Cannabis ETFs surged Wednesday after Axios reported that the Donald Trump administration is set to reclassify marijuana as a Schedule III drug as soon as today.
The potential policy shift has significant implications for cannabis ETFs, many of which have struggled with weak flows, low liquidity, and prolonged underperformance in recent years. Funds with heavy U.S. exposure stand to benefit the most, as improved earnings visibility could attract institutional capital that has largely stayed on the sidelines due to regulatory uncertainty.
At the same time, diversified funds like YOLO and MJ, which include both U.S. operators and Canadian players such as Tilray Brands and Canopy Growth, could see renewed inflows as broader investor sentiment improves across the sector.
For a segment long viewed as dead money, the real question is whether this rally is just a policy-driven spike or the beginning of a sustained turnaround.
A shift to Schedule III could unlock research coverage, expand the investable universe, and improve access to capital. These factors may help cannabis ETFs transition from speculative trades to more fundamentally supported investments.
While uncertainties remain, particularly around timing and implementation, the market reaction suggests investors are positioning early for a potential regulatory inflection point that could finally breathe life back into cannabis ETFs.
Photo: Bukhta Yurii from Shutterstock
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The rally was seen across the cannabis industry, with stocks of companies like Tilray Brands Inc (NASDAQ:TLRY) and Canopy Growth Corp (NASDAQ:CGC) surging more than 15% and 23%, respectively. ETFs tracking the industry also benefited significantly, with the AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) jumping more than 25%, while AdvisorShares Pure Cannabis ETF (NYSE:YOLO) gained around 18% and Amplify Alternative Harvest ETF (NYSE:MJ) climbed over 22%. The Amplify Seymour Cannabis ETF (NYSE:CNBS) also posted strong gains of more than 24%, reflecting renewed investor appetite for the beaten-down space.
The proposed reclassification, first floated in late 2025, would shift marijuana into the same category as drugs with accepted medical use but some abuse potential. While it would not legalize cannabis at the federal level, the change could remove a major tax burden tied to Section 280E, which currently prevents U.S. cannabis companies from deducting ordinary business expenses. For multi-state operators (MSOs)—which dominate portfolios like MSOS—this could translate into a meaningful boost in profitability.
President Donald Trump signed an executive order on Thursday, directing federal agencies to loosen regulations on marijuana, marking one of the most significant shifts in federal cannabis policy in decades.