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Trump's Cannabis Rescheduling Plans Put Marijuana ETFs Back in the Spotlight

MarketDash Editorial Team
1 day ago
After years of disappointing investors, cannabis ETFs are surging on news that President Trump is considering reclassifying marijuana to Schedule III, a shift that could transform the economics of the entire industry.

Cannabis ETFs have spent the better part of a decade stuck in what might charitably be called the market's doghouse. Years of hype, regulatory stalling, and disappointing returns turned the sector into a punchline. But this week, these long-suffering funds are suddenly moving again, and it's not another false alarm about some random state ballot measure.

The catalyst? President Donald Trump is reportedly weighing an executive order to reclassify marijuana as a Schedule III drug, according to The Washington Post. If he follows through, it would mark the most significant federal shift in cannabis policy in years and could completely reshape how U.S. marijuana companies operate.

The Big Winners So Far

Right now, the spotlight is firmly on AdvisorShares Pure U.S. Cannabis ETF (MSOS) and Amplify Seymour Cannabis ETF (CNBS), which have surged 35% and 34% respectively. MSOS is the largest U.S.-focused cannabis ETF and it's loaded with multi-state operators, the companies that get hammered hardest under the current tax rules.

Here's why that matters: Under Section 280E of the tax code, cannabis businesses can't deduct ordinary business expenses like rent, payroll, or marketing. It's a relic of the drug war that treats marijuana companies like criminal enterprises, even in states where they operate legally. Moving marijuana to Schedule III would finally let these companies deduct those expenses, which could dramatically improve profit margins practically overnight.

Meanwhile, AdvisorShares Pure Cannabis ETF (YOLO) and ETFMG Alternative Harvest ETF (MJ), which mix U.S. operators with Canadian cannabis names, are also catching a bid. YOLO jumped 24% and MJ climbed 29% on Friday as investors rushed back into the space.

For funds that have spent years dealing with stagnant trading volumes and weak liquidity, this could be the beginning of something real. If regulatory barriers start falling, you could see renewed investor confidence, more institutional money flowing in, and a much broader investable universe opening up.

There's also chatter about potential uplisting for U.S. cannabis operators. Schedule III alone probably won't get these companies onto major exchanges, but analysts think it could speed up those conversations. In the meantime, ETFs remain the cleanest way to access the sector without navigating the mess of state-by-state regulations and over-the-counter stock listings.

What Happened in the Oval Office

The political story behind all this is equally interesting. On Wednesday, Trump got on the phone with House Speaker Mike Johnson, who reportedly pushed back hard on reclassification, citing research and data that oppose the move. But here's where it gets good: marijuana industry executives were sitting right there in the Oval Office with Trump, and when Johnson made his case, Trump apparently handed them the phone so they could argue back directly, according to The Washington Post.

Trump, who said back in August he was "looking at reclassification," seemed receptive to moving forward, though his aides were quick to stress that nothing is finalized yet. A White House official reiterated that no decision has been made.

What Schedule III Actually Means

Right now, marijuana sits in Schedule I alongside heroin and LSD. That classification means the federal government considers it to have high abuse potential and no accepted medical use. Schedule III would put cannabis in the same category as Tylenol with codeine and certain hormone therapies. It wouldn't legalize marijuana federally, but it would substantially reduce federal restrictions.

The biggest immediate impact would be financial. Companies could finally deduct normal business expenses, something they haven't been able to do for decades. Beyond that, rescheduling could open doors for medical research, ease banking restrictions that have forced many cannabis businesses to operate largely in cash, and restart momentum in an industry that's been stuck in neutral for years.

Cannabis investors have been through this cycle before. There have been plenty of "false dawns" where reform headlines generated excitement, only to fizzle out before any real policy change materialized. But if Trump actually pulls the trigger this time, it would represent the most consequential regulatory shift the sector has seen in years. And cannabis ETFs, which have been waiting patiently in the wilderness, might be the first part of the market to feel the impact.

Back to News

Trump's Cannabis Rescheduling Plans Put Marijuana ETFs Back in the Spotlight

MarketDash Editorial Team
1 day ago
After years of disappointing investors, cannabis ETFs are surging on news that President Trump is considering reclassifying marijuana to Schedule III, a shift that could transform the economics of the entire industry.

Cannabis ETFs have spent the better part of a decade stuck in what might charitably be called the market's doghouse. Years of hype, regulatory stalling, and disappointing returns turned the sector into a punchline. But this week, these long-suffering funds are suddenly moving again, and it's not another false alarm about some random state ballot measure.

The catalyst? President Donald Trump is reportedly weighing an executive order to reclassify marijuana as a Schedule III drug, according to The Washington Post. If he follows through, it would mark the most significant federal shift in cannabis policy in years and could completely reshape how U.S. marijuana companies operate.

The Big Winners So Far

Right now, the spotlight is firmly on AdvisorShares Pure U.S. Cannabis ETF (MSOS) and Amplify Seymour Cannabis ETF (CNBS), which have surged 35% and 34% respectively. MSOS is the largest U.S.-focused cannabis ETF and it's loaded with multi-state operators, the companies that get hammered hardest under the current tax rules.

Here's why that matters: Under Section 280E of the tax code, cannabis businesses can't deduct ordinary business expenses like rent, payroll, or marketing. It's a relic of the drug war that treats marijuana companies like criminal enterprises, even in states where they operate legally. Moving marijuana to Schedule III would finally let these companies deduct those expenses, which could dramatically improve profit margins practically overnight.

Meanwhile, AdvisorShares Pure Cannabis ETF (YOLO) and ETFMG Alternative Harvest ETF (MJ), which mix U.S. operators with Canadian cannabis names, are also catching a bid. YOLO jumped 24% and MJ climbed 29% on Friday as investors rushed back into the space.

For funds that have spent years dealing with stagnant trading volumes and weak liquidity, this could be the beginning of something real. If regulatory barriers start falling, you could see renewed investor confidence, more institutional money flowing in, and a much broader investable universe opening up.

There's also chatter about potential uplisting for U.S. cannabis operators. Schedule III alone probably won't get these companies onto major exchanges, but analysts think it could speed up those conversations. In the meantime, ETFs remain the cleanest way to access the sector without navigating the mess of state-by-state regulations and over-the-counter stock listings.

What Happened in the Oval Office

The political story behind all this is equally interesting. On Wednesday, Trump got on the phone with House Speaker Mike Johnson, who reportedly pushed back hard on reclassification, citing research and data that oppose the move. But here's where it gets good: marijuana industry executives were sitting right there in the Oval Office with Trump, and when Johnson made his case, Trump apparently handed them the phone so they could argue back directly, according to The Washington Post.

Trump, who said back in August he was "looking at reclassification," seemed receptive to moving forward, though his aides were quick to stress that nothing is finalized yet. A White House official reiterated that no decision has been made.

What Schedule III Actually Means

Right now, marijuana sits in Schedule I alongside heroin and LSD. That classification means the federal government considers it to have high abuse potential and no accepted medical use. Schedule III would put cannabis in the same category as Tylenol with codeine and certain hormone therapies. It wouldn't legalize marijuana federally, but it would substantially reduce federal restrictions.

The biggest immediate impact would be financial. Companies could finally deduct normal business expenses, something they haven't been able to do for decades. Beyond that, rescheduling could open doors for medical research, ease banking restrictions that have forced many cannabis businesses to operate largely in cash, and restart momentum in an industry that's been stuck in neutral for years.

Cannabis investors have been through this cycle before. There have been plenty of "false dawns" where reform headlines generated excitement, only to fizzle out before any real policy change materialized. But if Trump actually pulls the trigger this time, it would represent the most consequential regulatory shift the sector has seen in years. And cannabis ETFs, which have been waiting patiently in the wilderness, might be the first part of the market to feel the impact.