Cannabis companies recently got the best news they have seen in decades, in the form of some long-promised federal reform.
So, at first blush, it doesn’t make sense that the stocks still trade at the same level they traded at last summer.
Especially considering that there are other bullish signals and tailwinds.
* In a sign that cannabis stocks may be undervalued, companies like Curaleaf (CURLF) and Green Thumb Industries (GTBIF) are upping their share buyback plans.
* We continue to get evidence that the biggest business risk for cannabis companies, ongoing price deflation, isn’t really a problem in one sense. Consumers continue to vote in favor of cannabis with their wallets, by spending more on products even as prices continue to decline. Many states are posting year-over-year cannabis sales gains in the 4% range.
So, what gives?
[text_ad]
Dig into the details of what’s ahead, and you’ll see a pretty mixed picture of potentially bullish and bearish catalysts. I highlight the three big ones, below.
What Just Happened
But first, let me bring you up to speed on what just happened in the cannabis space.
It’s all about “rescheduling.” This means moving cannabis to Schedule III from Schedule I under the Controlled Substances Act. Rescheduling helps cannabis companies because it neutralizes an IRS rule (280E) that blocks the deduction of operating expenses against revenue from the sale of Schedule I substances. Full rescheduling could inject around $2 billion into cannabis company balance sheets.
Big picture, the Trump administration last week rescheduled cannabis halfway.
* Medical cannabis was rescheduled immediately by a formal order from the Justice Department (DOJ) and the Drug Enforcement Administration (DEA).
* Recreational-use cannabis was not rescheduled. However, the DOJ order sets up a hearing on rec-use rescheduling. The hearing is scheduled to start June 29, 2026. It has to wind up by July 15.
Now, here are three of the most important bullish and bearish catalysts that lie ahead. This roadmap should be a useful guide to exit and entry points for traders, and accumulation points for long-term, buy-and-hold investors.
The 3 Most Important Cannabis Sector Catalysts Ahead
Potential Catalyst #1
Prohibitionists file a lawsuit challenging rescheduling. This will be a negative catalyst that may create buyable stock weakness.
Prohibitionists’ legal firepower tells us they are not messing around. Smart Approaches to Marijuana (SAM) has hired two-time former attorney general William Barr. If anyone knows the best way to challenge administrative law decisions inside the DOJ, it’s Barr and his associates.
We’ll have to wait and see their list of challenges. But here is one possibility. The Trump administration rescheduled medical cannabis under the United Nations Single Convention on Narcotic Drugs. This makes sense. The treaty creates a streamlined path to rescheduling by suspending many of the legal rulemaking procedures U.S. regulators would otherwise have to follow. However, the treaty does not suspend all of the procedures. SAM will likely challenge rescheduling in part on this basis.
Big picture, there are questions about whether the UN even has the power to impose policy and process on member governments. Attorneys Shane Pennington and Matt Zorn have written that the UN imposition of cannabis policy on the U.S. is an unconstitutional delegation of lawmaking to a foreign body. This may be a battle for another day. But it is out there as a medical cannabis rescheduling hurdle.
Key takeaway: News of a SAM lawsuit will probably hit stocks in the sector, but that could be a buying opportunity because there are other potentially bullish catalysts on the horizon.
Potential Catalyst #2
For now, the 280E relief benefit only medical cannabis revenue, about 30% of U.S. sales. That’s because only medical cannabis was rescheduled. However, the rescheduling order encourages the Treasury Department to consider retroactive 280E tax relief. Will they do this? And how far back in time will they go?
At some point, Treasury will clarify this. A three-year look back, which is possible, would be bullish, given how much tax revenue cannabis companies have had to pay because of 280E.
For example, last year alone, cannabis companies lost $2.24 billion in taxes paid to the federal government because of IRS Rule 280E, which bars the deduction of operating expenses against revenue from the sale of Schedule I substances, says Whitney Economics.
Key takeaway: A long, multiyear lookback on 280E tax refunds would be a bullish catalyst for cannabis stocks.
Potential Catalyst # 3
The Trump administration’s medical cannabis rescheduling order sets up a hearing this June and July on rescheduling recreational-use cannabis. The DEA or the DOJ may decide to reschedule recreational-use cannabis after the hearing. This would be a huge sector catalyst.
Will this happen? Several cannabis company CEOs think the DEA or DOJ will reschedule rec-use cannabis at that point.
Trulieve (TCNNF) CEO Kim Rivers thinks rescheduling could happen by the end of the year, and likely in the third quarter. That shorter timeline makes sense. It would position positive cannabis reform news just ahead of the midterm elections, which presumably might help conservatives win over swing voters. “I don’t believe they would start that process if they didn’t think they would reschedule,” says Curaleaf CEO Boris Jordan.
However, that’s not entirely true. Rescheduling under the UN treaty allows the government to suspend much of the rulemaking process, but not all of it. This leaves medical cannabis rescheduling open to the prohibitionist challenge that they did not get their day in court to challenge the process. It’s possible the administration set up the summer rescheduling hearing to check this box and neutralize potential legal challenges to rescheduling medical cannabis – and not because it really wants to reschedule rec-use cannabis.
Here’s another problem with thinking that rec-use rescheduling is a slam dunk. Key players in the process do not really seem to favor it. Above all, consider the views of President Donald Trump, the driving force behind medical rescheduling. He’s stated pretty clearly that he is not too keen on recreational use of cannabis.
“I’ve heard great things having to do with medical, and I’ve heard bad things having to do with just about everything else,” Trump said in a cannabis policy comment last year. Zoom out, and you can see there is no great groundswell of support for broader cannabis reform in the administration, notes one attorney close to the process.
Key takeaway: Rec-use rescheduling would be a huge sector catalyst because of the tax benefits and the momentous policy shift this would symbolize. But acting like it is a given might be a mistake.
[author_ad]
