Trump signs executive order expediting reclassification of marijuana as a less dangerous drug

President Trump on Thursday signed an executive order directing the Department of Justice to reschedule marijuana as a less dangerous drug, a move that stands to lift profits of ailing US cannabis companies and expand access to medical research.

The executive order expedites the process of rescheduling marijuana from being a Schedule I drug, like heroin and LSD, to a Schedule III drug, like testosterone. The move, which had been rumored for nearly a week, reportedly came after a meeting with cannabis industry executives. Rescheduling would boost US cannabis operators' profits by slicing their high tax burden.

The president's remarks and the White House's fact sheet primarily focus on medical cannabis and CBD, or cannabidiol, a non-intoxicating compound found in cannabis. Rescheduling marijuana could make it easier to run clinical trials on cannabis-based medicines.

“We have people begging for me to do this, people that are in great pain,” Trump said.

This recently-rumored move, reports of which had sent had cannabis stocks soaring since December 11, is being treated as a “sell the news” event. The AdvisorShares Pure US Cannabis ETF, the benchmark ETF for publicly-traded US cannabis companies, fell sharply about an hour before the signing of this executive order hit the wires. So too did major Canadian operators, such as Tilray, Canopy Growth, Cronos Group, and SNDL Inc., even though those companies don’t sell cannabis in the US.

Dan Ahrens, who manages MSOS, said investors may be disappointed the order doesn’t instantly reschedule cannabis as opposed to directing the attorney general to do so “in the most expeditious manner in accordance with Federal law” without a specific timeframe.

“I’d personally think there’s a strong chance of a bounce back once it’s all digested and people realize the ramifications of the rescheduling actually going through,” Ahrens said in an email.

Under former President Biden, the Department of Justice announced in April 2024 that it would recommend reclassifying marijuana, though that process stalled. There are have been several reports this year saying Trump was close to proposing reform, an issue that's controversial within the Republican party.

For US cannabis companies, the biggest outcome could be a tax treatment that's more in line with other businesses. Under the current regulatory scheme, cannabis companies can generally only expense the cost of acquiring their product but virtually no other business expenses.

The result is that cannabis companies are paying an effective tax rate of upwards of 50%. Some cannabis companies may have a tax bill that exceeds their profits, and even unprofitable businesses may still get a tax bill.

Joanne Wilson, CEO of Gotham, a dispensary chain in New York City, said more than half of the money her business makes goes to taxes. She said the change would be felt "immediately."

"That totally changes the business," Wilson said. "That's a huge win, because nobody is making money — the taxes are insane."

The impact of rescheduling on day-to-day operations remains uncertain, according to Roy Cysner, chief financial officer of The Travel Agency, a New York City dispensary chain.

Cysner said payments are "probably the most challenging" hurdle, describing finding reliable service providers like "a game of whack-a-mole." The company has had the same banker for several years, but he's only aware of two others that would even take his business. He said he knows he's overpaying for both services.

"It's getting closer to a normal business," Cysner said. "And even if there's that additional thing that needs to happen to actually legalize it, I think that this might be the path to get us there."