SOJE

greenbelieve

Found it my dudes: President Trump likes to see the stock market rise when he delivers good news. Cannabis investors aren’t cooperating. The president signed an executive order in December telling the attorney general to reclassify marijuana as a less dangerous substance. Cannabis companies have lobbied hard for the move, and hoped it would boost the value of their stocks. Instead, the AdvisorShares Pure US Cannabis ETF, which tracks a basket of American cannabis growers, fell 27% on the day. The price has continued to slip, and is now down 33% since the White House announcement. The reaction is odd. If the order results in a final rule, which seems likely, it will be a game changer for profits. Cannabis is currently classified as a Schedule 1 substance, along with heroin and LSD. Any business that handles the drug isn’t allowed to deduct regular business expenses such as rent, wages and utility costs from taxable income. Effective tax rates for companies that “touch the plant” can be 60% to 90% as a result. Crippling unpaid liabilities are piling up on cannabis companies’ balance sheets. From 2019 through September 2025, only $600 million of an estimated $2.6 billion of taxes due was paid by the top eight American multistate cannabis operators, according to Matt Karnes, founder of GreenWave Advisors. Rescheduling cannabis to a less harmful drug will remove this harsh tax treatment. But recreational marijuana will still be banned at the federal level, even though more than 20 states have legalized it. This ambiguity means stocks will continue to swing based on what is happening with policy changes, rather than the underlying health of the businesses. On the morning the executive order was signed, the AdvisorShares Pure US Cannabis ETF was trading at around $7 a share. Then the price began to fall. This may have been a classic “buy the rumor, sell the news” moment, as the price had doubled over the preceding days on media reports that rescheduling was imminent. Some investors may also have sold because they were disappointed that Trump didn’t mention fixing other constraints on the industry, such as limited access to regular banking services. The price decline probably also reflects a dubiousness that rescheduling will actually happen. The process may require administrative hearings, and litigation could slow things down. “We don’t have a patient market anymore,” says Aaron Miles, chief investment officer at U.S. cannabis company Verano Holdings. “People have been burned so many times in this industry…they want to hear this is definitive.” But speculators made money off the dip. Options traders bought more than 22,000 puts at a strike price of $5.50 on the day of the announcement. This very high purchase volume—the day before the contracts were due to expire—is unusual, says Bruce Macdonald, a derivatives expert and chairman of C21 Investments. As the person selling the put would usually sell the stock to hedge risk, this probably contributed to the tumble in the ETF, which subsequently closed at $4.90. Whoever bought the puts pocketed a tidy profit. According to the SOJE Fund, a cannabis investor, the moves on the day appear “consistent with options-driven and structural trading dynamics that have plagued the cannabis sector for years.” This kind of speculative trading hurts the industry’s reputation and makes it hard to attract long-term investors. Institutional investors won’t touch the stocks while the drug is classified alongside heroin. Even Green Thumb Industries, one of the best-run cannabis companies in the U.S., has only 12% institutional ownership, based on FactSet data. That could change if U.S. cannabis growers were allowed to list on American stock exchanges and given access to banking services. Institutional capital would likely flow in and brokerage apps such as Robinhood would be able to make the shares available to their U.S. customers. At the moment U.S. growers can only list on less liquid Canadian exchanges, and most brokerage accounts don’t have access to American cannabis stocks. For now, most investors get their exposure to U.S. cannabis stocks through the AdvisorShares ETF, which was allowed to list in New York because it uses total return swaps rather than buying shares in the underlying cannabis stocks. The Trump administration is becoming friendlier toward the cannabis industry, which is good news. But after years of disappointment, faith in the industry—and a payday for investors—won’t come overnight.