The Cannabis ETF Opportunity Amid Regulatory Breakthroughs Under Trump

The U.S. cannabis industry stands at a pivotal inflection point, driven by a historic reclassification of marijuana under the Trump administration. By reclassifying cannabis from a Schedule I to a Schedule III controlled substance-a move announced in late 2025-federal policy has shifted dramatically, unlocking new avenues for investment and reshaping the risk-reward profile of cannabis-focused exchange-traded funds (ETFs) like the Amplify Seymour Cannabis ETF (CNBS) and its peers. This regulatory breakthrough, while not tantamount to full legalization, represents a seismic shift in the sector's trajectory, offering investors a compelling case for strategic entry into cannabis ETFs.

A Regulatory Paradigm Shift

The reclassification of cannabis to Schedule III, as reported by CBS News, aligns the drug with substances like ketamine and anabolic steroids, acknowledging its accepted medical use and reduced potential for abuse compared to Schedule I narcotics. This change eliminates the most onerous barrier for cannabis businesses: the IRS Code 280E, which previously prohibited deductions for ordinary business expenses. For cannabis operators, this means effective tax rates could plummet from over 60% to levels comparable to other industries, significantly improving cash flow and profitability.

The implications for ETFs are profound. Cannabis ETFs, long constrained by high tax burdens and regulatory uncertainty, now face a transformed landscape. As noted by Bloomberg, the removal of 280E could save operators billions annually, directly enhancing the financial performance of companies held within ETFs like CNBS and MSOS. This, in turn, increases the sector's appeal to institutional investors, who have historically shied away from the industry's regulatory risks.

The market's reaction to the reclassification has been swift and dramatic. The Amplify Seymour Cannabis ETF (CNBS) surged over 54% in a single trading day, while the AdvisorShares Pure US Cannabis ETF (MSOS) rose 44.99%. These gains reflect not only optimism about tax relief but also anticipation of broader reforms, such as the potential passage of the SAFE Banking Act and Medicare coverage for CBD products.

The Roundhill Cannabis ETF (WEED), which employs a concentrated strategy focused on U.S. multi-state operators (MSOs), also saw a 16.1% rebound in late December 2025 according to ETF data. Such performance underscores the sector's sensitivity to regulatory developments and highlights the role of ETFs as vehicles for capturing upside in a rapidly evolving industry.

Strategic Entry Points and Diversification

For investors, the current environment presents a unique opportunity to capitalize on a sector poised for normalization. CNBS, an actively managed ETF, offers broad exposure to the cannabis and hemp ecosystem, including companies like TerrAscend Corp. and GrowGeneration Corp. Its structure, which prioritizes U.S.-listed firms, aligns with the regulatory focus on domestic operators under the new framework. Meanwhile, MSOS, the largest cannabis ETF, targets MSOs directly, providing a concentrated bet on firms likely to benefit from tax relief and expanded banking access.

Diversification remains key. While CNBS and MSOS focus on U.S. markets, WEED's use of total return swaps and global exposure offers a hedge against regional volatility. This diversification is critical given lingering uncertainties, such as the timeline for DEA rulemaking and unresolved conflicts between federal and state laws.

Risks and the Road Ahead

Despite the optimism, challenges persist. Interstate commerce remains prohibited, and financial institutions may still hesitate to engage with cannabis businesses due to money laundering concerns as noted by legal experts. Additionally, the reclassification does not legalize adult-use cannabis federally, leaving operators reliant on state-level frameworks.

However, the removal of 280E and the potential for further reforms - such as the Supreme Court's pending review of federal cannabis prohibition - suggest a trajectory toward greater regulatory clarity. For investors, this creates a window to enter ETFs at a time when policy tailwinds are intensifying, while hedging against near-term volatility through diversified exposure.

Conclusion

The Trump administration's reclassification of cannabis marks a watershed moment for the industry. By removing the 280E tax burden and signaling openness to broader reforms, federal policy has transformed the cannabis sector from a high-risk niche into a more mainstream investment opportunity. For investors seeking to capitalize on this shift, ETFs like CNBS, MSOS, and WEED offer structured, diversified access to a sector on the cusp of normalization. While regulatory hurdles remain, the current environment presents a compelling case for strategic entry, particularly for those willing to navigate the sector's evolving landscape with a long-term perspective.