How Long Will the Cannabis Stock Rally Last?
- - How Long Will the Cannabis Stock Rally Last?
Prosper Junior Bakiny, The Motley FoolJanuary 2, 2026 at 2:00 AM
0
Key Points -
Cannabis stocks have had significant momentum due to positive regulatory changes in the U.S.
However, this momentum is likely to be relatively short-lived.
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Many cannabis stocks have experienced significant growth over the past six months. For instance, shares of Tilray Brands (NASDAQ: TLRY) have increased by 125% over this period, while those of Curaleaf Holdings (OTC: CURLF) have risen by 212%.
The main reason for this rally is that the market was becoming increasingly optimistic about potential movement in the U.S. cannabis industry's regulatory landscape. These hopes proved correct: President Donald Trump recently signed an executive order reclassifying the substance into a Schedule 3 drug. This moves the needle for pot growers, but can the recent momentum last?
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Person examining leaves in cannabis facility.
Image source: Getty Images.
Why the rally might last a little longer
Reclassifying cannabis doesn't make it legal at the federal level. That means interstate commerce remains forbidden. However, it will make research into medical uses of pot easier. It will also grant cannabis companies more access to banking services and allow them to deduct normal business expenses, just like most other businesses do. This latest change could be particularly significant, as it would result in a substantially lower effective tax rate and higher bottom-line numbers for multistate operators (MSOs) like Curaleaf Holdings.
Tilray Brands does not generate revenue from cannabis operations in the U.S., but given recent changes, the company could quickly enter the market through its hemp business in the country. Once the financial effect of President Trump's executive order on MSOs like Curaleaf becomes clearer, and other companies, such as Tilray, make their moves, their shares could jump even higher. So, 2026 could be a (rare) good year for the cannabis industry.
The long-term view
That said, there are several key points to consider, lessons we learned from the Canadian experience. Our neighbors to the north legalized pot in 2018, but that did not lead to strong financial results or performances for the leaders in the country, including Tilray. Even with friendlier laws, stringent regulations still remain, which will make things complicated. The inability to cross state borders with cannabis almost forces MSOs to handle their entire supply chain, from cultivation to distribution, in every single state where they do business -- since each state is, essentially, its own isolated market. That's far more expensive than it would be otherwise.
Furthermore, the new developments in the industry may attract far more competition. Tilray and other companies that dominate the Canadian market may try to carve out a niche in the U.S., given the loosening restrictions on pot. This may lead to a problem of oversupply, which will lower prices and make it more challenging for corporations to generate steady profits. Lastly, illegal channels to purchase weed in the U.S. are still alive and well, and it is unclear whether current changes will significantly alter that.
Given all these factors, investors shouldn't expect a sustained run for pot companies for the next few years. My view is that the rally will extend into next year, but then fizzle out after that.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
Source: “AOL Money”
