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United States (US) President Donald Trump signed an executive order yesterday directing federal agencies to reclassify marijuana from Schedule I to Schedule III.
The move sparked a sharp rise in US marijuana stocks on expectations of loosening regulations and greater medical research opportunities.
In the stock market, the positive reaction was clearly visible as Tilray Brands shares rose about 8% intraday, while Canopy Growth recorded a gain of about 7% in Thursday's trading session.
The reclassification is considered one of the most significant federal policy changes in recent years, although its implementation requires a regulatory process by relevant agencies and risks facing legal action.
For investors in the marijuana industry, the move is seen as a significant turning point for an industry that has been squeezed by federal restrictions despite state approval.
The executive order directs the Department of Justice and the Drug Enforcement Administration (DEA) to begin the formal reclassification process.
Currently, marijuana is classified as a Schedule I substance with no recognized medical use and a high potential for abuse.
With the move to Schedule III, marijuana will be recognized as a substance with approved medical uses and a lower risk of abuse.
While this reclassification does not immediately legalize marijuana use or remove DEA oversight, it does pave the way for the recognition of marijuana’s therapeutic value and loosen restrictions on government-funded medical research.
The new status under Schedule III also has important regulatory implications for the marijuana industry.
Research institutions can now conduct federally funded clinical trials to evaluate the safety and efficacy of marijuana in treating conditions such as chronic pain, epilepsy, and multiple sclerosis.
Meanwhile, the reclassification is expected to ease banking access for marijuana companies, as financial institutions will face fewer regulatory hurdles in servicing the industry.
This move has the potential to open up access to capital that was previously difficult for operators operating in several states with unclear legal status.
However, the timing of full implementation remains uncertain as the DEA must go through a formal rulemaking process, open for public comment, and thoroughly evaluate the evidence before the reclassification can be finalized.
Legal experts also warn that the move could be challenged in court by law enforcement groups or conservative lawmakers, and risks facing implementation hurdles from Congress.
