By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panelists generally agreed that while a Schedule III reclassification could bring significant benefits to cannabis operators like GTBIF and TLRY, including tax relief and potential expansion, the timeline and certainty of these changes are uncertain and risky. The market has already priced in much of the optimism, and there are substantial legal, regulatory, and financial hurdles that could delay or limit the upside.
Risk: Uncertain timeline and outcome of regulatory changes, ongoing state challenges, and legacy 280E liabilities
Opportunity: Potential tax relief and expansion opportunities from a Schedule III reclassification
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Green Thumb Industries and Tilray are in a strong position to benefit from the reclassification of cannabis as a Schedule III drug.
Tilray is well positioned to expand its U.S. operations.
Green Thumb sets itself apart by focusing on brands.
A sea change is taking place for cannabis companies, one that will have an enormous benefit for the industry.
In April, the Department of Justice (DOJ) rescheduled medical marijuana from a Schedule I drug, similar to heroin or LSD, to a Schedule III substance, such as anabolic steroids for prescribed medical use and some commonly prescribed medicines, such as codeine mixed with acetaminophen.
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The change means that medical marijuana will no longer be illegal at the federal level, and that change means that cannabis companies that sell medical marijuana will now be able to take standard business deductions, which they couldn't do previously under 280E of the Internal Revenue tax code.
The second shoe to drop regarding reclassification comes June 29, when hearings begin to determine if adult-use marijuana should also be rescheduled as a Schedule II substance. That would open up even more tax reductions for cannabis companies that also have adult-use sales.
Even the reclassification isn't a done deal yet. The attorneys general of three states -- Indiana, Louisiana, and Nebraska -- filed a federal court petition in Washington, D.C. on May 22, claiming the DOJ's order violates federal administrative law and international drug-control treaties.
The final outcome remains uncertain, particularly regarding how unpaid past Section 280E tax liabilities -- currently carried as liabilities rather than debt -- will be resolved. Additionally, there is still no definitive progress on the SAFER Banking Act or the potential for stock exchange uplisting.
While shares of two of the largest multi-state operators, Trulieve (OTC: TCNNF) and Curaleaf (OTC: CURLF) have soared more than 90% and 70%, respectively, over the past three months, there are other cannabis stocks that are better buys right now and are less risky, with better debt positions: Green Thumb Industries (OTC: GTBIF) and Tilray Brands (NASDAQ: TLRY).
Green Thumb has a similarly large scale as Trulieve and Curaleaf, with 110 RISE dispensaries across 14 markets, but a better track record of financial discipline. The company has turned a profit in six of the past seven quarters, something neither Trulieve nor Curaleaf can claim.
In the first quarter, Green Thumb reported revenue of $300.2 million, an increase of 7.4% year over year, and earnings per share of $0.07, an increase of 75% from the same quarter a year ago. The company has $289.9 million in total debt, but $344.5 million in cash and cash equivalents.
The company has done a good job of building up its brands, which helps insulate it from the price compression affecting the industry. The company's brands include RYTHM, Dogwalkers, Incredibles, Beboe, &Shine, Doctor Solomon's, and Good Green.
Tilray, based in Canada, has an international presence, with operations in Canada, Europe, and the U.S. beverage market. Changes in U.S. regulations would allow Tilray to expand in the U.S., and a more favorable tax environment here could boost its revenue and earnings.
Tilray already has a toehold in the U.S. Following strategic acquisitions -- including an expansive portfolio of craft beer brands from Anheuser-Busch and its acquisition of BrewDog -- Tilray has shielded itself from pure cannabis volatility. This infrastructure gives it an instant, legally compliant distribution network into U.S. retail and bars, which can be easily leveraged for THC- and CBD-infused beverages when federal laws shift, as well as give it a base to eventually operate cannabis sales in the U.S. The company already said it is looking into a pilot Center for Medicare and Medicaid Innovation program that would let it supply hemp-derived medical cannabis to patients through specific healthcare groups and cancer clinics.
The company is coming off a record third quarter, in which revenue grew 11% year over year to $206.7 million, including 73% growth in international sales.
Tilray also trimmed its total debt by 6% to $549 million. Management reconfirmed positive full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance of $62 million to $72 million, representing growth of 13% to 31%, proving that its underlying operations are scaling effectively.
The stock, because it doesn't yet sell cannabis in the U.S., is being overlooked compared to other large cannabis retailers. However, due to its growth in international sales and its marketing experience in the U.S. through its beverage sales, it has the wherewithal to pounce on new opportunities in the U.S.
The stock is priced right, with a price-to-sales ratio of 0.541, lower than Trulieve, Curaleaf, and Green Thumb Industries.
Green Thumb may still be the safer bet because it has a longer history of profitability, but Tilray offers several overlooked advantages and greater growth potential.
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James Halley has no position in any of the stocks mentioned. The Motley Fool recommends Green Thumb Industries and Tilray Brands. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"Regulatory catalysts could unlock meaningful tax-advantaged profitability for GTBIF and TLRY, but timing and other regulatory risks mean the upside is not guaranteed."
The story rests on a regulatory catalyst that isn’t guaranteed or timely. If the DOJ’s order eases 280E for medical cannabis, and the June 29 hearings push toward scheduling II, operators could gain standard tax deductions and margin leverage, with GTBIF (110 RISE dispensaries across 14 markets) posting $300.2m Q1 revenue and a six-of-seven quarter profitability streak, while TLRY (international footprint) would gain U.S. entry flexibility and a clearer path to U.S. distribution, plus EBITDA clarity. Yet risks are substantial: ongoing state challenges, uncertain ultimate scheduling, 280E relief timing, banking constraints, and cross-border regulatory frictions could keep upside delayed or limited.
Even if scheduling moves occur, the tax relief is uncertain in scope and timing, and the market may have already priced in a best-case outcome; other regulatory hurdles could blunt the upside.
"Rescheduling is a tax accounting event, not a gateway to full federal legalization, and the current rally risks ignoring the persistent lack of access to traditional banking and capital markets."
The market is pricing in a 'best-case' regulatory scenario that ignores significant legal and structural hurdles. While Schedule III reclassification would effectively repeal 280E—the tax code section currently preventing cannabis firms from deducting standard business expenses—it does not equate to federal legalization. Investors are conflating tax relief with operational freedom. Green Thumb (GTBIF) is a fundamentally sound operator, but its valuation is increasingly tied to political momentum rather than cash flow. Tilray (TLRY) remains a high-risk pivot play; its beverage strategy is a clever hedge, but it remains a diluted, capital-intensive entity. Without the SAFER Banking Act, these companies remain trapped in a high-cost, fragmented OTC market with limited institutional liquidity.
If the DEA finalizes rescheduling by year-end, the immediate cash flow boost from 280E repeal could trigger a massive, non-fundamental short squeeze that renders current valuation metrics irrelevant.
"The Schedule III win is priced in; the real catalyst (adult-use rescheduling) faces material legal and political headwinds that the article underweights, and even if it passes, margin expansion may not survive competitive pricing pressure."
The Schedule III reclassification is real and material—Section 280E tax relief alone could add 20-30% to EBITDA for medical-focused operators. But the article conflates two separate events: the April DOJ action (already happened, legally challenged) and June 29 hearings (outcome completely uncertain). Adult-use rescheduling to Schedule II is a much heavier lift politically and faces active legal opposition from three state AGs. The article also glosses over that GTI and TLRY have already rallied 40-60% YTD on reclassification hopes—much of the optionality is priced in. GTI's 6-of-7 profitable quarters is real, but at 0.9x sales it's not cheap relative to the risk. TLRY's 0.54x P/S looks attractive until you note it's trading at a discount because U.S. cannabis upside is speculative and its beer portfolio faces secular headwinds.
If adult-use rescheduling stalls or gets blocked by courts (real possibility given the legal challenge already filed), you're left with medical-only tax relief—meaningful but not transformative. And if it does pass, the tax windfall gets competed away instantly as operators cut prices to gain share in a structurally oversupplied market.
"Unresolved legal challenges and banking reform delays make the reclassification catalyst slower and less certain than the article implies for both GTBIF and TLRY."
The article positions GTBIF and TLRY as prime beneficiaries of Schedule III reclassification via 280E tax relief and potential adult-use expansion, citing Green Thumb's profitability streak and Tilray's beverage distribution network. Yet it glosses over the May 22 state petitions challenging the DOJ order on administrative and treaty grounds, plus unresolved legacy 280E liabilities that remain balance-sheet risks rather than cleared debt. June 29 hearings address only one piece; without SAFER Banking progress or uplisting clarity, banking friction and capital costs stay elevated. Tilray's 0.54x P/S looks cheap but reflects its lack of U.S. cannabis revenue today.
The state challenges could be dismissed quickly and the hearings could accelerate full rescheduling, turning the tax shield into immediate EPS accretion that the market has not priced in.
"The EBITDA uplift from Schedule III is conditional and likely smaller or delayed than advertised; meaningful upside requires timely, full repeal of 280E, otherwise the thesis on 280E relief being transformative is fragile."
Claude's claim of a 20-30% EBITDA boost from Schedule III assumes full, timely repeal of 280E and no offsetting costs. In reality, litigation risk, state tax changes, capex when expanding operations, and price competition could erode or delay that uplift. Even with some relief, multiples already reflect optimism; a failure to pass or delayed implementation could compress upside more than it expands it. Bearish bias until positives prove durable.
"State-level tax adjustments will likely cannibalize the federal 280E savings, and rescheduling alone fails to solve the institutional liquidity barrier."
Claude, your 20-30% EBITDA boost estimate ignores the 'tax trap'—if 280E is repealed, states may quickly adjust their own tax codes to capture that newly available margin, neutralizing the federal benefit. Furthermore, Gemini’s focus on a short squeeze ignores that institutional liquidity requires uplisting, not just rescheduling. Without the SAFER Banking Act, these firms remain uninvestable for the major funds that would drive a sustained re-rating, regardless of tax relief.
"State tax clawback is plausible but secondary; the real risk is unresolved legacy 280E liabilities that reclassification may not retroactively cure."
Gemini's 'tax trap' argument is speculative—states taxing away federal 280E relief would require legislative action, not automatic capture. More pressing: nobody addressed legacy 280E carryforwards on balance sheets. If Schedule III passes but doesn't retroactively clear prior-year deductions, operators face a cliff where current relief doesn't offset historical liabilities. That's a material headwind the market isn't discussing.
"State AG petitions create a multi-year delay that makes legacy liabilities secondary to outright blocked rescheduling."
Claude flags legacy 280E liabilities as the overlooked cliff, yet this understates how the May 22 state AG petitions already filed could stall DEA action for years regardless of June 29 hearings. That timeline risk directly hits GTBIF's near-term cash flow assumptions more than TLRY's beverage hedge, since operators cannot book the tax shield until final non-appealable rescheduling. The market's 40-60% YTD rally assumes quick resolution that the administrative record does not support.
The panelists generally agreed that while a Schedule III reclassification could bring significant benefits to cannabis operators like GTBIF and TLRY, including tax relief and potential expansion, the timeline and certainty of these changes are uncertain and risky. The market has already priced in much of the optimism, and there are substantial legal, regulatory, and financial hurdles that could delay or limit the upside.
Potential tax relief and expansion opportunities from a Schedule III reclassification
Uncertain timeline and outcome of regulatory changes, ongoing state challenges, and legacy 280E liabilities