Cannabis stocks are set to close out the year with a punishing 14% decline. Cannabis investors need help from anywhere they can get it.
It looks like it could come from an unusual place in 2025. The future of the cannabis industry is now in the hands of President-elect Donald Trump.
If anyone told me a few years ago this would be the case, I might have asked them what they are smoking.
However, the reality is that during his presidential campaign, Trump endorsed all three of the main reforms that would legitimize the industry and boost cannabis share prices: Rescheduling, bank reform known as SAFER banking, and legalization of recreational use. Trump endorsed the first two outright. He implicitly endorsed legal rec-use because he supported the Florida referendum which would have made this change. At the very least, he has openly endorsed decriminalization.
Now it’s go-time for Trump. Here are two main reasons we may see progress under a Trump administration.
1. Trump campaigned on the slogan “promises made, promises kept.” If he keeps his word, we should see him attempt to follow through on the three key cannabis reforms.
2. Voters want the changes. Polls continue to show the majority of voters support cannabis reform, including on the right. Even voters in conservative Florida support recreational-use legalization. In the most recent election, 56% of Florida voters supported the referendum calling for the change. Polls continually show a majority of voters support legalization, even in the more conservative heartland and Southern states.
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Here’s a look at the three key reforms, and how they might fare in 2025.
3 Key Reforms and the Outlook for 2025
1. Rescheduling
Trump explicitly supports rescheduling cannabis to Schedule III from Schedule I under the Controlled Substances Act (CSA). Of all the possible cannabis reforms on the horizon, this is the big one.
The reason: Moving cannabis to Schedule III would neutralize an IRS provision that blocks the deduction of operating expenses against revenue from the sale of Schedule I substances. The change would instantly give cannabis companies a cash injection that would improve cash flow and earnings per share in a big way. Trump says he favors moving cannabis to Schedule III because it would allow a lot more medical research. Trump cites anecdotal evidence from contacts who tell him cannabis is useful in treating various ailments.
An administrative law judge inside the Department of Justice will hold hearings on rescheduling from late January through early March. We’ll get signs of the odds for rescheduling in the back and forth between witnesses and the judge.
The Drug Enforcement Administration (DEA) inside the Department of Justice (DOJ) seems to oppose rescheduling, which Trump favors. This means rescheduling is shaping up to be another “deep state” challenge for Trump. He’s bent on overriding bureaucratic policy that is out of step with policy reform he and voters support. This was a major campaign theme.
A key factor here will be Trump’s cabinet member nominations. His nomination of Robert F. Kennedy Jr. to lead the Department of Health and Human Services (HHS) is bullish for cannabis. RFK Jr. supports cannabis legalization, and allowing banks to serve cannabis companies (SAFER Banking Act).
Trump’s attorney general nominee Pam Bondi opposed cannabis reform as attorney general in Florida. But that might not tell the whole story. “To be fair, she was following the governor’s direction on that at the time, in that role,” says Trulieve (TCNNF) CEO Kim Rivers. She thinks Bondi will be positive for the group. “I think she is a great pick,” says Rivers.
RFK Jr. and Bondi are the key nominees to watch since they will play a big role in rescheduling. It will be a month or more before we know who actually gets appointed to these roles. Nominees have to go through Senate hearings before the Senate votes on them.
Wildcard prediction: Former New Jersey governor Chris Christie recently speculated in a media interview that the Trump administration would skip rescheduling and fully de-schedule cannabis instead.
2. Banking reform
Passage of the SAFER Banking Act in House and Senate would be a major catalyst. The reform would allow banks to serve cannabis companies so they no longer have to be cash-only businesses. Even signs of progress would be a group catalyst.
It is always tough to put odds on lawmaking. One positive, though, is the recent choice of Rep. French Hill (R-AR) to lead the House Financial Services Committee. Hill has voted for the banking reform bill in the past.
Plus, rumors are circulating that Trump is telling senators that he wants the SAFER Banking Act to get approved because it would make cannabis stores safer, and also because it would reflect poorly on Democrats who consistently failed to get the reform bill passed.
3. Decriminalization
Full legalization at the federal level looks challenging. This would require a new law. But both sides of Congress are dominated by Republicans, who on the whole are less amenable to this change. Republican lawmakers have already signaled they have no problem going against Trump’s wishes. Despite Trump’s popularity, Republicans recently defied him by rejecting his proposal to eliminate the debt ceiling in the continuing resolution funding bill.
Yet, there is momentum for this change. Polls continue to show a majority of voters favor decriminalization and even the legalization of recreational use, even on the right and in more conservative states. Plus, states continue to legalize, another popular endorsement of the reform. For example, Pennsylvania looks like the next big state to legalize recreational use. This could happen in 2025. This timeline makes sense, because the state is losing considerable tax revenue to surrounding states, almost all of which have legalized rec-use. Governor Josh Shapiro (D) supports the change.
“Throughout his campaign, President-elect Trump confirmed his support for commonsense cannabis laws, support for SAFE banking and for rescheduling, the fact that no one should be arrested for personal cannabis use, and a state’s rights approach to cannabis legalization,” noted Cresco Labs (CRLBF) CEO and co-founder Charlie Bachtell said in his earnings call. “We look forward to working with the incoming administration to follow through on its commitment to developing a commonsense approach to cannabis laws including the passage of SAFE banking, rescheduling, and the fact that no one should be arrested for personal cannabis use.”
The bottom line: 2025 will be showtime for Trump on cannabis reform. He’s got a busy agenda, taking on big issues like immigration and government spending. But if he lives up to “promises made, promises kept,” cannabis stocks could move higher.
To learn more about the cannabis stocks we’re investing in now, subscribe to Cabot Cannabis Investor today.
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