Cannabis Stocks Surge on Trump's Rescheduling Report: Growth Upside vs. Profitability Hurdles

Cannabis stocks surged in the days following President Trump's announcement that he plans to reclassify marijuana as a Schedule III drug according to reports and as reported by Yahoo Finance. The proposal lifted shares of key players, with Tilray jumping about 33% and SNDL climbing nearly 19%.

The policy would ease federal restrictions by improving banking access for producers, lowering tax burdens and enabling pharmaceutical development. This could unlock institutional investment currently deterred by regulatory barriers, though strict banking reforms remain tied to an unspecified 2026 legislative timeline.

The proposal faces significant hurdles despite market enthusiasm. It requires DEA approval and conflicts with Trump's stricter fentanyl stance, creating policy uncertainty that could stall implementation. Investors should monitor regulatory progress closely before assuming lasting benefits.

Growth Mechanics: Penetration and Market Expansion

The U.S. cannabis market reached $38.5 billion in 2024 and is projected to grow at an 11.5% compound annual growth rate (CAGR) through 2030, driven by medical legalization and rising consumer acceptance of CBD products. This expansion is backed by a 15% increase in current users between 2023 and 2024, with non-flower products like edibles and topicals gaining significant traction, particularly among women who make up 34% of users. Market penetration is widespread, with 79% of Americans living in counties that have at least one dispensary, and sales of pre-roll products surged 11.89% while beverages grew 11% year-over-year.

Despite these positive trends, profitability remains a challenge, with only 27% of U.S. cannabis operators profitable in 2024, down from 42% in 2022. Heavy federal taxes, which can reach up to 52.5% effective rates, have cost the industry $2.3 billion in excess taxes in 2024, with projections indicating this could double to $5.2 billion by 2030. Operational constraints, such as limited access to financial services, exacerbate these issues, and racial disparities in profitability persist, with white-owned businesses reporting 33.7% profitability versus 17.5% for non-white operators.

Regulatory dependencies both fuel growth and create friction; while policy shifts like medical legalization boost investor confidence and market expansion, they also contribute to complex tax burdens that constrain profitability. Proposed cannabis rescheduling aims to alleviate these pressures by reducing tax burdens and improving cash flow, which could enhance long-term viability despite current operational hurdles.

Profitability Constraints and Risk Exposure

The operating landscape for U.S. cannabis businesses remains acutely challenged by persistent profitability pressures and significant regulatory friction. Only a quarter of operators reported profits in 2024, a sharp contraction from the 42% rate just two years prior, signaling a major deterioration in the sector's fundamental economics. This decline is deeply intertwined with stark racial disparities in financial outcomes, where profitability sits at 33.7% for white-owned businesses compared to a mere 17.5% for non-white operators, highlighting systemic inequities amplified by the current regulatory environment.

A primary source of this financial strain is the crushing regulatory burden, particularly the impact of federal taxation. The industry bore an estimated $2.3 billion in excess taxes in 2024 alone, a direct consequence of unfavorable federal tax treatment that prohibits standard deductions available to other businesses. This burden isn't projected to ease; analysts forecast it will more than double to $5.2 billion by 2030 under current rules, continuously eroding already thin margins. Compounding these tax issues, widespread banking access restrictions remain unresolved, forcing many businesses into costly cash operations and limiting their ability to secure traditional financing or manage cash flow efficiently.

While proposed federal rescheduling of cannabis offers a potential path to alleviate these constraints by reducing the $2.3 billion annual tax penalty and improving banking access, significant policy uncertainty clouds the outlook. The timeline for any legislative action is indefinite, leaving operators to navigate these unresolved financial frictions and profitability headwinds today. The racial disparity in profitability further underscores the need for comprehensive policy reform to ensure equitable economic opportunity within the industry. Until these structural issues are addressed, the sector faces continued pressure on its bottom line and operational resilience.

Investment Thesis and Catalysts

The U.S. cannabis market's explosive growth potential hinges critically on regulatory shifts, with $38.5 billion in annual sales projected to expand at 11.5% CAGR through 2030. This trajectory is fueled by medical legalization, FDA-approved pharmaceuticals, and rising consumer adoption of CBD products. Yet profitability remains sharply constrained by federal taxation and policy barriers despite this demand surge.

Only 27% of U.S. cannabis operators achieved profitability in 2024, down from 42% in 2022, while bearing $2.3 billion in excess taxes that could nearly double to $5.2 billion by 2030. These constraints stem from the industry's Schedule I classification, which blocks banking access and imposes punitive tax treatment forcing cash transactions. Racial disparities compound this: white-owned businesses report 33.7% profitability versus 17.5% for non-white operators, reflecting systemic inequities in capital access.

A pivotal catalyst emerges from proposed DEA reclassification of cannabis to Schedule III, which could resolve federal-state conflicts. If approved, this shift would lower effective tax burdens, enable banking services, and accelerate pharmaceutical development-potentially unlocking institutional investment. Yet policy uncertainty persists: the Trump administration's timeline for cannabis banking legislation remains unspecified, and rescheduling faces legislative hurdles. While projected profitability gains could materialize post-reclassification, current cash-flow constraints and racial disparity gaps present near-term execution risks for operators.