Cannabis Sector's Rebound: A Strategic Opportunity Amid Trump's Policy Shifts

The U.S. cannabis sector is undergoing a pivotal transformation as President Donald Trump's administration moves to reclassify cannabis from a Schedule I to a Schedule III substance under the Controlled Substances Act. This policy shift, long anticipated by industry stakeholders, has already triggered a surge in investor confidence and capital reallocation, signaling a potential inflection point for a sector that has struggled with regulatory and financial headwinds in recent years.

Policy-Driven Sectoral Transformation

The rescheduling of cannabis would mark a historic departure from its classification alongside substances like heroin and LSD, aligning it with drugs such as anabolic steroids and ketamine. This change, announced as part of a campaign promise to "unlock the medical uses of cannabis," would not decriminalize the substance at the federal level but would significantly ease regulatory burdens. Most notably, it would allow cannabis businesses to deduct ordinary business expenses-such as payroll, rent, and utilities-from their federal taxes under Section 280E of the Internal Revenue Code. This alone could free up billions of dollars for industry players, enabling them to scale operations and compete more effectively with traditional markets.

The policy also addresses the so-called "hemp loophole" by tightening restrictions on intoxicating hemp-derived products like delta-8 and delta-10 THC. The 2025 appropriations bill clarifies the legal definition of hemp, imposing stricter THC content limits and effectively banning synthetic cannabinoids. While this curtails a segment of the market, it also creates a more level playing field for licensed operators, who are now better positioned to capture demand previously diverted to unregulated products.

Market Reactions and Capital Reallocation

The anticipated rescheduling has already catalyzed a sharp rebound in cannabis stock prices. Major players like Tilray Brands and Canopy Growth saw gains exceeding 20% in a single trading day, with Tilray's shares surging over 31% in after-hours trading. This surge reflects investor optimism about reduced tax burdens and improved access to banking services, which have long been constrained by federal prohibition.

Capital reallocation patterns in Q3 2025 further underscore the sector's strategic shift. Jushi Holdings Inc., a multi-state operator, reported $65.7 million in revenue for the quarter, driven by optimized operations and new retail openings in Ohio and Pennsylvania. Its gross profit margin expanded to 46.7%, supported by facility upgrades and a revised $4.0 million commercial loan with an extended maturity to 2030. Similarly, NewLake Capital demonstrated resilience with $12.59 million in Q3 revenues and $6.67 million in net profits, maintaining a quarterly dividend of 43 cents per share despite broader market volatility.

Conversely, weaker players are exiting the scene. Tilt Holdings announced restructuring and plans to exit public markets, highlighting the financial pressures facing underperforming operators. This divergence underscores a sector increasingly defined by capital discipline and operational excellence, with top performers leveraging strategic reallocation to drive long-term value.

Risks and Long-Term Outlook

Despite the optimism, the cannabis sector remains a high-risk, high-reward proposition. Publicly traded companies have seen valuations collapse from $37 billion in 2021 to under $11 billion by October 2025, driven by oversupply, plunging wholesale prices, and heavy debt burdens. While rescheduling could alleviate some of these pressures, the final decision remains pending, subject to administrative delays and legal challenges.

Moreover, the sector's success hinges on its ability to navigate evolving regulatory landscapes. For instance, state-level crackdowns on intoxicating hemp-derived products have pushed capital toward compliance-driven businesses, favoring operators with robust regulatory expertise. This trend suggests that long-term profitability will depend not only on policy shifts but also on operational agility and market differentiation.

Strategic Implications for Investors

For investors, the current landscape presents a nuanced opportunity. The rescheduling of cannabis could unlock significant value by reducing tax and banking barriers, but it also demands careful due diligence. Companies like Jushi and Sun Theory, which have adopted asset-light strategies and demonstrated profitability, are better positioned to capitalize on the sector's rebound. Conversely, speculative bets on underperforming firms carry heightened risks, particularly in a market still grappling with oversupply and regulatory uncertainty.

In the long term, the sector's trajectory will depend on the pace of federal reform and the ability of operators to adapt to a rapidly evolving regulatory environment. While Trump's rescheduling is a critical step, advocates like Wanda James-a dispensary owner and congressional candidate-argue that full legalization remains the ultimate goal. Until then, the cannabis sector will continue to be shaped by a delicate interplay of policy, capital, and market forces.