Canopy Growth Shares Surge on U.S. Regulatory Shift Speculation

Shares of Canadian cannabis company Canopy Growth experienced a dramatic rally on Friday, soaring more than 50% in a single trading session. The catalyst was a series of media reports indicating that U.S. President Donald Trump is preparing an executive order to reclassify marijuana at the federal level. This potential regulatory shift triggered a wave of buying across the entire cannabis sector.

The move was not isolated to Canopy Growth. The industry witnessed a broad-based surge. Tilray shares climbed 44%, while the CNBS cannabis ETF recorded its best single-day performance ever with a 54% gain. For Canopy, the share price jumped 54% to close at $1.81. Trading volume exploded to 165.58 million shares, dwarfing the average daily volume of approximately 33 million. The momentum continued after hours, with shares adding another 11%.

The Details of the Proposed Reclassification

According to reports from CNBC, the Washington Post, and Axios, President Trump could sign the executive order as early as Monday, December 15. The order would direct the U.S. Department of Justice and the Drug Enforcement Administration (DEA) to initiate the process of moving cannabis from Schedule I to Schedule III under the Controlled Substances Act.

This change would be monumental. Currently, marijuana is classified as a Schedule I substance, defined as having no accepted medical use and a high potential for abuse—a category it shares with heroin and LSD. A move to Schedule III would recognize an accepted medical use and place it alongside substances like anabolic steroids and certain prescription painkillers.

While a White House spokesperson stated that "no final decision has been made," the specificity of the reports—including details of meetings between Trump, health officials, and industry representatives earlier in the week—was enough to force significant short covering. Traders who had bet against the sector rushed to buy back shares.

Financial Implications for Canopy Growth

The financial impact of such a reclassification for companies like Canopy Growth cannot be overstated. The primary obstacle is Section 280E of the U.S. tax code. This provision prohibits businesses trafficking in Schedule I or II substances from deducting ordinary operating expenses, crippling profitability.

Should investors sell immediately? Or is it worth buying Canopy Growth?

For Canopy, which reported a net loss of $416 million in its last fiscal year and has struggled to achieve profitability since Canada’s legalization in 2018, rescheduling would be a transformative event. The company's tax burden would drop substantially, and its cash flow would improve almost immediately.

Furthermore, a Schedule III designation would likely open the door to traditional banking services. Major financial institutions have largely avoided the cannabis industry due to its Schedule I status. Rescheduling could facilitate access to insurance, lower-cost credit, and institutional investment capital.

This explosive rally stands in stark contrast to recent fundamental analysis. Just days before, on December 11, ATB Capital Markets had lowered its price target for Canopy Growth to 1.40 Canadian dollars and maintained an "Underperform" rating. Friday’s action completely overrode these technical assessments based solely on regulatory speculation.

A Pivotal Date Ahead

All attention now turns to Monday, December 15. If President Trump signs the order as reported, the rally could extend further. Short sellers with significant positions would need to continue covering, and institutional investors may begin pricing in the eventual elimination of 280E tax restrictions.

The risk, however, is clear. Should the administration delay the decision or if the implementation falls short of market expectations, a sharp pullback is likely. The entire 50% gain is predicated on unconfirmed reports.

From a technical perspective, Canopy’s stock has broken through resistance at $1.50 on massive volume. The next key psychological level is $2.00. Official confirmation from the White House will ultimately determine the sustainability of this dramatic price movement.