Trump reclassifies marijuana as less dangerous drug. What does it mean for Wisconsin?

On Dec. 18 President Trump signed an executive order directing the Department of Justice to expedite rulemaking to reclassify marijuana from Schedule I to Schedule III, a change that would not be automatic but could reduce tax burdens for cannabis firms, accelerate research and standardize drug development. The order does not alter federal illegality today and will not change Wisconsin’s currently prohibitive recreational and medical stance; separately, a November 2025 federal funding bill closes a Farm Bill loophole that had allowed intoxicating hemp-derived THC products, with restrictions taking effect one year after signing. Investors should treat the announcement as a policy-positive signal for cannabis operators over the medium term while noting significant legal and implementation uncertainty.

Analysis

Market structure: Re-classifying marijuana toward Schedule III materially benefits vertically integrated MSOs and cannabis biotech targeting regulated pharmaceutical channels because it can remove the Section 280E tax drag and open normal business deductions. Expect 500–1,500 bps potential improvement in EBITDA margins for profitable operators once IRS guidance and tax filings change (likely realized over 12–24 months), while single-state operators in prohibition states (e.g., WI-only incumbents) see little near-term benefit.

Risk assessment: Key tail risks include DOJ/DEA delaying or narrowing rulemaking, IRS issuing restrictive guidance, or Congress passing counter-legislation; probability medium but impact high — could wipe 20–50% of forward EBITDA uplift assumptions. Time horizons: days — equity vol spike on headlines; weeks–months — proposed rules and IRS commentary; 12–36 months — full tax and regulatory normalization and resultant M&A wave.

Trade implications: Tactical trades favor large-cap MSOs with multi-state retail + pharma partnerships (e.g., CURLF, GTBIF, CRLBF, TLRY) and cannabis-focused credit where spreads can compress; prefer 1–3% position sizes per fund risk guidelines. Use call spreads 6–12 months out to capture upside while limiting premium; short small single-state operators and ancillary consumer plays that rely on hemp-loophole demand (significant downside when Farm Bill closure hits in Nov 2026).

Contrarian angles: Consensus pricing assumes fast, full tax relief — that is likely underdone because IRS/courts will parse 280E applications and banks may still restrict services; upside is concentrated among firms with clean compliance, strong balance sheets and taxable income to monetize deductions. Unintended consequences include reduced hemp-THC supply boosting illicit markets and higher compliance costs from federal oversight, so favor balance-sheet resilient winners and avoid levered names without cash flow visibility.

Key Decisions for Investors

• Establish a 2% long position in Curaleaf Holdings (CURLF) and a 1–2% long in Green Thumb Industries (GTBIF) across cash and buy-call-spread (6–9 month, 25–35% OTM call spread) to capture margin expansion and M&A optionality; trim if IRS guidance delays beyond 9 months.
• Initiate a 1.5% pair trade: long Cresco Labs (CRLBF) vs short 1.5% of a single-state small-cap operator with >70% revenues in prohibition states (screen for revenue concentration >70%), expecting relative spread compression if federal tax relief arrives within 12–18 months.
• Buy 6–12 month call spreads on Tilray Brands (TLRY) sized at 0.5–1% portfolio risk to play potential pharma partnerships and international arbitrage while capping premium; roll or exit on failure to see proposed DEA/DOJ rules within 6 months.
• Reduce exposure to ancillary hemp-THC retailers/consumer CBD pure-plays by 50% ahead of the Farm Bill loophole closure (effective Nov 2026) and reallocate proceeds to high-quality MSO credit (senior unsecured or convertibles) where spreads >400bps offer >6% carry.