NAICS Cannabis Industry Classification: Codes, Updates & Business Impact

Executive Summary

The Office of Management and Budget is seeking public comment through September 11, 2026, on proposed updates to the North American Industry Classification System (NAICS) for 2027, including potential new codes specifically for the cannabis industry. This marks the first time federal statistical agencies have formally considered creating dedicated classification codes for cannabis businesses, a sector that generated over $30 billion in legal sales in 2025 but remains federally illegal under the Controlled Substances Act. The Economic Classification Policy Committee (ECPC) received multiple public comments requesting cannabis-specific NAICS codes during the 2027 revision cycle, reflecting the industry's maturation and the statistical challenges created by classifying cannabis businesses under codes designed for pharmaceuticals, agriculture, or retail operations. The proposed changes would affect how federal agencies collect economic data, how lenders evaluate cannabis businesses, how the Small Business Administration defines size standards for the sector, and how researchers track the industry's economic impact across cultivation, manufacturing, testing, and retail operations.

Why NAICS Classification Matters for Cannabis

NAICS codes determine how $7 trillion in federal contracts are awarded, how economic statistics are compiled, and how businesses qualify for loans and government programs. For cannabis operators, the absence of dedicated industry codes creates cascading problems across finance, taxation, research, and policy development.

Cannabis businesses currently report their activities using codes designed for entirely different industries. Cultivators often use code 111998 (All Other Miscellaneous Crop Farming), manufacturers select 325412 (Pharmaceutical Preparation Manufacturing) or 311999 (All Other Miscellaneous Food Manufacturing), and dispensaries choose 446110 (Pharmacies and Drug Stores) or 453998 (All Other Miscellaneous Store Retailers). This misclassification obscures the true size and scope of the cannabis economy from federal statistical agencies.

The Census Bureau, Bureau of Labor Statistics, and Bureau of Economic Analysis rely on NAICS codes to track employment, wages, productivity, and GDP contributions by sector. Without cannabis-specific codes, these agencies cannot accurately measure an industry that employed an estimated 428,000 workers in 2025 according to industry analyst Leafly. The Internal Revenue Service uses NAICS codes to identify audit targets and assess compliance patterns, while the Small Business Administration uses them to set size standards that determine eligibility for loans and contracts.

Financial institutions depend on NAICS codes for risk assessment and portfolio management. Banks that serve cannabis businesses under state programs report using agricultural or retail codes, creating data quality problems that complicate credit analysis. The Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency track concentrations of risk by NAICS code, meaning cannabis exposure is currently invisible or misreported in regulatory filings.

State governments face similar challenges. Tax authorities in the 38 states with legal medical or adult-use programs struggle to benchmark cannabis tax revenue against economic activity when federal statistics exclude or misclassify the sector. Economic development agencies cannot compare their cannabis industries to national benchmarks or identify competitive advantages without standardized classification.

Background and History of NAICS

The North American Industry Classification System replaced the Standard Industrial Classification (SIC) system in 1997 to provide a consistent framework for collecting and analyzing economic data across the United States, Canada, and Mexico. The Office of Management and Budget maintains NAICS through Statistical Policy Directive No. 8, updating the system every five years to reflect structural changes in the economy.

Origins and Structure

The United States, Canada, and Mexico developed NAICS collaboratively under the North American Free Trade Agreement to enable economic comparisons across the three countries. The system organizes industries into 20 sectors identified by two-digit codes, which subdivide into three-digit subsectors, four-digit industry groups, five-digit industries, and six-digit national industries. The first five digits are standardized across all three countries, while the sixth digit allows each nation to add detail relevant to its economy.

NAICS uses a production-oriented approach, grouping establishments based on similarity in production processes rather than end-use of products. This differs from the demand-oriented SIC system and creates challenges for cannabis, which spans agriculture, manufacturing, wholesale, retail, and testing services using processes that don't align neatly with existing categories.

Previous Revision Cycles

OMB published the first NAICS manual in 1997 and has revised the system in 2002, 2007, 2012, 2017, and 2022. Each revision cycle begins with a Federal Register notice requesting public input on emerging industries and structural changes. The Economic Classification Policy Committee, comprising representatives from the Census Bureau, Bureau of Labor Statistics, and Bureau of Economic Analysis, reviews comments and recommends changes.

The 2017 revision added codes for new industries including cannabis-related categories in Canada, which legalized adult-use cannabis in 2018. Statistics Canada created NAICS code 111940 (Cannabis Production and Harvesting) and 456140 (Cannabis Stores) to track the newly legal sector. The United States did not adopt parallel codes, maintaining the federal prohibition stance despite state-level legalization.

The 2022 revision cycle received limited public comment regarding cannabis classification. Industry associations focused on state-level policy battles and federal banking reform rather than statistical infrastructure. The ECPC made no cannabis-specific recommendations in the 2022 update.

The 2027 Revision Process

OMB published a notice in the Federal Register on January 15, 2025, soliciting public input on priorities for the 2027 NAICS revision. The notice specifically requested comments on emerging industries, declining industries, and areas where existing codes fail to capture economic reality. The comment period closed on April 15, 2025.

The ECPC received comments addressing 32 topics including artificial intelligence, space transportation, fiber-reinforced polymer composites, and cannabis. Multiple commenters requested dedicated cannabis codes, citing the industry's growth, employment impact, and the data quality problems created by misclassification.

On July 13, 2026, OMB published Statistical Policy Directive No. 8 in the Federal Register, presenting the ECPC's proposed recommendations for the 2027 NAICS update. The notice included cannabis among the topics receiving public comment and opened a second comment period through September 11, 2026, for stakeholders to respond to specific proposed changes.

Cannabis Industry Growth Timeline

California legalized medical cannabis in 1996 through Proposition 215, creating the first state-legal market that federal statistics could not capture. Colorado and Washington legalized adult-use sales in 2012, with retail operations beginning in 2014. By 2025, 24 states had legalized adult-use cannabis and 38 states permitted medical use.

Legal cannabis sales grew from $6.7 billion in 2016 to $30.2 billion in 2025 according to industry research firm BDSA. The industry employed 428,000 workers in 2025, more than the coal mining industry's 42,000 workers. Yet federal economic statistics treated cannabis as non-existent or misclassified it under unrelated codes.

The disconnect between state-level legalization and federal prohibition created a statistical blind spot. The Bureau of Economic Analysis does not include cannabis in GDP calculations. The Bureau of Labor Statistics does not publish employment or wage data for cannabis occupations. The Census Bureau's Economic Census, conducted every five years, cannot survey cannabis businesses without NAICS codes that acknowledge their existence.

Key Players in the NAICS Cannabis Debate

Office of Management and Budget

OMB maintains authority over NAICS through Statistical Policy Directive No. 8, issued under the Paperwork Reduction Act and the Budget and Accounting Procedures Act of 1950. The Office of Information and Regulatory Affairs within OMB oversees the classification system and coordinates the revision process. OMB must balance competing interests: statistical accuracy, international harmonization with Canada and Mexico, federal law compliance, and stakeholder needs.

OMB has not publicly stated a position on cannabis-specific codes. The agency's July 2026 Federal Register notice acknowledged receiving cannabis-related comments but did not detail the ECPC's recommendations on the topic, suggesting internal deliberation continues.

Economic Classification Policy Committee

The ECPC comprises senior officials from the Census Bureau, Bureau of Labor Statistics, and Bureau of Economic Analysis. The committee reviews public comments, consults with industry experts, and recommends changes to OMB. The ECPC operates under a consensus model, meaning all three agencies must agree on proposed revisions.

The committee faces a unique challenge with cannabis. Creating dedicated codes would improve data quality and reflect economic reality, but could be interpreted as federal recognition of an industry that remains illegal under 21 U.S.C. § 812. The ECPC must determine whether statistical accuracy outweighs the political and legal complications of formally classifying cannabis businesses.

U.S. Census Bureau

The Census Bureau conducts the Economic Census every five years, surveying all employer establishments to measure economic activity by industry. The bureau relies on NAICS codes to design questionnaires, tabulate results, and publish data. Without cannabis codes, the bureau cannot survey dispensaries, cultivators, or manufacturers as distinct industries.

Census Bureau officials have privately acknowledged the cannabis classification problem in discussions with state data centers and research institutions. The bureau's 2022 Economic Census, released in 2024, included cannabis businesses in miscellaneous categories, making it impossible to isolate their economic contribution.

Bureau of Labor Statistics

BLS publishes employment, wage, and productivity statistics by industry using NAICS codes. The bureau's Occupational Employment and Wage Statistics program surveys employers to estimate employment and wages for over 800 occupations across industries. Cannabis workers are currently counted under agricultural, pharmaceutical, or retail codes depending on their employer's classification choice.

BLS faces pressure from state labor market analysts who need cannabis employment data for workforce development planning. States with legal markets want to track job growth, wage trends, and occupational demand in the sector, but federal data systems cannot provide this information without dedicated codes.

Cannabis Industry Associations

The National Cannabis Industry Association, U.S. Cannabis Council, and American Trade Association for Cannabis and Hemp represent thousands of businesses across cultivation, manufacturing, testing, and retail. These groups submitted comments during the 2027 NAICS revision cycle requesting dedicated codes for major cannabis industry segments.

Industry associations argue that proper classification would improve access to banking, insurance, and business services by providing standardized codes that financial institutions and vendors recognize. They also contend that accurate economic data would strengthen the case for federal legalization by documenting the industry's employment and tax contributions.

State Cannabis Regulators

State cannabis control boards in California, Colorado, Washington, and other legal markets track licensees and sales but cannot compare their data to federal economic statistics. Regulators want NAICS codes to benchmark their markets, identify trends, and inform policy decisions.

The Cannabis Regulators Association, representing state and local cannabis authorities, has advocated for federal statistical recognition to improve data quality and enable interstate comparisons. State regulators argue that NAICS codes would not change federal law but would acknowledge the reality that 38 states have legalized cannabis in some form.

Legal and Regulatory Framework

NAICS classification operates independently of federal drug law, but the intersection of statistical policy and cannabis prohibition creates unprecedented legal and administrative questions.

The Controlled Substances Act, codified at 21 U.S.C. § 801 et seq., classifies cannabis as a Schedule I substance, defined as having no accepted medical use and high potential for abuse. Federal law prohibits manufacturing, distributing, and possessing cannabis except for limited research purposes approved by the Drug Enforcement Administration. This prohibition applies nationwide regardless of state law.

OMB's authority over NAICS derives from the Paperwork Reduction Act (44 U.S.C. § 3501 et seq.) and the Budget and Accounting Procedures Act of 1950 (31 U.S.C. § 1101 et seq.). These statutes direct OMB to coordinate federal statistical activities and establish standards for data collection. Nothing in these laws prohibits classifying industries engaged in activities that violate other federal statutes.

The Anti-Deficiency Act (31 U.S.C. § 1341) prohibits federal agencies from spending funds on activities not authorized by Congress. Some legal scholars argue that creating cannabis NAICS codes could violate this prohibition by facilitating an illegal industry, while others contend that statistical classification is a neutral administrative function that does not constitute assistance or endorsement.

The Department of Justice issued the Cole Memorandum in 2013, directing federal prosecutors to deprioritize cannabis enforcement in states with robust regulatory systems. Attorney General Jeff Sessions rescinded the memo in 2018, but federal prosecutors have continued to focus on large-scale trafficking and interstate distribution rather than state-legal operators. The Biden administration has not issued formal guidance on cannabis enforcement priorities.

The Rohrabacher-Farr Amendment, enacted annually since 2014 as part of appropriations bills, prohibits the Department of Justice from using funds to prevent states from implementing medical cannabis laws. This rider does not legalize cannabis or require federal agencies to accommodate state programs, but it demonstrates congressional tolerance for state-level experimentation.

No statute explicitly addresses whether OMB can create NAICS codes for federally illegal industries. The agency has broad discretion under the Paperwork Reduction Act to establish classification systems that serve statistical purposes. Courts have not ruled on whether NAICS classification of cannabis would violate federal law or policy.

Proposed NAICS Structure for Cannabis

Industry stakeholders have proposed a multi-tiered classification system that would create distinct codes for cultivation, manufacturing, testing, wholesale, and retail operations. The proposed structure mirrors the vertically integrated supply chain that characterizes state-legal markets.

Proposed Code	Industry Title	Description	Current Misclassification
111941	Cannabis Cultivation	Indoor and outdoor cultivation of cannabis plants for medical and adult use	111998 (All Other Miscellaneous Crop Farming)
325414	Cannabis Product Manufacturing	Extraction, infusion, and manufacturing of cannabis concentrates, edibles, and topicals	325412 (Pharmaceutical Preparation) or 311999 (Food Manufacturing)
541380	Cannabis Testing Laboratories	Analytical testing for potency, pesticides, heavy metals, and microbial contaminants	541380 (Testing Laboratories, general)
424590	Cannabis Wholesale	Merchant wholesalers of cannabis and cannabis products	424590 (Other Farm Product Raw Material Merchant Wholesalers)
456150	Cannabis Dispensaries	Retail sale of cannabis and cannabis products for medical and adult use	446110 (Pharmacies) or 453998 (All Other Miscellaneous Store Retailers)

This structure would align with Canada's approach. Statistics Canada created NAICS code 111940 for cannabis production and 456140 for cannabis stores in the 2017 revision, implemented when Canada legalized adult-use cannabis in 2018. Canadian statistical agencies have successfully collected data on employment, sales, and production using these codes without legal complications.

Some commenters proposed more granular classifications distinguishing medical from adult-use operations, or separating hemp from cannabis. The ECPC has not indicated whether it will recommend such detail or adopt a simpler structure that treats all cannabis businesses as a single industry group.

State-by-State Classification Challenges

The patchwork of state cannabis laws creates classification complexity that NAICS codes must navigate. Each state defines cannabis businesses differently, regulates vertical integration variably, and distinguishes medical from adult-use operations inconsistently.

California

California's Department of Cannabis Control issues separate licenses for cultivation (specialty outdoor, specialty indoor, specialty mixed-light, medium, and large), manufacturing (volatile solvent and non-volatile solvent), testing, distribution, retail (storefront and non-storefront), and microbusiness. A single NAICS code cannot capture this licensing complexity. California cultivators range from 5,000-square-foot specialty operations to multi-acre outdoor farms, creating size standard challenges for the Small Business Administration.

Colorado

Colorado maintains separate medical and adult-use regulatory tracks with distinct license types. The state's Marijuana Enforcement Division issues cultivation, product manufacturing, testing, and retail licenses. Colorado permits vertical integration, allowing single entities to hold multiple license types. NAICS classification must accommodate businesses that cultivate, manufacture, and sell cannabis under one corporate structure.

Illinois

Illinois awards cultivation licenses based on square footage tiers: up to 5,000 square feet, 5,001 to 10,000 square feet, 10,001 to 20,000 square feet, and 20,001 to 30,000 square feet. The state caps the number of licenses and requires social equity ownership for certain categories. NAICS codes cannot reflect these regulatory distinctions but must enable statistical agencies to measure the industry's aggregate economic impact.

New York

New York's Office of Cannabis Management issues conditional adult-use retail dispensary licenses, adult-use cultivator licenses, and processor licenses. The state prioritizes social equity applicants and justice-involved individuals. New York prohibits vertical integration for large operators but allows it for microbusinesses. NAICS classification must work across these varying business models.

Ohio

Ohio operates a medical-only program with separate cultivator, processor, and dispensary licenses. The state's Board of Pharmacy regulates dispensaries while the Department of Commerce oversees cultivation and processing. Ohio limits the number of licenses and requires in-state residency for owners. NAICS codes must enable federal agencies to count Ohio's medical cannabis businesses alongside adult-use operations in other states.

States Without Legal Markets

Twelve states prohibit all cannabis use, creating a geographic dimension to classification challenges. Federal statistical agencies must decide whether to collect cannabis data only in legal states or attempt nationwide coverage that would capture illegal operations. The Census Bureau's Economic Census surveys all employer establishments, meaning dispensaries in legal states would receive questionnaires while similar operations in prohibition states would not.

Market and Business Implications

NAICS classification would unlock access to financial services, government contracts, and business resources currently unavailable to cannabis operators. The codes would also enable industry benchmarking, competitive analysis, and investment research that drives capital allocation.

Banks and credit unions use NAICS codes to categorize customers, assess risk concentrations, and comply with regulatory reporting requirements. The Federal Financial Institutions Examination Council's Uniform Bank Performance Report aggregates data by NAICS code, allowing banks to compare their loan portfolios to peer institutions. Cannabis businesses currently appear in agricultural, pharmaceutical, or retail categories, obscuring their true risk profile and preventing meaningful peer comparison.

The Small Business Administration sets size standards by NAICS code to determine eligibility for loans, contracts, and development programs. Without cannabis-specific codes, SBA cannot establish appropriate revenue or employee thresholds for the industry. A cannabis cultivator classified under code 111998 (All Other Miscellaneous Crop Farming) faces a size standard of $3 million in annual receipts, far below the revenue of many mid-sized cultivation operations. Cannabis dispensaries using code 453998 (All Other Miscellaneous Store Retailers) face a $8 million threshold, again misaligned with industry economics.

Multi-state operators including Curaleaf, Green Thumb Industries, Trulieve, and Verano would benefit from standardized classification that enables investors to compare operational metrics across companies. Securities analysts currently rely on company-reported data and industry surveys rather than government statistics to evaluate cannabis businesses. NAICS codes would enable the Bureau of Economic Analysis to publish productivity, capital intensity, and value-added statistics that inform investment decisions.

Cannabis businesses paid an estimated $1.8 billion in federal income taxes in 2024 despite their illegal status, according to industry analysts. Internal Revenue Code Section 280E prohibits businesses trafficking in controlled substances from deducting ordinary business expenses, resulting in effective tax rates exceeding 70 percent for many operators. The IRS uses NAICS codes to identify audit targets and assess compliance patterns. Cannabis-specific codes would enable more sophisticated tax administration and potentially inform future 280E reform.

Insurance companies use NAICS codes to underwrite policies and set premiums. Cannabis businesses currently struggle to obtain property, casualty, and liability coverage because insurers cannot assess risk using standard actuarial models built on federal data. Dedicated codes would enable insurers to develop cannabis-specific products and pricing based on loss experience and industry benchmarks.

What Experts Say

Economists, statisticians, and industry analysts broadly support cannabis-specific NAICS codes while acknowledging the political and legal complications.

Beau Whitney, senior economist at Whitney Economics, said in a 2025 interview that the absence of federal classification creates a data vacuum that harms businesses and policymakers. Whitney noted that state governments cannot benchmark their cannabis industries against national statistics or identify competitive advantages without standardized codes. He argued that NAICS classification would not change federal law but would acknowledge economic reality.

According to researchers at the RAND Corporation, misclassification of cannabis businesses undermines the accuracy of federal economic statistics and creates spillover effects in related industries. A 2024 RAND report on cannabis economics noted that agricultural statistics overstate crop diversity when cannabis appears in miscellaneous farming categories, while retail statistics undercount specialty store sales when dispensaries use general merchandise codes.

The National Association for Business Economics published a 2025 policy brief arguing that NAICS codes serve a purely statistical function and should reflect actual economic activity regardless of legal status. The brief noted that federal agencies classify other controversial industries including firearms manufacturing, tobacco production, and gambling operations without endorsing or facilitating those activities.

State data center directors in California, Colorado, and Washington have requested cannabis codes in communications with the Census Bureau. These officials need federal data to support state economic development planning, workforce training, and tax policy analysis. They contend that the current classification system forces them to rely on industry surveys and private data sources that lack the rigor and comparability of federal statistics.

Some legal scholars have raised concerns that NAICS classification could be challenged as federal facilitation of an illegal industry. However, administrative law experts note that OMB's statistical authority operates independently of drug enforcement and that classification does not constitute approval or assistance. No court has addressed whether NAICS codes for cannabis would violate federal law.

What's Next

OMB will accept public comments on the proposed 2027 NAICS revisions through September 11, 2026, after which the ECPC will finalize recommendations for OMB approval. The timeline for cannabis-specific codes remains uncertain and depends on internal deliberations that OMB has not made public.

The comment period closing on September 11, 2026, represents the final opportunity for stakeholders to influence the 2027 revision. Industry associations, state governments, researchers, and businesses can submit comments through the Federal Register docket at regulations.gov. Comments should address specific proposed changes, provide data supporting recommendations, and explain how classification would improve statistical accuracy.

OMB will review comments and consult with the ECPC through late 2026. The agency typically publishes final decisions in the Federal Register by early in the implementation year, meaning a final 2027 NAICS manual would likely appear in early 2027. Federal statistical agencies would begin using the new codes for data collection in 2027, with the first published statistics appearing in 2028 or later depending on survey cycles.

If OMB declines to create cannabis codes for 2027, the next revision opportunity would come in 2032. The five-year cycle means industries that miss a revision must wait another five years for consideration, during which time data quality problems persist and economic measurement gaps widen.

Several scenarios could emerge from the current process. OMB could adopt comprehensive cannabis codes covering cultivation, manufacturing, testing, wholesale, and retail. The agency could create limited codes for specific segments while leaving others in miscellaneous categories. OMB could defer the decision pending federal legislative action on cannabis legalization or rescheduling. Or the agency could decline to create cannabis codes entirely, maintaining the current misclassification approach.

The Drug Enforcement Administration's ongoing review of cannabis scheduling under the Controlled Substances Act could influence OMB's decision. If DEA moves cannabis from Schedule I to Schedule III, as the Department of Health and Human Services recommended in 2023, the legal barriers to NAICS classification would diminish. Rescheduling would not legalize cannabis but would acknowledge accepted medical use and potentially reduce political sensitivity around federal statistical recognition.

Congressional action on cannabis reform could also affect the timeline. The SAFER Banking Act, which would protect financial institutions serving state-legal cannabis businesses, passed the House in 2024 but stalled in the Senate. If Congress enacts banking reform or broader legalization, OMB would face fewer obstacles to creating cannabis codes.

State-level developments will continue regardless of federal classification decisions. More states are expected to legalize adult-use cannabis through ballot initiatives or legislation in 2026 and 2027. Each new legal market increases the economic significance of the classification gap and strengthens the statistical case for dedicated codes.

Further Reading

• Statistical Policy Directive No. 8: North American Industry Classification System (NAICS) - Request for Comments on Proposed Updates for 2027, Federal Register Vol. 91, No. 133 (July 13, 2026): https://www.federalregister.gov/documents/2026/07/13/2026-14086/statistical-policy-directive-no-8-north-american-industry-classification-system-naics-request-for
• North American Industry Classification System (NAICS) 2022 Manual, Office of Management and Budget: https://www.census.gov/naics/
• Controlled Substances Act, 21 U.S.C. § 801 et seq.: https://www.govinfo.gov/content/pkg/USCODE-2021-title21/html/USCODE-2021-title21-chap13.htm
• Paperwork Reduction Act, 44 U.S.C. § 3501 et seq.: https://www.govinfo.gov/content/pkg/USCODE-2021-title44/html/USCODE-2021-title44-chap35.htm
• Statistics Canada NAICS 2022 Version 1.0, including cannabis codes 111940 and 456140: https://www.statcan.gc.ca/en/subjects/standard/naics/2022/v1/index
• Internal Revenue Code Section 280E, 26 U.S.C. § 280E: https://www.govinfo.gov/content/pkg/USCODE-2021-title26/html/USCODE-2021-title26-subtitleA-chap1-subchapB-partIX-sec280E.htm
• U.S. Census Bureau Economic Census: https://www.census.gov/programs-surveys/economic-census.html
• Bureau of Labor Statistics Occupational Employment and Wage Statistics: https://www.bls.gov/oes/
• Small Business Administration Size Standards: https://www.sba.gov/federal-contracting/contracting-guide/size-standards