Cannabis stocks could be poised for a rally after years of stagnation, fueled by investor optimism over the possibility for new federal rules for hemp-derived products and signals that President Donald Trump could take a more permissive stance on marijuana.

Publicly traded cannabis companies have seen their share of ups and downs. Verano Holdings reported earnings Wednesday that saw revenues of $203 million, up slightly from the previous quarter but down 6% year-over-year. However, Verano posted a net loss of $44 million, partly due to a $5 million impairment charge on a facility in Pennsylvania and $10 million in legal contingencies as a result of a settlement.

Next week, two U.S. cannabis giants, Curaleaf and Trulieve, are set to follow in reporting earnings. While the sector is down roughly 10% this year, based on cannabis-focused ETFs, some executives, like the CEO of Tilray Brands, remain optimistic for a turnaround. Already, in October, Tilray Brands‘ stock jolted up 22% after reporting better-than-expected fiscal first-quarter results.

“We could be looking at a true inflection point for cannabis. If reforms move forward, it could attract more companies to do business in the U.S.,” Tilray CEO Irwin Simon told CNBC.

Three developments are driving the growth: Trump’s seeming embrace of Medicare coverage for CBD, a non-intoxicating hemp-derived cannabis compound; the president’s statements about reclassifying the drug status of marijuana; and movement in Congress to regulate hemp.

Meanwhile, cannabis is becoming more popular than ever. As of a 2024 report, daily or near-daily marijuana use surpassed daily drinking in the U.S., based on analysis of 40 years of data from Carnegie Mellon University.

The annual value of the U.S. production of cannabis grew 40% last year from the previous year, according to the Department of Agriculture, and cannabis-derived products, which include CBD and marijuana-based items, are now projected to reach a $160 billion global market by 2032, according to Grand View Research.

Optimism in the cannabis market surged in September after Trump shared a video on Truth Social that promoted Medicare coverage of CBD and made unproven anti-aging claims about the substance. 

The video was produced by The Commonwealth Project — which advocates for seniors using cannabis and was founded and is funded by Palm Beach billionaire Howard Kessler — and directly appealed to the president.

Known for pioneering affinity credit cards, Kessler shifted to cannabis advocacy in 2019 but has been in Trump’s orbit since at least 2005, attending Trump’s wedding to Melania Trump and appearing at Mar-a-Lago and state dinners. Neither Kessler nor the White House responded to a request for comment on the matter.

Cannabis stocks reacted immediately to the video. On the day it was posted, shares of Tilray spiked 42%, while Aurora Cannabis stock gained 25%, shares of Canopy Growth jumped 18% and Cronos Group stock added 15.5%.

“A lot of folks in the industry saw him [Trump] posting the video as a bit of a surprise but we think he’s trying to gauge how the public feels about cannabis products,” said Adam Smith, executive director of the Marijuana Policy Project, which advocates for the legalization of marijuana. “Some people call it the ‘Trump effect,’ and think if he leans into CBD, it’s possible that other Republicans will support.”

There is limited data on effective doses of CBD for inflammation or chronic pain, particularly in seniors, according to the National Institutes of Health. Kevin Sabet, president of Smart Approaches to Marijuana, an organization opposed to marijuana, said people are overreacting to the post.

“It’s a big stretch to say a post or two is a fully throated endorsement of reform,” Sabet told CNBC. “A lot of times his posts don’t line up with formal policy positions.”

To date, the FDA has only approved one CBD-based drug, Epidiolex, to treat rare forms of epilepsy. Other uses lack scientific evidence and have “largely unknown” effects, said Meg Haney, director of the Cannabis Research Laboratory at Columbia University.

Trump’s post also adds to momentum around regulating hemp — which is a variant of the marijuana plant that doesn’t cause a “high, according to the Centers for Disease Control and Prevention — which was legalized under the 2018 Farm Bill. Congress is weighing updates to the bill by year’s-end that could adopt long-awaited federal standards for labeling, testing and safety of hemp-derived products left unregulated under the original law.

“Regulation isn’t scary, as long as it is effective, because the clearer the lines are, the better it is to be in the business [when] you don’t have a looming axe over your head,” said Pamela Epstein, the chief legal and regulatory officer of hemp producer Terpene Belt Farms. 

The 2018 legalization triggered a $1.6 billion hemp market by 2023, according to Grand View Research. Hemp-derived CBD products containing less than 0.3% THC — the psychoactive compound responsible for a high — were legalized under the bill and spread rapidly into gummies, beverages, creams and even pet treats, and are projected to drive more than 20% growth by 2030, the data firm said.

But the vacuum of oversight left consumers exposed to mislabeled, untested and sometimes unsafe products, Smith told CNBC.

“It’s possible in the hemp sector grew a little too fast without rules,” Smith said. “Problems came up with some stuff masquerading as CBD but having high levels of THC, products marketed to kids and some products with tainted samples.”

Proposals in Congress range from an outright ban on hemp to tightening THC limits. Others in the cannabis industry are lobbying for an “alcohol-model” framework — with the FDA overseeing product safety and the Alcohol and Tobacco Tax and Trade Bureau managing taxation and distribution.

“Clear rules aren’t scary,” said Tilray CEO Simon. “They’re the best way to grow sustainably and shed the uncertainty that’s defined this space for years.”

People like Epstein caution that a complete ban could cripple the hemp economy, which supports about 320,000 jobs nationwide, according to the U.S. Hemp Roundtable and industry-related reports. But others like Michael Mayes, CEO of cannabis consulting firm Quantum 9, said any form of federal standards is essential to legitimize the market and draw institutional investors.

“Federal regulations would help some investors see cannabis as not a fringe investment with their money,” Mayes told CNBC. “By next year, it’s possible. Smart, consistent rules could be the key to unlocking billions in growth while working to ensure consumer safety.”

In August, he said his administration was “looking at” reclassifying marijuana from a Schedule I drug — alongside heroin and LSD — to a Schedule III drug.

The move would not legalize recreational marijuana but it would make it easier to sell, advocates said. It would also improve access to banking and financial services because it would lift certain IRS tax restrictions, which bar cannabis businesses from deducting standard expenses. Changes could also ease barriers to conducting scientific research, which experts said has been stifled under the drug’s current classification.

“To demonstrate that cannabis has medical utility, we need to do large, controlled trials, but we can’t really do those if it’s a Schedule I drug. As a result, that means you can’t do the studies needed to reschedule it,” Haney said. “It’s like the chicken and egg conundrum.”

A White House official described the rescheduling process as ongoing and said that “all policy and legal requirements and implications are being considered.”

Cannabis industry sources said investor optimism partly centers on Trump’s chief of staff, Susie Wiles, who previously worked at Ballard Partners, a Florida lobbying firm representing Trulieve, one of the largest U.S. cannabis companies. Though Wiles wasn’t registered as Trulieve’s lobbyist, she is described by multiple sources in the cannabis industry as a close friend of Trulieve CEO Kim Rivers. The people spoke anonymously to talk candidly about the matter.

According to the Florida Division of Elections, Trulieve spent more than $100 million supporting a failed ballot measure to legalize recreational cannabis for adults 21 and older. The company reportedly played a key role in securing Trump’s backing for the initiative. For the presidential race, according to Federal Election Commission filings, Trulieve donated $750,000 to Trump’s inauguration committee and another $250,000 to his MAGA Inc. super PAC.

Rivers attended two pre-inauguration events, including a dinner for Vice President JD Vance, and reportedly joined a $1 million-a-plate fundraiser at Trump’s New Jersey golf club in August, where she urged him to reclassify marijuana, the Wall Street Journal reported.

Two days after the fundraiser, Trump made his “looking at” comments about marijuana’s classification.

Wiles, Rivers and Truileve did not respond to requests for comment.

The backlash stems from hemp’s post-2018 boom, which quickly turned into a glut. Licensed acreage soared 445% over the previous year by 2019, according to advocacy and research group Vote Hemp, but the market became oversaturated with products, which forced many retailers and producers to pivot or close, experts said.

“Very quickly, there became a bloat of products and for a lot of the companies, the financial results weren’t there. There wasn’t growth. You had some really tough balance sheets, and I think the investors were unsure of the underlying fundamentals,” Cronos Group CEO Michael Gorenstein said.

Today, the market has rebounded but remains the “Wild West” without regulations, Smith said. FDA research this summer linked unregulated CBD to potential liver damage, and experts warn that THC in hemp can be chemically altered or added in quantities that make it as intoxicating as marijuana.

Lawmakers have responded to safety concerns.

Over the summer, Rep. Andy Harris, R-Md., introduced a bill redefining hemp to exclude any product with “quantifiable” THC, which passed a House committee along party lines. The Senate Appropriations Committee advanced similar language unanimously in July, as Sen. Mitch McConnell, R-Ky., — who championed the 2018 legalization effort — called for restoring the law’s “original intent.” A Congressional Research Service report in August said the proposals would “effectively” ban almost all hemp-derived products.

Looking ahead, many in the industry said the future rests on what Trump does next, particularly in the next few months. Even the perception of regulatory change has spurred investor optimism.

“For many of us, it’s not a question of when but what the regulations will be and how they’ll be enforced,” Gorenstein said. “If the next administration delivers clarity, that alone could shake up this industry.”