AdvisorShares says reclassification order is a ‘pivotal moment’ — what it means for MSOS and cannabis ETFs

AdvisorShares frames the executive order as a turning point for cannabis investing

AdvisorShares, the sponsor behind the US-focused cannabis ETF MSOS (MSOS), issued a blunt statement after a presidential executive order to reclassify cannabis. The firm’s MSOS portfolio manager called the move a “pivotal moment” for the industry, saying it removes a long-standing policy barrier and could open capital markets and banking for legitimate cannabis businesses.

The statement positioned the order as a clear shift in the federal government’s stance — not just a minor administrative change. AdvisorShares said the policy could change how mainstream investors and institutions view cannabis-related firms, and it highlighted the potential for better access to custody, banking and tax treatment for companies that have been frozen out of normal financial plumbing.

Quick market response: MSOS and cannabis ETFs jumped and trading sped up

Markets reacted quickly. MSOS (MSOS), which focuses on U.S. cannabis companies, moved sharply higher on the news and traded with noticeably higher volume as investors scrambled to reposition. Other cannabis ETFs also showed big swings and added volatility, reflecting a mix of fresh buying and profit-taking.

Volume spiked intraday and carried into after-hours trading, a sign that both retail and institutional traders were active. The move wasn’t orderly — investors rotated between ETFs and individual stocks as traders tried to pick winners in a crowded sector. In short: the news injected a fresh dose of speculation and liquidity into a market that had been relatively dormant.

What “reclassify cannabis” would actually change for the industry

“Reclassify” can mean different things. Two terms matter for investors: rescheduling and descheduling. Rescheduling would move cannabis to a lower category under federal drug laws. Descheduling would remove it from the federal controlled-substances framework altogether.

If cannabis is merely rescheduled, the government would still regulate it as a controlled substance, but the legal and banking landscape would loosen somewhat. Descheduling would be more dramatic: it would eliminate the federal criminal framework that has been the biggest single drag on public-market participation, lending and tax treatment.

Practically, reclassification affects a few investor-facing areas right away: banks and custodians would be less reluctant to take cannabis assets; broker-dealers could clear trades with lower regulatory friction; and companies could pursue debt and equity financing more easily. It could also change how the IRS treats cannabis businesses for tax purposes — potentially restoring normal deductions that have been denied under the current regime.

How reclassification would change ETF mechanics and fund managers’ playbook

For ETFs like MSOS, the main near-term implications are custody, banking and index eligibility. Some custodians and prime brokers currently avoid cannabis assets because of federal risk. If reclassification reduces that legal risk, those providers may serve cannabis ETFs more readily, lowering trading costs and improving liquidity.

Fund managers would also reassess index rules and weighting. Many cannabis ETFs underweight larger, more established operators because of compliance or listing constraints. As banks and clearing firms return, fund sponsors could add names that were previously excluded or increase allocations to firms with strong U.S. operations.

Tax and compliance are central. Public companies that operate in cannabis face a punitive tax regime that limits deductions and raises effective tax rates. A change in federal classification could ease those limits and improve reported profits — but the timeline and exact tax outcomes will depend on follow-up guidance from Treasury and the IRS.

What AdvisorShares said and how rivals reacted

AdvisorShares’ release emphasized opportunity. The MSOS portfolio manager said, in part, “This development removes a major obstacle that has prevented normal banking and capital markets access for cannabis businesses — it is a pivotal moment for investors and operators alike.” The firm made clear it expects the sector to re-price higher as clarity arrives.

Other industry participants gave more cautious or nuanced takes. A number of fund sponsors and trade groups welcomed the order but warned that reclassification alone won’t instantly rewrite contracts, licenses or tax rules. Taken together, the industry response signaled optimism but also patience: this is the start of a process, not an instantaneous transformation.

Risks, timing and what investors should watch next

The news is material, but it brings big caveats. First, legal timelines matter: an executive order sets policy direction but usually triggers a months-long administrative process. Agencies such as the DEA, FDA, Treasury and the IRS will each play roles, and their rule-making and guidance will determine the practical outcome.

Second, political and legislative pushback is possible. Courts or Congress could challenge aspects of reclassification, or lawmakers could seek to limit its effects. Third, many commercial obstacles remain: state regulatory frameworks, licensing rules, and existing contracts won’t change overnight.

For investors, the closest watchpoints are: updates from the DEA and Treasury on classification mechanics; IRS guidance on tax treatment for cannabis businesses; changes in custody and prime-broker willingness; and fresh filings from public cannabis operators as they reassess financing plans. Overall, the order is a positive step for MSOS and U.S.-focused cannabis funds, but the path from policy signal to improved earnings and clearer valuations will be uneven and time-consuming.

Sources

• prnewswire.com