US DOJ Downgrades Marijuana to Schedule III, Signaling Regulatory Shift

The U.S. Department of Justice (DOJ) has officially reclassified state-licensed marijuana products from Schedule I to Schedule III, moving the substance from the most restrictive federal category to one shared with drugs like codeine and testosterone. This regulatory shift follows an executive order signed by President Trump last December. While the current reclassification is limited to medical marijuana, the DOJ has already scheduled a hearing for June to consider similar changes for recreational use. This incremental path toward federal easing is expected to address long-standing obstacles for the industry, specifically regarding access to the traditional banking system and capital markets. The news triggered immediate volatility in cannabis-focused exchange-traded funds. The AdvisorShares Pure U.S. Cannabis ETF (MSOS), which holds 20 assets and $729 million in net assets, rose over 6% in early trading. The Amplify Alternative Harvest ETF (MJ) climbed more than 2%, while the AdvisorShares Pure Cannabis ETF (YOLO) saw a slight decline of 1.3%. Beyond the immediate price action, the reclassification could significantly improve industry profitability. Cannabis operators have historically faced high state excise taxes and federal tax provisions that increase expenses. A shift in federal status may lower these burdens and make legalization more appealing to additional states, thereby broadening market demand. This move is part of a wider trend of easing restrictions on controlled substances. The administration recently directed the FDA to accelerate the review process for certain psychedelic drugs, reducing review times from a previous window of six to ten months down to just one or two months.