Tilray Brands announced that the federal government has reclassified marijuana from a Schedule I to a Schedule III controlled substance, a change that removes the drug from the most restrictive category and aligns it with substances such as ketamine and Tylenol with codeine. The reclassification is expected to allow Tilray to deduct operating expenses under IRS Code §280E, a tax relief that has historically penalized cannabis companies operating under Schedule I or II.
The executive order also signals a broader shift in federal policy that could improve Tilray’s access to banking services, which have been limited for cannabis operators. In addition, the order paves the way for a Medicare pilot program that will cover certain cannabidiol (CBD) products for seniors, opening a new revenue stream for Tilray’s medical cannabis and wellness segments.
Tilray’s Q2 2025 results provide context for the potential upside. Net revenue rose 9% year‑over‑year to $211 million, driven by a 36% increase in beverage alcohol revenue and a 25% rise in international cannabis sales. Gross profit grew 29% to $61 million, improving the gross margin to 29% from 24% in the prior year. The company reported a net loss of $85 million, largely attributable to non‑cash items and one‑time costs.
Management highlighted operational efficiencies as the primary driver of margin improvement. CEO Irwin D. Simon noted that “our dedication to operational excellence has improved Gross Margins, Gross Profit, and overall profitability across our business segments, positioning us favorably for future success.” The company reaffirmed its fiscal‑year 2025 revenue guidance of $950 million to $1 billion, indicating confidence in continued growth.
Market reaction to the reclassification was muted. Investors had already priced in the regulatory shift, and the day’s trading reflected a classic “buy the rumor, sell the news” dynamic. The reclassification did not legalize recreational use, which limited the immediate upside.
The DEA must still complete its formal rule‑making process to finalize the Schedule III classification, meaning full implementation will take time. Nonetheless, the executive order is the most significant change to U.S. drug laws since the Controlled Substances Act of 1970 and is expected to benefit the entire $32 billion state‑regulated cannabis industry by reducing tax penalties and improving access to financial services.
In summary, the reclassification offers Tilray a tangible tax benefit, potential banking access, and a new Medicare‑covered product line, all of which could strengthen the company’s competitive position and long‑term profitability.
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