Is U.S. Marijuana Reclassification 'Extremely Favorable' for Cannabis Stocks?

Shares in cannabis companies plunged on Thursday as investors digested what they considered the limited scope of the long-awaited U.S. decision to reclassify marijuana as a less dangerous drug. However, Roth Capital sees the partial rescheduling as "extremely favorable."Claim 30% Off TipRanksUnlock hedge fund-level data and powerful investing tools for smarter, sharper decisions Discover top-performing stock ideas and upgrade to a portfolio of market leaders with Smart Investor Picks On Thursday, the U.S. Department of Justice (DOJ), following President Donald Trump's executive order in December, finally moved marijuana from Schedule I to Schedule III of the U.S. Controlled Substances Act. The former is a category for drugs such as heroin and LSD that are viewed as highly addictive with a strong risk of abuse, while the latter tier houses substances accepted to have medical benefits and a lower risk of misuse. However, the DOJ emphasized that the rescheduling only applies to drug products containing marijuana and medical marijuana products that are approved by the Food and Drug Administration and regulated by U.S. states. In addition, the government agency set a June 29, 2026, target date for a new hearing on broader rescheduling of marijuana, including for adult or recreational use. Following the update, some cannabis stocks initially surged following the news. However, shares of leading pot companies Tilray Brands (TLRY), Canopy Growth (CGC), Cronos Group (CRON), and Aurora Cannabis Inc. (ACB) all plunged to close Thursday's trading. Why Roth Capital Sees Gains According to the equity research company, the new order from the DOJ also includes a decision that means cannabis companies with state medical marijuana licenses can now deduct their normal business expenses before paying their taxes. This provides relief from the greater tax burden imposed by Section 280E of the U.S. Internal Revenue Code. Roth Capital also contended that the reprieve from this "deduction disallowance" is positive for cannabis companies' future and past 280E tax treatments. The other reasons the firm is upbeat on the partial move are: The possibility of eventually opening the door to international medical cannabis commerce, that is, imports and exports The ultimate rescheduling of adult-use cannabis Potential for greater investability of the sector Which Cannabis Stock Is the Best Buy? TipRanks' Stock Comparison tool shows that only Aurora Cannabis (ACB) has a Strong Buy consensus rating from analysts. The stock also offers a far greater 105% upside based on an average price target of $6.71.