Cannabis stocks rallied Monday after President Donald Trump said he is considering reclassifying marijuana, which would categorize it as less of a danger to public safety.
Canopy Growth soared more than 26%, while Tilray Brands skyrocketed more than 41% in its best day since 2021. Cronos Group jumped around 16% and hit a new 52-week high.
The AdvisorShares Pure U.S. Cannabis ETF (MSOS) surged around 28%, marking its best day since 2022. The Amplify Alternative Harvest ETF (MJ) recorded its biggest one-day gain on record, rising more than 26%.
"We're looking at reclassification," Trump told reporters Monday during a press conference to announce the deployment of the National Guard to Washington, D.C. "We'll make a determination ... over the next few weeks."
"It's a very complicated subject," he added.
Penny stocks
Many stocks in the sector now sell for less than a dollar per share, meaning a move of just a few cents can lead to a large percentage change. Despite Monday's rally, many of these stocks are far below their all-time highs.
Shares of publicly traded pot growers and distributors surged before the press conference after a Wall Street Journal report late Friday, citing people familiar with the matter, said Trump was considering changing marijuana to a less-dangerous drug classification. Trump disclosed he was considering such a move during a fundraiser at his New Jersey golf club earlier this month, the people said.
Under federal law, cannabis is currently classified as a Schedule I drug in a group that also includes heroin and cocaine. Previously, reclassification discussions have centered on moving the drug to Schedule III, a class that includes steroids and Tylenol with codeine.
Reclassification would allow marijuana companies to fall under different tax regulations and encourage investment interest, among other benefits.
Yearlong process
Tilray CEO Irwin Simon told CNBC he expects the process of reclassification to take about a year. Trump discussing the matter publicly, and saying he plans to make a decision in coming weeks, is cause for optimism in the industry, Simon said.
"Trump gets things done," Simon said. "He wouldn't be talking about it ... if he's not going to get something done."
Trump's backing can brighten the outlook, but technically he cannot reclassify the drug alone. The Controlled Substances Act places that authority under the Attorney General, who historically has delegated it to the administrator of the Drug Enforcement Administration.
A move from Schedule I to Schedule III would be "a game changer" for the roughly $80 billion market, Tim Seymour, investing chief at Seymour Asset Management, said on CNBC's "Worldwide Exchange" on Monday. He noted that such a change seems to have bipartisan support.
"It does not mean that it won't be a complicated trade," Seymour said. "But it does mean that you're investing now well ahead of a lot of institutional capital if you are, in fact, investing into this sector."