By Bill Peters
Tilray's stock initially surged as much as 19% Thursday on the reclassification news, but then sold off to close down 12%
Cannabis stocks initially flew high on the rescheduling, but ended Thursday sharply lower.
Marijuana stocks sold off Thursday, after acting U.S. Attorney General Todd Blanche signed an order rescheduling Food and Drug Administration-approved and state-licensed medical cannabis products as a less harmful substance - a move that led to celebration but also confusion among industry observers.
The order from the Justice Department and the Drug Enforcement Administration immediately moves those products to the Schedule III bracket of the nation's controlled-substances regulatory regime - the same category as ketamine and Tylenol with codeine - from Schedule I, which includes drugs like heroin and LSD. However, a separate hearing for the broader rescheduling of cannabis will start on June 29.
Blanche, in a post on X, said the move would allow for deeper research into cannabis's safety and medical use, and allow for wider access to treatments for patients - a change long sought by the industry that follows an executive order from President Donald Trump on reclassification last year.
But others noted that the implications of the move, which reclassifies some cannabis products for some uses but not others, could create some chaos across the industry's distribution system.
&#34;That framing helps, but without additional regulatory guidance, the operational complexity runs up the entire supply chain,&#34; Mike Feldman, general counsel at cannabis distributor Nabis, said of the order signed Thursday.
Cultivators selling to distributors won't know whether their product would ultimately end up in the hands of a medical or recreational consumer, Feldman noted, while distributors don't have guidance yet on how to handle those different categories of transactions. Packagers that run shared production lines, he added, would have to decide whether to separate runs or track their output more granularly.
&#34;Until that guidance comes, operators will have to make defensible choices without a clear framework,&#34; Feldman told MarketWatch.
Cannabis executives noted the importance of Blanche's announcement, which marks the most significant federal cannabis reform in decades - even though it doesn't federally legalize recreational pot, and doesn't address issues like banking access or prior convictions.
In an example of the celebration and confusion of the news, shares of Canadian cannabis producer Tilray Brands (TLRY) initially surged as much as 18.7% in intraday trading Thursday, but then reversed course to close down 11.8%. On Wednesday, the stock had run up 14.2% in anticipation of an announcement.
Shares of rival Canopy Growth (CGC) lost 11.6% on Thursday, while the stock of U.S. multistate cannabis producer Curaleaf Holdings (CURLF) ended 23.4% lower.
Elsewhere, FundCanna CEO Adam Stettner, whose company lends money to the cannabis industry, also noted the finer details of the order.
&#34;Medical operators may benefit from clearer federal alignment, while nonmedical businesses remain subject to existing Schedule I treatment and its associated constraints,&#34; Stettner said in a statement.
Alliance Global Partners analyst Aaron Gray, in a research note, also said the language of the order and the limits of its scope likely added to the confusion on the path toward legalization, and thus Thursday's selloff in pot stocks.
&#34;Given the current blend between medical and adult use channels within state-legal markets, we do believe it would be difficult to not treat both channels the same, as the [Controlled Substances Act] scheduling is traditionally for a drug itself, or specific formulation, rather than use case,&#34; Gray wrote.
Still, he said Blanche's order would help the U.S. cannabis industry save more cash, particularly if Section 280E of the federal tax code - which functions as a tax on industry profits without allowing normal deductions - falls away. And he said it could clear the way for the remaining 10 states that don't have medical pot programs to create them, and open up broader recreational legalization in other states.
&#34;While there may be a combination of some 'sell the news' / confusion on the ... rescheduling having a negative impact on stocks today, we see this as opportunistic given the improved cash flow and pathway to incremental reform remains intact post today's news,&#34; Gray said.
-Bill Peters
This content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
04-23-26 1727ET

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Marijuana stocks initially surged after the U.S. Attorney General's order to reschedule certain cannabis products to Schedule III, but closed sharply lower. The order aims to facilitate research and access to medical cannabis, yet creates confusion regarding regulatory guidance for distribution. Stocks like Tilray and Canopy Growth saw significant declines, reflecting market uncertainty. Analysts suggest the order could improve cash flow for the industry, but the lack of clarity on operational implications may hinder progress toward broader legalization.

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The cannabis rescheduling is causing celebration - and confusion - as marijuana stocks sell off