Cannabis equities staged a powerful rally on Friday as traders reacted to reports that President Donald Trump is preparing to reclassify marijuana under federal law. Shares of major producers, including Tilray Brands and Canopy Growth, soared toward their strongest intraday gains in months, reflecting the market’s heightened anticipation of a regulatory breakthrough that could redefine the financial structure of the industry.

A Market Energized by Policy Speculation

Tilray shares climbed nearly 30% while Canopy Growth surged almost 40%, as investors responded to reports that Trump may issue an executive order shifting marijuana from Schedule I—the category reserved for heroin and LSD—to Schedule III, which includes substances such as codeine and certain steroids. While the White House emphasized that no final decision has been made, the prospect alone was enough to unleash aggressive buying across a sector that has languished under restrictive federal policies for more than a decade.

The surge highlights a familiar dynamic in cannabis markets: expectations around federal reform remain the single strongest catalyst for price action. After years of stalled legislative efforts, the possibility of a presidential action—particularly one that could occur within days—represents the most concrete policy momentum since states began legalizing cannabis in 2012.

Why Reclassification Matters for the Business Model

Moving marijuana to Schedule III would not legalize the product federally, but it would bring sweeping financial relief. Cannabis companies today are subject to IRS rule 280E, which prevents them from deducting ordinary business expenses because marijuana is a Schedule I substance. This has resulted in tax burdens far higher than those faced by traditional consumer-goods companies and has constrained profitability industry-wide.

Reclassification would remove 280E’s constraints, immediately improving margins and cash flow across the sector. It would also open the door for broader banking participation, easing long-standing restrictions on merchant services, credit lines, and institutional lending. The structural shift would be particularly significant for U.S. multistate operators, many of which have struggled to scale due to limited access to capital.

A Regulatory Shift With Broader Economic Implications

The potential move lands at a pivotal moment for consumer and retail sectors more broadly. As discretionary spending recalibrates after two years of inflation-driven shifts, cannabis companies have been working to stabilize pricing, streamline operations, and strengthen balance sheets. A federal reclassification could accelerate the industry’s transition from speculative growth to sustainable profitability.

Still, investors must weigh the political durability of the policy. Reclassification by executive order could be challenged in court or reversed by future administrations, injecting a layer of volatility into long-term forecasts. Moreover, even under Schedule III status, marijuana would remain federally illegal—preserving conflict between federal statutes and state-level legalization frameworks.

What Comes Next

Markets now turn to the White House and Department of Justice for clarity. If an executive order arrives Monday, the cannabis sector could see further near-term upside as traders reposition for a new regulatory landscape. But the longer-term trajectory will depend on how quickly federal agencies implement the change, how financial institutions respond, and whether Congress chooses to codify—or challenge—the shift.