U.S.-listed shares of Canopy Growth jumped 23% and Tilray Brands rose 15% on Tuesday after Axios reported the administration plans to reclassify marijuana as soon as Wednesday, moving it from the most restrictive federal category to one shared with ketamine and anabolic steroids.
The shift would not legalize cannabis nationwide but would remove it from Schedule I of the Controlled Substances Act, where it sits alongside heroin and LSD, and place it in Schedule III, acknowledging a moderate to low potential for dependence and accepted medical use in dozens of states. The move follows an executive order signed by President Donald Trump in December directing the Justice Department to act on a 2023 Food and Drug Administration review that recommended rescheduling, a proposal initially launched under President Joe Biden in 2022 but stalled until the Trump administration revived it last year.
Rescheduling would ease research barriers and cut cannabis companies’ effective tax rate from roughly 60%
By moving marijuana to Schedule III, federal scientists would face fewer hurdles in studying the drug’s therapeutic applications for conditions like chronic pain, a use already sanctioned in medical form by most states. For cannabis businesses, the change could alleviate a tax burden imposed under Internal Revenue Code Section 280E, which currently forces companies trafficking in Schedule I substances to pay an effective rate of about 60% of gross revenue before standard business deductions, a financial strain unique to the industry.
Market reaction reflects investor anticipation of reduced regulatory friction
The stock surge observed in Canopy and Tilray mirrors patterns seen during past policy shifts, such as when the Cole Memo in 2013 prompted a temporary rally in cannabis equities by signaling federal tolerance for state-legal markets. Unlike that guidance, which could be rescinded, a formal rescheduling would alter the drug’s federal classification unless reversed through the same administrative process, offering a more durable shift in regulatory standing.
Legalization remains off the table, but banking and investment access could improve
Rescheduling would not alter the federal prohibition on marijuana’s recreational use or enable interstate commerce, but it could develop it easier for cannabis firms to access traditional banking services and venture capital, sectors that have largely avoided the industry due to its Schedule I status and associated money-laundering risks under federal law.
Would this change allow marijuana to be prescribed nationwide?
No. Rescheduling to Schedule III would not override state laws or create a federal prescription framework; medical use would still depend on state-level programs, though researchers could more easily pursue FDA approval for marijuana-derived medications.
Could this be reversed by a future administration?
Yes. A future administration could initiate proceedings to reschedule marijuana back to Schedule I or another category, though such a move would require the same administrative process and public notice period as the initial change.