Trump’s Marijuana Order Isn’t Helping Cannabis Stocks

President Donald Trump signed the executive order in a White House ceremony. (Getty Images)

Key Points

• President Donald Trump signs an executive order to reclassify marijuana to a Schedule III drug from a Schedule I but not legalize recreational sales.
• The reclassification will allow Medicare beneficiaries up to $500 in hemp-derived CBD products annually and enables easier research into marijuana.
• Domestic cannabis stocks regained some ground Friday after plummeting in the previous session.

Cannabis stocks remain under pressure after President Donald Trump signed an executive order Thursday directing the Department of Justice to reschedule marijuana as a lower-class drug.

The Department of Justice’s proposed rule, first issued in May 2024, will reclassify marijuana as a Schedule III drug from Schedule I but doesn’t permit legalized recreational sales. Other Schedule I substances include highly addictive drugs with no accepted medical use, such as heroin, while Schedule III substances are considered to have lower potential for abuse.

The federal government determined marijuana has legitimate medical applications “when carefully administered in some cases,” including as a substitute for opioid painkillers, Trump said in a White House ceremony. He added that the reclassification doesn’t legalize marijuana and “in no way sanctions its use as a recreational drug.”

The Centers for Medicare and Medicaid Services will also launch a pilot program making Medicare beneficiaries eligible to receive up to $500 in hemp-derived CBD products a year at no cost starting next April, said CMS administrator Dr. Mehmet Oz.

Cannabis stocks plummeted after the news, perhaps reflecting hopes that the order would go further in decriminalizing recreational use or opening up commercial opportunities. Some clawed back losses on Friday, while others fell further.

U.S.-listed shares of Canadian cannabis producer Tilray Brands dropped 8.4% after ending Thursday down 4.2%. After the order was signed, Tilray announced the formation of Tilray Medical USA to focus on medical-grade cannabis products. Fellow Canadian company Canopy Growth slumped 6.2% after posting a 12% decline on Thursday.

Domestic stocks fared even worse on Thursday. The AdvisorShares Pure US Cannabis exchange-traded fund plummeted nearly 27% to $4.89 after rising sharply earlier in the session. But the fund jumped 7.9% on Friday, effectively bringing prices of American and Canadian producers back into equilibrium.

Cannabis companies have had trouble accessing merchant services from banks, securing ordinary stock listings, or doing business across state lines. As Barron’s reported Tuesday, the rescheduling may have limited immediate commercial benefits beyond allowing producers to deduct some business expenses from taxes.

Still, Trump’s order was a positive step for marijuana stocks, Seaport Research Partners argued in a research note. The firm saw Thursday’s pullback as a “textbook ‘sell-the-news’ reaction” driven in part by a lack of clarity around timing or a greater move toward banking access for cannabis companies.

“Federal recognition of cannabis’s medical legitimacy, coupled with expanded research frameworks, further reduces policy risk premiums and improves institutional acceptance,” said Seaport analyst Sonny Randhawa.

The move could revive interest in the SAFER Banking Act in Congress, said analysts at Raymond James in a research note. That legislation, which would give legal protections to banks serving state-legalized cannabis companies, has stalled in the Senate since being introduced in 2023.

The cannabis industry has been waiting for a boost from the federal government for years. Excitement peaked in late 2020 and early 2021 after the election of President Joe Biden, but marijuana remained a Schedule III drug.

Traders have largely abandoned cannabis stocks. The AdvisorShares cannabis ETF has declined more than 90% from its record closing high of $55.05 on Feb. 10, 2021.

Trump pushed the order through amid a backlash from within his own party. Earlier Thursday, 26 House Republicans sent a letter to Trump urging him to oppose the reclassification of the drug.

“Rescheduling marijuana will not make America great,” the lawmakers wrote, arguing that the move would “send the wrong message to America’s children, enable drug cartels, and make our roads more dangerous.”

In the Senate, 21 Republicans sent a similar letter Thursday opposing the move, arguing in part that marijuana companies shouldn’t get the business tax deductions they are now set to receive.

Write to Nate Wolf at nate.wolf@barrons.com