President Donald Trump signed an executive order on Thursday directing federal agencies to reclassify marijuana from Schedule I to Schedule III.
The move sent US cannabis stocks sharply higher on expectations of lighter regulation and expanded medical research.
The order marks one of the most significant federal policy shifts on marijuana in years, though actual reclassification will require agency rulemaking and could face legal challenges.
Cannabis investors view the move as a potential turning point for an industry that has faced federal prohibition despite state-level legalisation across many states.
Trump’s order on marijuana: Policy and legal mechanics
Trump’s executive order directs the Department of Justice and Drug Enforcement Administration to begin the formal reclassification process.
The order is to move marijuana from Schedule I, currently defined as having no accepted medical use and high abuse potential, to Schedule III, which includes substances with accepted medical uses and lower abuse potential.
The shift does not instantly legalise marijuana or eliminate DEA oversight.
Rather, it signals federal acknowledgment of marijuana’s potential therapeutic value and would ease restrictions on federally funded research.
Schedule III status carries material regulatory consequences for the cannabis industry.
Research institutions would gain immediate authority to conduct federally funded clinical trials examining marijuana’s safety and efficacy for conditions like chronic pain, epilepsy, and multiple sclerosis.
The reclassification could also facilitate banking relationships for cannabis companies, as federal financial institutions would face lower regulatory barriers to serving the industry.
The move can potentially unlock capital that has been unavailable to multi-state operators operating in legal gray zones.
However, the legal timeline remains uncertain.
The DEA must conduct formal rule-making, open a public comment period, and evaluate evidence before finalizing any reclassification.
Legal experts caution that opponents, including law enforcement groups and conservative lawmakers, could challenge the move in court or attempt to block implementation through Congress.
The Biden administration previously recommended reclassification in August 2023, and the DEA proposed the change in May 2024, but progress stalled amid legal disputes and scheduling conflicts.
Market reaction and industry implications
Cannabis stocks surged sharply on the announcement.
Tilray Brands jumped approximately 8% intraday, while Canopy Growth climbed roughly 7% on the Thursday trading session.
The rally followed an even more explosive move the previous Friday when Trump first signaled his intention to sign the order.
Investors interpreted reclassification as removing a major regulatory overhang that has depressed valuations and limited institutional capital flows into the sector.
Yet market observers cautioned that execution risk remains substantial.
Federal agencies have been notoriously slow on cannabis policy, and legal challenges from opponents could delay implementation for months or years.
If reclassification stalls or faces congressional pushback, the post-announcement rally could quickly reverse, leaving investors who bought on the news facing sharp losses.
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