Analysis of Trump's 2025 Cannabis Reclassification Executive Order and Industry Impact

On December 18, 2025, President Trump signed an executive order instructing the Attorney General to complete rulemaking reclassifying cannabis from Schedule I to Schedule III under the U.S. CSA [1][2][3]. This action comes amid a fragmented U.S. cannabis landscape where 42 states have legalized medical use and 24 have legalized recreational use, yet federal prohibition has imposed severe challenges: the IRC Section 280E denied ordinary business deductions (resulting in >70% effective tax rates for operators [6]), banking restrictions forced cash-only operations, and strict DEA rules limited federal cannabis research [3][6].

The reclassification places cannabis in the same category as steroids and Tylenol with codeine—substances with accepted medical benefits and lower abuse potential. Key expected impacts include immediate tax relief for operators [6], access to federal research grants [3], and increased institutional legitimacy for the industry [8]. Market reactions were mixed: pre-announcement leaks led to significant stock surges (Tilray Brands +28%, SNDL, Canopy Growth, and MSOS ETF up 13.5–32.5% in premarket trading [8]), but post-announcement declines followed due to concerns about new competition from Big Pharma [9].

1. Not Full Legalization
   : The executive order is a regulatory reclassification, not full federal legalization. Banking restrictions are likely to persist until financial institutions receive clear final rules [6], and state-level regulations will continue to create market fragmentation.
2. Dual Market Emerging
   : Long-term industry trends indicate a split into two segments: a regulated pharmaceutical market for cannabis-derived prescription drugs (dominated by Big Pharma) and a state-regulated market for recreational and medical cannabis [6][8].
3. Big Pharma Disruption
   : The reclassification allows pharmaceutical companies to develop and market standardized, FDA-approved cannabis products, which could capture significant share from existing medical cannabis operators [7][6].

• Tax Relief
  : Schedule III status enables operators to claim ordinary business deductions, improving profitability and balance sheets—particularly for multi-state operators (MSOs) like Tilray and Canopy Growth [6][8].
• Research Expansion
  : Federal grant access will drive innovation in medical cannabis formulations and therapeutic applications [3].
• Institutional Investment
  : Reduced regulatory uncertainty may attract institutional capital to the industry [8].

• Short-Term Volatility
  : Investors await DEA rulemaking (expected summer 2026), which could cause stock price fluctuations [9].
• Big Pharma Competition
  : Pharmaceutical companies may dominate the medical cannabis segment with standardized products, challenging existing operators [7][6].
• Increased Compliance Costs
  : Operators will face new federal oversight and compliance requirements under Schedule III [6].

• Timeline
  : DEA rulemaking to finalize reclassification is expected by summer 2026 [9].
• Stakeholder Actions
  : Cannabis operators should prepare for increased federal oversight while leveraging tax relief to expand operations; investors should exercise caution due to short-term volatility but consider long-term growth potential [6][8].
• Additional Context
  : The Supreme Court’s upcoming decision on a case involving state cannabis regulations and federal prohibition could further reshape the industry [9].