This summer there was a lot of talk about the Trump administration leaning toward rescheduling cannabis in the United States from a Schedule 1 drug (like heroin and ecstasy) to a Schedule 3 drug (like steroids and ketamine). According to recent reports, all that smoke is turning to fire as the decision seems imminent.
The Washington Post ran a story on December 11 that President Trump intends to sign an executive order beginning the process, citing six anonymous sources and noting a call with the President, Speaker of the House Mike Johnson, and Health Secretary Robert F. Kennedy Jr. The story was reinforced a day later when CNBC reported that the executive order could be issued as soon as Monday, December 15.
Market Reaction
This summer and into the fall the cannabis sector experienced a significant surge in stock prices, and the recent news produced a similar immediate effect. A sampling of some of the major cannabis ETFs show large single-day gains from last Friday: the AdvisorShares Pure US Cannabis ETF (MSOS) gained about 54%; the Amplify Alternative Harvest ETF (MJ) rose around 43%, and the Cambria Cannabis ETF (TOKE) shot up about 21%. Some individual stock performances of note included LEEF Brands (LEEEF) finishing up 26%; Curaleaf Holdings (CURLF) adding about 37%, and Trulieve Cannabis (TCNNF) gaining 67%.
Why Rescheduling Matters
Rescheduling would go a long way toward providing stability and a platform for growth in the industry. It is seen as a step toward federal legalization, but cannabis would not be legal as a result of rescheduling.
However, rule 280E of the Internal Revenue Code would go away. This rule prevents cannabis companies from deducting ordinary business expenses, leaving many with sky-high tax bills—sometimes as much as 60–70% of their profits vanish to the IRS. Legal operators could deduct salaries, rent, marketing, and other standard expenses, just like any other business.
For multi-state operators, the potential benefits are even greater. These companies often have large, complex operations spanning several states, which means they’re hit hardest by the current tax regime. Removing the 280E burden could save millions in annual expenses, freeing up cash to reinvest in expansion, innovation, and talent.
One to Watch
LEEF Brands is one company to watch here given its recent expansion into the New York market from its home range in California. The company specializes in extraction, taking raw cannabis and transforming it into high-value concentrates, oils, and ingredients that power everyone from boutique craft brands to major multi-state operators. Instead of having its revenue depend on building a single iconic consumer brand, LEEF enables dozens of brands through white-label manufacturing, toll extraction, and partner supply contracts.
LEEF is a growth story, both in terms of revenue and margins, in an industry where many of the larger players are flattening out. Take a look at this chart comparing revenue/margin growth among some of the larger U.S. operators.
Source: Jesse Redmond/LEEF Brands
Revenue Growth and Margin Upswing
LEEF posted Q3 revenue of $8.4 million, a 24% increase from $6.8 million in the same period last year. This significant topline growth comes in a period when many cannabis peers are reporting stagnant or shrinking sales due to oversupply, price compression, and illicit market persistence in California.
What truly sets LEEF’s quarter apart, however, is its more than doubling of gross margin, up to 45% from 22% a year earlier. This jump isn’t just accounting optics—it reflects the combined effect of two operational triumphs:
- First Harvest at Salisbury Canyon Ranch: The successful 65-acre initial harvest at LEEF’s flagship 1,900-acre cannabis farm brought substantial quantities of pesticide-free, high-quality cannabis into the company’s proprietary extraction lines. By producing some of its own feedstock, LEEF slashed its input costs and reduced its dependence on volatile third-party flower markets. This vertical integration, a longstanding goal within LEEF’s strategic roadmap, directly powered margin expansion and sets a precedent for further gains as the ranch is replanted with new strains and scaled up for future harvests.
- High-Margin New York Sales: Launching its upstate New York extraction lab in record time, LEEF began solventless operations in September, quickly converting local biomass into high-value concentrates. The higher pricing and lower overhead in New York (compared to margin-squeezed California) resulted in sales that further amplified company-wide margins. With the hydrocarbon extraction line coming online imminently and all of 2025’s planned output already pre-sold to local partners, New York is shaping up to be not just a regional growth engine, but a template for how LEEF can replicate its California lessons in new markets.
Contributing further to the improving financials is LEEF’s recent retirement of about $10.5 million of convertible debentures. The move eliminates a large portion of the company’s debt, leaving about $11 million in very low- to no-interest loans on its Salisbury Canyon Ranch property. The ranch has been appraised around $40 million.
Should the rescheduling take place as anticipated, the resulting tax law changes could supercharge LEEF’s already improving financial picture. Its market capitalization of about $35 million is less than the appraised value of the ranch and right around the mark LEEF should hit for annual revenues in 2025. While LEEF continues its growth story, the apparently imminent rescheduling of cannabis from Schedule 1 to Schedule 3 could continue to spark a re-rate of the whole sector.
