Trump's Marijuana Order: A Tactical Play on MSOX Momentum

The catalyst for the recent cannabis sector surge is clear: President Donald Trump's executive order issued on December 18, 2025. The order, titled "Increasing Medical Marijuana and Cannabidiol Research," directs the Attorney General to take all necessary steps to move marijuana from Schedule I to Schedule III under the federal Controlled Substances Act. The stated goals are to remove research barriers and align federal policy with state practice and medical evidence.

The immediate market reaction was explosive, particularly for leveraged ETFs. The AdvisorShares MSOS Daily Leveraged ETF (MSOX) saw its Momentum score-a measure of a stock's strength relative to others-jump from 25.11 to 80.25 within a week. This surge reflects a sharp rally in the sector's most leveraged play.

Yet the order's scope is narrow, and that distinction is critical. It does not legalize cannabis federally. It does not change the legal status for financial institutions, meaning the banking access problem remains unresolved. It also does not require employers to permit marijuana use. As one analysis notes, the order stops far short of requiring employers to permit workers to use marijuana. The White House itself emphasized that rescheduling would not legalize the drug but would improve research and allow state-legal operators to access standard federal tax deductions.

This creates a classic event-driven setup. The order provides a tangible, near-term catalyst for regulatory progress on research and tax treatment, sparking a momentum-driven pop. But it leaves the core structural hurdles-banking and federal illegality-largely intact. The market's initial pop was followed by a steep 50.59% pullback, highlighting the volatility and the swift realization that the order's benefits are delayed and limited. The catalyst is real, but its full impact is still a process, not a done deal.

The Momentum Setup: Leveraged Exposure to a Regulatory Hype Cycle

The explosive move in the AdvisorShares MSOS Daily Leveraged ETF (MSOX) is a textbook case of a leveraged instrument amplifying a short-term news-driven rally. MSOX is designed to deliver two times the daily total return of its underlying index, the AdvisorShares Pure US Cannabis ETF (MSOS). That index, in turn, targets companies deriving at least 50% of their revenue from the U.S. marijuana and hemp business. In essence, MSOX is a double-barreled bet on the cannabis sector's fortunes, with its performance directly tied to the daily swings of that core index.

This structure is key to understanding the setup. Leveraged ETFs are engineered for tactical, day-to-day trading, not long-term buy-and-hold investing. Their daily rebalancing means their performance over multiple days can deviate significantly from simply doubling the index's return. This creates a powerful but volatile amplifier for momentum plays.

The recent surge in MSOX's Momentum score-from 25.11 to 80.25 within a week-is a direct readout of that amplification. The regulatory news provided a clear catalyst, sparking a sharp rally in the underlying cannabis stocks. MSOX, by design, magnified those daily gains, pushing its momentum metric into the top tier of the market. This spike reflects strong short-term price momentum driven by the hype cycle, not a fundamental re-rating of the underlying companies.

The subsequent 50.59% pullback underscores the speculative nature of this move. When the initial regulatory euphoria faded and the limitations of the executive order became clear, the leveraged fund's amplified losses were swift and severe. For investors, this isn't a signal of the sector's health; it's a signal of the fund's mechanics. The high Momentum score is a snapshot of a recent, intense price move, not a sustainable valuation story. It's a tactical tool for those riding the wave, not a strategy for capturing the sector's long-term potential.

The Reality Check: Why the Momentum May Fade

The regulatory hype cycle has a short shelf life. While the executive order provides a clear catalyst, the path to tangible benefits is long, legally fraught, and complicated by conflicting legislation. This creates a fundamental mismatch between the event-driven rally and the underlying reality.

The process for rescheduling marijuana is expected to take many months and is subject to legal challenges. It involves drafting a final rule by the Attorney General and DEA, inter-agency review, and publication of a notice of proposed rulemaking. This bureaucratic grind ensures that any benefits-like improved research access or tax deductions for state-legal operators-remain a distant prospect. For now, the order does not change the core financial risk that has plagued the industry: federal illegality. As noted, the move would not legalize the drug or eliminate concerns that have led many financial institutions to refrain from providing services. The banking access problem persists, a major headwind for operations and capital raising.

Adding to the complexity is a direct conflict with recent congressional action. A new law set for November 12, 2026, will ban many hemp products containing even trace amounts of THC. This effectively reverses key provisions of the 2018 Farm Bill and creates a cliff for the CBD market. The executive order itself acknowledges this tension, noting the administration will work with Congress to maintain access to appropriate full-spectrum CBD while preserving public health intent. But that fix is not guaranteed, and the November deadline looms as a major overhang.

The bottom line is that the order leaves the sector's structural vulnerabilities intact. The banking access issue, the federal illegality, and the looming hemp ban remain unchanged. The momentum surge in leveraged funds like MSOX was a reaction to a promise of future change. As the implementation timeline stretches out and the conflicting legal landscape becomes clearer, that promise faces a reality check. The rally may fade because the catalyst's benefits are delayed, contested, and overshadowed by new regulatory risks.

The Trade: Catalysts and Risks to Watch

The trade here is a classic event-driven bet on a regulatory catalyst, but its success hinges on near-term milestones that will confirm or invalidate the momentum thesis. The setup is clear: the market has priced in a near-term policy shift, but the actual implementation is a slow, contested process. The trade's parameters are defined by two key catalysts and one primary risk.

First, watch for the Department of Justice's formal rescheduling process. The executive order directs the Attorney General to "take all necessary steps" to move marijuana to Schedule III, but the path is bureaucratic and long. As outlined, this involves drafting a final rule by the Attorney General and DEA, inter-agency review, and publication in the Federal Register. This process is expected to take many months and is subject to legal challenges. Any official guidance or timeline from the DOJ will be a critical confirmation that the promise is moving toward reality. Conversely, a lack of progress or delays will signal that the catalyst is stalled, likely causing the momentum to fade.

Second, monitor for any official guidance from the IRS on the promised tax deduction benefit. The White House emphasized that rescheduling would allow state-legal operators to access standard federal tax deductions previously barred. This is a critical, unimplemented promise that could materially improve the financials of compliant operators. The absence of clear IRS guidance on how this deduction would work creates uncertainty. Any official statement from the IRS clarifying the path to these deductions would be a major positive catalyst for the underlying cannabis stocks and, by extension, the leveraged ETF.

The primary risk is that the momentum fades as the reality of the slow implementation process sets in. The market's initial pop was driven by the promise of change; the subsequent steep 50.59% pullback shows how quickly that promise can be discounted when the path forward is unclear. The leveraged ETF structure means this volatility is amplified. If the DOJ process drags on or faces legal hurdles, and if the IRS guidance remains absent, the speculative thesis unravels. The trade, therefore, is a short-to-medium-term play on the catalyst's progress, not a bet on the sector's long-term fundamentals.