President Donald Trump proposed reclassifying marijuana from Schedule I to Schedule III to lower regulatory barriers and attract institutional investors.

This shift could fundamentally change the financial landscape for the cannabis industry by allowing more traditional investment vehicles to enter the space. The move is seen as a potential catalyst for cannabis exchange-traded funds (ETFs), which have struggled under the strict constraints of the current federal classification.

Reports indicate that the proposal was first detailed on Dec. 12, 2025 [2]. Following the announcement, cannabis ETFs saw double-digit gains on that Friday as investors reacted to the possibility of a more permissive regulatory environment [2].

The U.S. cannabis market is currently valued at $40 billion [1]. Proponents of the reclassification argue that moving the drug to Schedule III would reduce the legal risks for banks, and asset managers—entities that have historically avoided the sector due to federal prohibition.

There is some conflicting information regarding the scope of the proposal. Some reports suggest the plan applies to the entire cannabis market [2], while other accounts indicate the announcement was limited specifically to medical marijuana [2].

Despite the initial market surge, institutional hurdles remain. The transition to Schedule III would simplify certain tax and regulatory requirements, but it does not constitute full federal legalization. Investors continue to monitor whether the administration will follow through with the formal rulemaking process required to change the drug's status.

“The U.S. cannabis market is currently valued at $40 billion.”

A shift to Schedule III would signal a move away from viewing marijuana as a drug with no accepted medical use and a high potential for abuse. While not full legalization, this reclassification would likely ease the burden on cannabis businesses to access banking services and could trigger a wave of institutional capital into the sector, potentially stabilizing the volatile stock prices of cannabis-linked funds.