Cannabis stocks surged on Friday after reports indicated that President Donald Trump is preparing to dramatically loosen federal restrictions on marijuana. The move, which would reclassify cannabis under a less severe federal category, sent a wave of optimism through a sector that has struggled for years under the weight of strict regulations, punishing taxes, and limited access to banking services.
The renewed momentum set off one of the strongest sector rallies of the year. Tilray Brands and Canopy Growth each popped more than 25 percent during Friday trading. Innovative Industrial Properties climbed more than 8 percent as investors rotated into cannabis real estate and infrastructure plays. The Amplify Seymour Cannabis ETF jumped more than 28 percent as traders priced in the possibility of a major regulatory overhaul.
A Historic Policy Shift
According to reporting from the Washington Post, President Trump is preparing an executive order instructing federal agencies to reclassify marijuana from a Schedule I drug to Schedule III. Schedule I includes substances like heroin, while Schedule III includes drugs such as steroids and Tylenol with codeine. The shift would reduce federal restrictions, change tax treatment for cannabis operators, and potentially open the door to broader institutional investment.
Axios reported that the reclassification could take place early next year, marking the first time in modern U.S. history that the federal government acknowledges marijuana as having accepted medical use and lower potential for abuse.
Trump signaled earlier this year that a change was coming. Investors and analysts have been watching closely for follow-through.
Ed Groshans of Compass Point told clients on Friday that, in his firm’s view, “Trump rescheduling marijuana was not an if, in our assessment, but a when.”
Why Rescheduling Matters for the Cannabis Industry
The sector has long argued that its biggest barrier is not demand or competition, but federal constraints that make raising capital and operating profitably more difficult than for nearly any other consumer-facing business. Reclassification would not legalize cannabis nationally, but it would have several major effects:
1. Reduced Tax Burden
Schedule I designation subjects cannabis companies to Section 280E of the tax code, preventing them from deducting standard business expenses. Many firms effectively pay tax rates north of 60 percent. Schedule III would remove 280E restrictions and immediately improve profitability.
2. Access to Banking
Groshans described the expected policy shift as “positive” because it would allow banks to more confidently serve the industry. While some small institutions work with cannabis companies today, large banks and payment processors have avoided the sector due to federal uncertainty.
3. Easier Capital Raises
Institutional investors have largely stayed away from U.S. cannabis operators. Reclassification could unlock new funding sources and boost valuations across the industry.
4. Potential Ripple Effects for State Regulators
A softer federal stance often influences how states approach licensing, enforcement, and cross state commerce. Analysts believe new momentum could form around a uniform regulatory framework over the next several years.
Analysts Expect Fast Follow Through
If the executive order is issued, the Drug Enforcement Administration would still need to formalize the rule. Groshans expects that process to conclude by the summer.
Bill Kirk, senior research analyst at Roth, said he is watching another major catalyst next week when the Supreme Court decides whether to hear a case involving state level cannabis regulations and federal prohibition. A ruling in favor of the industry could accelerate the timetable for reform and reduce conflict between state and federal enforcement.
From Cautious Optimism to Growing Momentum
The industry has lived through many false starts, stalled bills, and political promises that never materialized. Yet executives now say this moment feels fundamentally different.
“I am a lot more optimistic than I ever have been,” Tilray CEO Irwin Simon said.
Shawn Hauser, partner at cannabis law firm Vicente LLP, called the reported policy shift a meaningful but incomplete step. She noted that reclassification would still leave the broader fight for legalization unresolved. However, she argued it would create momentum that pushes lawmakers toward a more comprehensive regulatory structure.
Hauser said, “This is the beginning of a new era of public health policy. If implemented, it dismantles nearly a century of outdated drug policies that fly in the face of science and medicine.”
A Sector Still Digging Out of a Deep Hole
Cannabis stocks soared prior to the pandemic during a wave of hype around newly public growers and dispensaries. Many companies expanded aggressively before demand, regulations, and capital markets could support their ambitions. When investor enthusiasm faded, valuations collapsed.
Tilray shares, which briefly topped an adjusted price of more than 2,140 dollars in September 2018, now trade near 10 dollars. The Amplify Cannabis ETF is on track to lose more than 8 percent in 2025, putting it on pace for a fifth consecutive annual decline.
For long suffering shareholders, Friday’s rally is welcome but does not erase years of losses. Institutional investors will likely want to see clear regulatory timelines, stronger balance sheets, and more predictable revenue growth before committing large amounts of capital.
What Investors Should Watch Next
To understand whether this rally has staying power, investors should monitor several key developments:
• Formal details of the executive order
The timing, scope, and implementation instructions will determine how quickly the industry can adjust.
• DEA rulemaking timeline
A swift regulatory process would signal political commitment. Delays could dampen market enthusiasm.
• Supreme Court case decision
If the Court agrees to hear the case, it could reshape the legal boundaries of federal enforcement.
• Congressional reaction
Some lawmakers may push for broader legalization measures or at least a federal framework addressing banking, taxation, and interstate commerce.
• Potential sector consolidation
If capital costs fall, larger operators may begin acquiring distressed competitors.
Bottom Line for Investors
The cannabis industry has been waiting years for a clear signal from Washington, and Friday’s reports represent the most concrete progress yet. Reclassification would not instantly fix the industry, but it could take pressure off balance sheets, unlock capital, and create a path toward national normalization.
For investors, the next several months will determine whether this rally becomes a durable turning point or another short lived spike. Given the sector’s volatility, disciplined position sizing and a close eye on regulatory milestones will be essential.
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