How will reclassification affect federal funding and program eligibility for impacted institutions in 2025–2026?
Executive summary
Federal reclassification of cannabis/hemp and broader 2025 federal funding shifts could change which institutions qualify for certain grants and how they receive them: reclassification as Schedule I (per reporting) risks constraining hemp-related research and may trigger tax and banking consequences for businesses [1] [2] [3]. At the same time, changes to discretionary grant administration and continuing resolutions for FY2025–26 mean some program awards could be paused, reviewed, or reshaped even if many formula grants remain intact [4] [5].
1. Reclassification’s immediate programmatic hit: research and institutional eligibility
Oregon State University professors warned that the federal reclassification of cannabis and hemp as Schedule I substances could immediately affect campus research programs: OSU has 75 faculty working on hemp across nine colleges, and the change “caught many off guard” because hemp research had expanded since the 2018 Farm Bill [1]. Available sources do not provide an exhaustive list of federal research grants that would be withdrawn, but the reporting signals institutions that conduct hemp- or cannabis-related research should expect increased regulatory barriers and potential loss or restriction of federal research funding tied to controlled-substance rules [1].
2. Financial side effects for businesses tied to institutional partners
Reclassification can alter tax and banking treatment that indirectly affects universities and nonprofit partners that spin out startups or contract with industry. Reuters explained that moving marijuana between schedules changes firms’ access to banking and can remove the application of Section 280E tax limits for businesses — alterations that could change private funding flows into academia and regional economic partnerships [3]. Sources do not state whether universities lose direct grant eligibility solely because of industry partners’ changed tax status; that specific outcome is not found in current reporting.
3. Discretionary grants: review, pause, and administrative reshaping in 2025–26
Independent of drug scheduling, the FY2025 long-term continuing resolution (CR) and executive actions gave agencies more discretion and in some cases paused discretionary grants. EducationCounsel notes CRs leave program-by-program funding less explicit, and the CR spending plan will govern federal funds available July 1, 2025 through Sept. 30, 2026 — meaning funding levels and program continuity for some grants could change or be deprioritized under new administration choices [4]. The Office of Management and Budget guidance and White House actions in 2025 also led to temporary pauses in agency discretionary grants, though prominent formula grants were identified as not impacted by that freeze [5].
4. Which funds are likely to keep flowing — formula vs discretionary
Reporting and memos from 2025 draw a clear distinction: formula and forward-funded programs (e.g., Title I, IDEA, some Child Care/Medicaid flows) were characterized as largely protected from pauses because funds already dispersed or statutorily formula-driven remain accessible [5] [4]. For higher-education and competitive discretionary programs that live inside broader “accounts,” Administration prioritization and the lack of program-level directives in a CR mean those awards could be delayed, rescoped, or require reapplication under new guidance [4].
5. Practical implications for institutions in 2025–2026
Institutions that rely on hemp/cannabis research funding should expect compliance burdens and possible loss or redirection of federally funded projects [1]. Universities and grantees dependent on discretionary competitive grants must prepare for administrative review, potential pauses in new awards, and shifting priorities under the CR framework [4]. Conversely, entities whose budgets depend heavily on formula federal funding should note courts and memos in 2025 left many such flows intact — though states and institutions are still awaiting clarifying guidance about timing and scope [5] [6].
6. Divergent perspectives and open questions
Some analysts see reclassification delivering market and regulatory benefits (e.g., bank access, lower tax burdens) if marijuana is moved to a less restrictive schedule, while others argue federal illegality would persist and interstate commerce rules would remain limiting [3] [7]. Reporting on the funding-side changes shows disagreement about which grants are vulnerable: some sources stress widespread discretionary review and risk of freezes, while memos and court actions emphasize that core formula grants should continue [5] [8]. Available sources do not specify an exhaustive list of grants or agencies that will cut or continue awards in 2025–2026.
7. What institutions should do now
Sources suggest immediate steps: institutions doing hemp research should audit funded projects and compliance processes given Schedule I treatment [1]. Grant offices should map revenue by formula versus discretionary source, engage program officers for clarification, and plan contingency budgets because CRs and agency reviews create uncertainty for discretionary awards [4] [5]. States and higher-ed entities tracking fiscal exposure should follow guidance from their offices of management and budget and await federal clarifications that many sources say are still pending [6] [8].
Limitations: these conclusions draw only on the provided reporting, which flags major risks and distinctions between discretionary and formula funding but does not list every affected program, nor provide final agency guidance or rule text resolving reclassification or spending decisions [1] [4] [5].