Despite long-standing regulatory challenges, investors continue to monitor potential federal reforms in the U.S. cannabis industry.
Because cannabis is classified as a Schedule I substance under the Controlled Substances Act, related businesses are restricted by IRS Code Section 280E from claiming tax deductions and credits available to federally legal companies. This results in effective tax rates that can exceed 70% for retailers. A potential reclassification to Schedule III—something the Trump administration said it was considering in August—could bring tax relief, open doors to institutional investment, and improve access to traditional banking services.
According to industry financial analysis firm GreenWave Advisors, from 2019 through last year, 12 major cannabis companies may have missed out on over $1.2 billion in tax savings, with approximately $1.8 billion in unpaid taxes, interest, and penalties related to Section 280E among larger operators. This regulatory uncertainty causes significant stock price volatility around rumors of legal changes, creating opportunities for short-term traders but requiring long-term investors to carefully evaluate the legal environment in the states where companies operate.
Experts recommend that investors focus on multistate operators (MSOs) with a presence in limited-license states, manageable debt levels, and owned real estate assets.
Among the notable picks:
For those seeking diversified exposure:
Industry lawyer Brandon Dorsky cautions that while positive regulatory news often drives short-term rallies, stocks are prone to pullbacks without concrete legislative progress. He advises investors to rationally assess both the policy timeline and company fundamentals.
