Will Recent Policy Changes Finally Give Pot Stocks Their Breakthrough?

The Game-Changing Regulatory Shift

The cannabis industry just received what many consider its biggest policy victory in years. President Trump’s executive order reclassified cannabis from Schedule 1 to Schedule 3, marking a watershed moment for cannabis stocks and the broader sector. To understand why this matters, it’s important to know what these classifications mean.

The federal government categorizes controlled substances into five tiers based on abuse potential and medical applications. Cannabis had been lumped together with heroin in the most restrictive tier—Schedule 1—which essentially treated it as having no legitimate medical use and extreme danger. Now, as a Schedule 3 substance, it will be recognized as having genuine therapeutic value and lower abuse risk compared to Schedule 1 and Schedule 2 drugs.

This reclassification carries tangible benefits for cannabis operators in the U.S.: streamlined banking access and the ability to claim standard business tax deductions that were previously unavailable. The potential for expanded consumer demand as barriers fall is another factor fueling investor optimism.

Two Canadian Giants Eye American Expansion

Canopy Growth (NASDAQ: CGC) and Aurora Cannabis (NASDAQ: ACB) are two of Canada’s most prominent cannabis cultivators. Both rode a wave of enthusiasm during the late 2010s, but like most sector peers, they’ve faced declining valuations over the past five years.

The regulatory breakthrough has sparked speculation about whether these companies might finally find a pathway to profitability through U.S. market entry. Canopy Growth already maintains a foothold through its Canopy USA subsidiary, giving it a structural advantage over competitors without existing American operations. Aurora Cannabis has no direct U.S. retail or distribution infrastructure, though it could theoretically accelerate entry through M&A strategy—a playbook it used successfully in Canada.

Why Optimism May Be Premature

Yet beneath the surface of this regulatory win lies a more complicated reality. While Schedule 3 status is progress, cannabis remains federally illegal, and interstate commerce remains prohibited. This half-measure creates a patchwork regulatory environment that limits the true expansion potential.

Look at what happened in Canada: Aurora Cannabis secured a major position in a fully legalized home market but has still delivered disappointing financial results and operates at a loss. If the company struggled to generate attractive returns despite being among Canada’s largest growers in an unrestricted environment, how should investors expect it to thrive in a partially-legal U.S. market?

Canopy Growth faces a different dynamic. Its U.S. subsidiary provides first-mover advantage compared to many rivals, but this doesn’t insulate it from the same headwinds: incomplete federal legalization, a fragmented regulatory landscape, and mounting competitive pressure. The U.S. market’s sheer size will likely draw numerous well-capitalized entrants better positioned to capitalize on these developments.

The Bottom Line on Cannabis Stocks

The regulatory momentum is real, but neither Canopy Growth nor Aurora Cannabis represents a compelling investment opportunity at current levels. The industry’s structural challenges remain unresolved despite this incremental policy victory. Investors seeking exposure to cannabis stocks news today should recognize that regulatory progress doesn’t automatically translate into stock market outperformance.

The Motley Fool Stock Advisor team recently highlighted their 10 best stock picks for forward-looking investors—and neither cannabis stock made the cut. Historical performance demonstrates the value of their selections: a $1,000 investment in Netflix at their December 2004 recommendation would have grown to $509,470, while the same amount in Nvidia from April 2005 would have reached $1,167,988.

Stock Advisor’s track record shows an average return of 991%—substantially exceeding the S&P 500’s 196% return. Before committing capital to cannabis stocks, consider whether these companies truly represent your best opportunity for wealth creation in today’s market environment.

*Stock Advisor returns as of December 28, 2025. The Motley Fool has a disclosure policy. Views expressed herein do not necessarily reflect those of Nasdaq, Inc.