Cannabis Reclassification Shifts Market Outlook: What's Next for Tilray Brands After Its 200% Rally?

A Policy Breakthrough Changes Everything

The cannabis sector has endured years of regulatory disappointment, but the landscape shifted dramatically in the second half of 2025. President Trump’s executive order to reclassify marijuana represents a watershed moment for the industry. Tilray Brands (NASDAQ: TLRY), a leading pot cultivator based in Canada, exemplifies this sentiment—its stock has climbed approximately 200% over the past six months, reflecting investor optimism about what could unfold over the next 28 months and beyond.

But does this regulatory tailwind translate into a compelling investment case? Investors must dig deeper.

Understanding the Reclassification Framework

Under U.S. federal law, controlled substances fall into five regulatory schedules based on their medical utility and abuse potential. Marijuana held Schedule 1 status—the most restrictive classification, implying no accepted medical application and maximum abuse risk. The executive order proposes moving cannabis to Schedule 3, a meaningful but not revolutionary change.

This reclassification unlocks three critical advantages for cannabis companies:

Research Expansion: Schedule 3 status removes federal barriers to studying cannabis’s therapeutic applications, potentially validating new medical use cases.

Banking Access: Financial institutions will find it easier to service cannabis businesses, alleviating cash-handling complications that currently plague the sector.

Tax Treatment Reform: The most significant benefit. Current law denies Schedule 1 and 2 substance distributors standard business expense deductions. Under Schedule 3 classification, cannabis companies would reclaim this tax advantage, boosting operating margins substantially.

Tilray’s Position in a Reshaping Market

Tilray’s current U.S. footprint centers on hemp-derived products, which sidestep federal restrictions due to lower THC content. The company also operates as the nation’s fifth-largest craft brewery, providing an established distribution infrastructure that could expedite cannabis market entry.

Most tellingly, Tilray commands the leading market share in Canada’s marijuana sector—a proven track record in a mature regulated market. Translating that dominance to the U.S., a vastly larger addressable market, could fundamentally reshape the company’s scale and profitability profile.

Expansion into the American cannabis market remains a critical question investors must monitor. Will Tilray organically build its presence, or pursue acquisitions—a favored strategy for extending reach in Canada?

Headwinds That Temper Optimism

Yet significant obstacles persist. First, reclassification does not legalize marijuana at the federal level. Interstate transportation remains prohibited, constraining supply chain flexibility and market efficiency. This creates operational friction that will persist for years.

Second, the U.S. cannabis market already hosts well-capitalized, established competitors. Schedule 3 status will likely attract even more entrants, potentially replicating Canada’s oversupply problem—which emerged following legalization and depressed pricing power across the sector.

Third, Tilray’s financial trajectory raises concerns. Over the past five years, profitability has remained elusive in most quarters, with operating results consistently underwhelming. Revenue growth has not translated into bottom-line strength, suggesting operational or cost management challenges.

The Verdict for Investors

Tilray’s stock surge reflects rational enthusiasm about regulatory progress. However, enthusiasm alone does not justify an investment. The combination of persistent federal restrictions, heightened competitive intensity, and Tilray’s weak historical profitability creates a risk-reward balance that does not favor accumulation at current valuations.

Investors seeking exposure to cannabis sector upside may find better-positioned opportunities elsewhere. Tilray’s potential is real, but so are its execution risks.