Pot stocks keep blazing after Trump says he's 'very strongly' looking at rescheduling cannabis

By Bill Peters

U.S. and Canadian names rally. But one expert notes 'the rescheduling process has faced many hurdles in the past.'

Shares of Tilray jumped more than 27% on Tuesday.

Shares of U.S. and Canadian cannabis stocks continued their rally on Tuesday, after President Donald Trump a day earlier said he was "very strongly" weighing an executive order to reschedule the drug - a move that would lift some regulations on the substance.

Curaleaf Holdings (CURLF) and Trulieve Cannabis (CA:TRUL), which produce cannabis in multiple U.S states, finished up 23.2% and 12.6%, respectively. Canadian producer Tilray Brands (TLRY) jumped 27.5%, while rival Canopy Growth (CGC) moved 10.2% higher.

Trump on Monday said he was considering reclassifying cannabis because "a lot of people want to see it," adding that "it leads to tremendous amounts of research that can't be done unless you reclassify. So we are looking at that very strongly."

CNN reported on Monday that the White House has been discussing recategorizing cannabis from Schedule I to a Schedule III substance, and said an announcement on a potential move could come this week. However, CNN added that no decision on the matter had been finalized.

The Drug Enforcement Administration defines Schedule III drugs as those "with a moderate to low potential for physical and psychological dependence." The agency says their "abuse potential is less than Schedule I and Schedule II drugs." Examples of Schedule III drugs include ketamine, anabolic steroids, testosterone and products with under 90 milligrams of codeine per dose, like Tylenol with codeine.

In August, Trump said his administration was "looking at reclassification" of cannabis. Last week, the Washington Post also reported that Trump would use an executive order to "ease access" to cannabis, and pot stocks jumped on the news.

However, the Post noted that such a move would not legalize or decriminalize cannabis. The newspaper said the executive order would direct U.S. agencies to "pursue reclassification," adding that such a move would follow a proposal under the Biden administration to reclassify cannabis that hasn't advanced under Trump.

Investors in cannabis stocks have long awaited the loosening of federal restrictions on the drug, as more U.S. states legalize pot for recreational and medical use and as Canadian players seek a firmer pathway into a far bigger U.S. market. However, federal legislation in recent years to legalize or decriminalize the drug has stalled.

After Canada legalized recreational cannabis use in 2018, licensed producers there overexpanded and lost money, and some are still struggling to turn a steady profit. In the absence of federal legalization, some cannabis growers in U.S. states where the drug is legal have had to retrench or otherwise rethink their ambitions for growth.

Shawn Hauser, a partner at Vicente, a law firm focused on cannabis, said the reaction from clients to the possible reclassification was mixed.

"Clients have a mixed spectrum of enthusiasm, cautious optimism and some skepticism given that no order has officially been issued and the rescheduling process has faced many hurdles in the past," she said over email.

"We are advising our clients to stay informed, prepared (including as necessary for federal and state implementation, potential litigation and critical state engagement) and to maintain a strategic measured approach throughout this transition," Hauser continued.

Still, some companies and analysts welcomed the news, saying it could open up research and ease the industry's tax burdens.

"There is a level of coordination and seriousness around this issue right now that feels materially different from past moments of speculation, and we expect greater clarity as soon as this week," said Wendy Bronfein, co-founder of Curio Wellness, a multi-state cannabis company.

She said that while rescheduling wasn't legalization, lower government barriers would allow for more opportunities to study cannabis' effects more closely.

"Bigger picture, this would be the most notable cannabis reform in decades and set the stage for a number of additional catalysts, in our view," Aaron Grey, an analyst at Alliance Global Partners, said in a research note on Friday.

Those catalysts, he said, would include more widespread state legalization and easier industry access to banking. More companies that deal directly with cannabis could find their way to major U.S. exchanges, he added, while bigger companies in industries like consumer packaged goods could invest in the space.

Grey also said that rescheduling cannabis to Schedule III could lead to the legalization of medical cannabis and remove the 280E tax, which essentially taxes the industry's profits without allowing cannabis businesses to deduct some expenses.

"This change would be meaningfully beneficial for not only large [multistate operators], but also independents and social-equity operators, given cannabis has been a cash-constrained industry due to the onerous tax, particularly with debt maturities looming," he wrote. "The resulting improvement in cash-flow generation, combined with now having a debt tax shield with Schedule III status, should also lower companies' cost of capital.

"While we acknowledge that most operators have already elected not to pay 280E taxes, the removal of the ongoing uncertain tax-liability buildup on balance sheets would ease investor concerns around accumulating liabilities," Grey added.

-Bill Peters

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12-16-25 1951ET