversation cuts through the hype to explain what cannabis businesses and consumers should expect next.

The Big Shift: Schedule 3 Isn’t What Most People Think

One of the central topics is the proposed move of cannabis from Schedule 1 to Schedule 3 under the Controlled Substances Act. The key takeaway: Schedule 3 does not mean nationwide legalization.

Instead:

• Cannabis would still be federally controlled under the CSA and overseen by DEA and FDA.
• Interstate commerce in state-legal marijuana products would remain illegal unless Congress creates a new pathway.
• States would continue running their own medical and adult-use programs with their own rules and license structures.
• The biggest immediate benefit would be relief from IRS 280E, allowing cannabis businesses to deduct normal expenses and credits again.

Rescheduling alone doesn’t create a brand-new federal regulatory framework; it simply changes cannabis’s classification and removes the 280E tax handcuffs for compliant operators once the rule is effective.

The Hemp & THCA Loophole Explained

A major focus of the discussion is the so-called THCA loophole, which allows products with low delta-9 THC but high THCA to be sold under federal hemp rules. Under the 2018 Farm Bill, hemp was defined using a 0.3% delta-9 THC limit, not total THC, which opened the door to delta-8, delta-10, THCA flower, and other intoxicating “hemp-derived” products that still met the letter of the law.

Why this matters:

• Many “hemp” products are chemically and experientially similar to dispensary cannabis, especially high-THCA flower.
• Enforcement is inconsistent and often light-touch, particularly in states with weak hemp oversight.
• Federal language focused on delta-9 THC, not total intoxicating potential, leaving room for operators to design products that convert to high delta-9 THC when heated.

Recent federal funding bills and draft Farm Bill language move toward counting total THC (including THCA) and capping total tetrahydrocannabinols per product, aiming to close the intoxicating hemp loophole. In trying to fix this, lawmakers may also have created new gray areas around genetics, seeds, and testing methodology.

Banking, Enforcement, and the Real Regulators

One of the most sobering insights from the conversation is that banks—not police—often function as the real cannabis regulators. Even when products remain arguably legal under hemp rules, financial institutions can decide they are too risky and shut down accounts or refuse services.

In practice:

• Many banks de-risk by limiting or quietly refusing cannabis and hemp accounts, or by treating them as high-risk clients.
• Payment processors like Stripe and mainstream card networks frequently block cannabis and many hemp businesses or route them through expensive high-risk providers.
• Financial compliance rules, including FinCEN Suspicious Activity Reports (SARs), still apply to cannabis-related activity and add a layer of scrutiny.

The paradox is that products can be sold openly online or in stores, yet the underlying business remains financially fragile and vulnerable to sudden account closures or payment freezes.

Why States Still Control the Game

Despite the noise around federal rescheduling and hemp reform, cannabis is still a state-driven industry. Strong markets like Colorado, California, and Illinois already have mature regulatory systems and will likely continue operating with only incremental changes under Schedule 3.

At the same time:

• Restrictive states can use federal ambiguity as political cover to delay broader access or keep tight medical-only regimes.
• Some “trigger law” states built in provisions that automatically align certain aspects of their rules with federal scheduling changes, but these are narrow and don’t guarantee full legalization.
• For most licensed operators in well-regulated states, Schedule 3 is primarily a tax and banking story, not an immediate overhaul of licensing, testing, or packaging.

If you are already operating legally in a strong state market, Schedule 3 is unlikely to dramatically change your day-to-day operations right away.

Genetics, Seeds, and the Impossible Task of Enforcement

Another overlooked issue is how any of these rules realistically apply to seeds and genetics. Seeds contain negligible THC and don’t reliably indicate what the finished plant will test like once it is grown and harvested.

The main challenges:

• Genetics alone do not perfectly predict final cannabinoid profiles across different environments and cultivation methods.
• Testing every cultivar or seed lot for potential total THC outcomes is logistically difficult and cost-prohibitive at scale.
• Attempts to sharply distinguish “hemp” seeds from “marijuana” seeds run into scientific limits and are hard to enforce consistently.

In reality, much of the enforcement around seeds and genetics ends up symbolic, selective, and vulnerable to legal challenge.

The Bigger Picture: Chaos by Design?

Across the episode, a recurring theme is policy inconsistency and what feels like “managed chaos.” Cannabis faces stricter controls and heavier compliance burdens than alcohol, gambling, or tobacco, despite broad public support for reform.

This produces a landscape where:

• Licensed operators carry the highest tax burdens, testing costs, and regulatory obligations.
• Gray-market and hemp-derived operators exploit legal gaps to reach consumers with fewer obligations and lower overhead.
• Consumers must navigate a confusing mix of state-legal, hemp-legal, and illicit products, often with little clear guidance on risk or quality.

The structure often seems to penalize the most compliant businesses while rewarding those willing to live in the gray.

Final Thoughts: Business as Usual (For Now)

Despite all the uncertainty, the tone from Howard and other industry voices is cautiously optimistic. Schedule 3 provides real potential relief from 280E for licensed operators, even though it stops short of full federal legalization or interstate commerce.

Hemp and THCA loopholes will likely tighten over time through Farm Bill changes, federal funding bills, and agency rulemaking, but they will not disappear overnight. States will continue to set the real rules, and cannabis is not going back underground—it is evolving into a more complex, regulated, and competitive landscape.

As Howard and other advocates point out, this industry has survived decades of prohibition, raids, and shifting politics; adaptation is built into the DNA of growers, retailers, and consumers who stay informed.

Recommended Resources

• Cannabis Legalization News (YouTube) – federal and state cannabis law breakdowns with Thomas Howard.
• The Adam Dunn Show – long-form conversations with breeders, operators, and policy insiders.
• State cannabis regulatory agency websites for current local rules and license guidance.
• IRS and tax-professional guidance on Section 280E and post-rescheduling obligations.