By Anita Hamilton

Traders pushing down the price of pot stocks may be underestimating the positive impact of President Donald Trump's executive order paving the way for lower restrictions on cannabis products.

Most significantly, reclassification will enable marijuana businesses to deduct ordinary business expenses covered by section 280E of the federal tax code -- including payroll, rent, utilities, and insurance costs -- on their tax returns. That won't happen immediately, as the change likely won't take effect until early next year.

"Removing 280E represents a transformational margin catalyst that could significantly improve profitability, accelerate industry consolidation, and reshape long-term growth trajectories across the U.S. cannabis sector," Benchmark analyst Mike Hickey wrote in a Friday note.

Others are equally upbeat. "We view the EO as clearly bullish for the legal cannabis industry," analysts at Seaport Research Partners wrote Thursday. Easing restrictions on cannabis products would improve after-tax cash flow while "meaningfully" de-risking the industry's outlook.

The tax deduction change alone could collectively save pot businesses some $150 million in the so-called 280E taxes, according to an estimate from Alliance Global Partners. "While most operators have stopped paying their 280E tax and are realizing the cash flow benefits, but accumulating an uncertain tax liability, rescheduling will stop the uncertain tax liability building," the analysts wrote.

It could also lower pot companies' debt costs since the change enables them to take interest tax deductions previously unavailable to them, Alliance notes.

Notably the executive order does nothing to legalize pot federally or expand access to banking. That's what's driving declines in pot stocks like cannabis producers Tilray Brands and Canopy Growth, both of which were down sharply by midday Friday, following similar drops on Thursday. On the bright side, the exchange-traded fund, AdvisorShares Pure US Cannabis, was rebounding.

Write to Anita Hamilton at anita.hamilton@barrons.com

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December 19, 2025 12:46 ET (17:46 GMT)

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