Cannabis Stocks Rally on Historic Rescheduling Push
Justice Department's move to reclassify marijuana to Schedule III, coupled with Trump's support, ignites investor optimism for banking and tax reforms.
The cannabis sector is experiencing a significant surge, with stocks lighting up after the U.S. Department of Justice initiated a formal process to reclassify marijuana as a less dangerous substance. This historic policy shift, which has been long-awaited by the industry, sent shares of major cannabis companies soaring and renewed investor hopes for a more favorable operating environment.
In a landmark move, the DOJ announced its intention to move cannabis from its current position as a Schedule I substance, a category it shares with heroin and LSD, to Schedule III. The move follows a recommendation from the Department of Health and Human Services and would place marijuana in the same category as testosterone and some forms of codeine, acknowledging its medical uses and lower potential for abuse. The news acted as a powerful catalyst for the market, with Canadian producer Tilray (TLRY) jumping 20.2% and Canopy Growth (CGC) climbing nearly 13% in recent trading.
The rally gained further momentum from comments by former President Donald Trump, who stated he is "very strongly" looking at the issue. This signal of potential bipartisan support for reform has added fuel to the fire. "Pot stocks keep blazing after Trump says he’s ‘very strongly’ looking at rescheduling cannabis," one MarketWatch report noted, underscoring the political tailwinds gathering behind the industry.
The implications of rescheduling are profound. As a Schedule I substance, cannabis companies are currently barred from taking normal business tax deductions under an IRS code known as 280E. This has resulted in sky-high effective tax rates, often exceeding 70%, crippling profitability and cash flow. A move to Schedule III would eliminate this burden, immediately improving the financial health of multi-state operators.
"Cannabis stocks ... pop as Justice Department moves on rescheduling," InvestorPlace highlighted, pointing to the broad-based rally. The AdvisorShares Pure US Cannabis ETF (MSOS), a key barometer for the U.S. market, was reported to have skyrocketed over 54% to a 13-month high on the rescheduling hopes, according to a report from Morningstar.
Beyond the critical tax implications, the reclassification is seen as a crucial step toward unlocking access to traditional financial services. For years, major U.S. banks have been hesitant to serve cannabis-related businesses due to the federal prohibition, forcing many to operate on a cash-only basis, which presents significant security and operational risks. While rescheduling is not full legalization, it de-risks the sector substantially and could pave the way for legislation like the SAFER Banking Act, designed to provide a safe harbor for financial institutions serving the industry.
While the path forward still requires a public comment period and final rule-making, the combined regulatory and political momentum has fundamentally shifted investor sentiment. The prospect of cannabis companies finally achieving normalized tax treatment and access to capital markets has investors looking at the sector with fresh eyes, betting that this regulatory shift marks the beginning of a new era for the long-beleaguered industry.