President Trump's recent executive order to reclassify cannabis to Schedule 3 under federal law is being hailed as the most significant policy change for the cannabis industry in over five half-centuries. This critical move, emphasized by Dan Ahrens, portfolio manager of the AdvisorShares Pure US Cannabis ETF, promises to dismantle a long-standing, burdensome tax regulation that has severely hampered American cannabis enterprises.
The Potential Overhaul of Cannabis Taxation and Market Dynamics
On January 19, 2026, a pivotal shift for the United States cannabis sector was announced: President Trump's executive order directing the Department of Justice to consider moving cannabis from Schedule 1 to Schedule 3. This reclassification would signify a dramatic departure from decades of restrictive federal policy. Dan Ahrens, a key figure in cannabis investment, articulated on Yahoo Finance that the immediate and most impactful financial outcome of this directive would be the potential elimination of Section 280E of the Internal Revenue Code. Currently, this provision classifies legal cannabis businesses alongside illicit drug operations, preventing them from deducting common business expenses such as payroll, rent, and mortgages. Reassigning cannabis to Schedule 3—a category for substances with recognized medical applications—would automatically lift this severe tax burden, allowing businesses to operate more like conventional industries. Ahrens predicts that while this change will initially cause market fluctuations, it represents merely the first phase of a comprehensive reform. Significant challenges persist, including the inability of American cannabis firms to list on major stock exchanges like NASDAQ or NYSE, unlike their Canadian counterparts, and the lack of comprehensive 'safe harbor' banking provisions. Investors are advised to anticipate ongoing volatility as the federal government refines the distinctions between medical and recreational cannabis under the new regulatory framework. This transformation is expected to profoundly influence the financial landscape for cannabis companies, including Aurora Cannabis Inc., Canopy Growth Corp., SNDL Inc., Tilray Brands Inc., and the AdvisorShares Pure US Cannabis ETF.
This impending change represents more than just a regulatory adjustment; it signifies a monumental step towards legitimizing an industry that has long operated under undue constraints. The potential for cannabis businesses to deduct their operational costs could unleash unprecedented growth and innovation, attracting mainstream investment and fostering a more robust, equitable market. However, the path forward is not without its complexities, as the industry navigates banking reforms and market listings. This pivotal moment encourages stakeholders to engage thoughtfully with evolving regulations, ensuring that the promise of rescheduling translates into tangible, long-term benefits for the entire cannabis ecosystem and the broader economy.
