The Comeback of Cannabis: A Wall Street Frenzy Caused by a Legislative Loophole Tilray, a Canadian marijuana startup, briefly reached a twenty billion dollar market valuation back in September 2018. In the first half of that year, it had brought in twenty million dollars.
The math was, by any conventional measure, unhinged — and yet the trading floors were electric with it, analysts were scrambling to cover the sector, and a Wall Street banker named Shannon Soqui was quitting his job to sell cannabis products at home parties the way Mary Kay sells cosmetics. In 1997, the internet was compared with sincere enthusiasm and only slight embarrassment. Everyone knew something was about to happen. No one knew exactly what form it would take or how long it would take to get there.
| Category | Details |
|---|---|
| Industry | Cannabis / Legal Marijuana & Hemp |
| US Market Size (projected) | ~$100 billion annually (US total addressable market) |
| Federal Legal Status (US) | Schedule I controlled substance (marijuana); hemp federally legal under 2018 Farm Bill |
| Key Legislative Loophole | 2018 Farm Bill — legalizes hemp-derived cannabinoids (Delta-8, Delta-9 THC below 0.3%) |
| States with Legal Recreational Cannabis | 24+ states as of 2025 |
| Key Public Companies | Tilray Brands (TLRY), Canopy Growth (CGC), Curaleaf, Green Thumb Industries |
| Tilray Peak Valuation (2018) | ~$20 billion (with only $20M in first-half revenue) |
| Current Rescheduling Status | DEA rescheduling to Schedule III proposed; outcome still pending |
| Key Tax Issue | IRS Section 280E — prevents cannabis businesses from deducting standard expenses |
| Primary Investor Risk | Federal legal uncertainty, banking restrictions, state oversupply |
| Reference Website | Wall Street Journal — Wall Street’s Marijuana Madness |
The initial wave broke. Tilray’s stock fell. Canopy Growth, once the darling of institutional investors and the subject of a landmark investment by Constellation Brands, spent years watching its valuation erode. For many early investors, the sector’s silence was akin to a correction or a humiliation. The dispensaries kept operating, the consumer market kept growing state by state, but the publicly traded stocks told a story of overpromising and under-delivering that made cannabis a difficult word to say in certain investment committee rooms without a knowing, slightly pained smile.
The opportunity’s texture has changed, and something has actually changed. The current rally isn’t built purely on projection and enthusiasm, though those are still present in quantities that any serious analyst should note carefully. It’s built partly on a legal structure that has been quietly reshaping the market since 2018, and it involves a piece of agricultural legislation that most people outside the industry haven’t read and most people inside the industry have read very carefully indeed.
Hemp and hemp-derived cannabinoids were made legal by the 2018 Farm Bill, which set a legal threshold of 0.3 percent delta-9 THC content by dry weight. What followed, over the next several years, was a proliferation of products — delta-8 THC, delta-9 gummies sold legally in states where marijuana remains prohibited, hemp-derived vapes moving through conventional retail channels — that occupy a space the law created without fully anticipating.
Walk through a gas station in Tennessee or a convenience store in Texas and the shelves carry products that deliver a genuine psychoactive experience, sold legally, taxed lightly, and manufactured by companies that don’t face the banking restrictions and IRS Section 280E penalties that crush the margins of traditional cannabis operators. In the strictest sense, it’s a gap between what the chemistry permits and what the legislation intended.
There’s a feeling, watching this sector from the outside, that Wall Street is running two separate calculations simultaneously — one on the hemp-derived product market, which is growing without meaningful federal interference, and another on what happens if the DEA’s proposed rescheduling of marijuana from Schedule I to Schedule III actually completes. Federal legalization of cannabis would not result from Schedule III reclassification.
But it would almost certainly eliminate the Section 280E tax treatment that currently forces cannabis companies to pay effective tax rates that can reach 70 percent or more because they cannot deduct ordinary business expenses. That single change, if it materializes, would transform the profitability of every licensed cannabis operator in the country without requiring a single additional sale.
Investors seem to believe, or at least hope, that the rescheduling process is eventually going to complete. It’s still unclear whether the current administration has the appetite to push it through, and the DEA’s timeline has already slipped from the optimistic projections made in 2024. But the option value embedded in that outcome has kept institutional interest alive in a sector that was largely written off two years ago, and it’s drawn back some of the hedge fund money that exited during the long post-2018 hangover.
The companies that survived the first wave are structurally different from what they were. The Canadian licensed producers that dominated the early coverage — Tilray, Canopy, Aurora — went through years of painful restructuring, cutting staff, closing facilities, absorbing impairment charges on assets they’d bought at peak euphoria prices.
What remains is leaner, though not always profitable in any way that would satisfy a traditional value investor. The US multi-state operators, companies like Green Thumb Industries and Curaleaf operating in the state-legal markets, have built real businesses with real cash flow, but they remain locked out of major US stock exchanges, forced to trade on over-the-counter markets, unable to access the banking system on normal terms, carrying the weight of federal illegality on every financial relationship they have.
It’s difficult to ignore the similarities to other sectors that were in a legal limbo for years before a resolution emerged and drastically altered the competitive environment. Each of these industries—gambling, sports betting, and alcohol after Prohibition—went through a phase of developing actual operational capacity under difficult legal circumstances.
The businesses that made it through this phase without going out of business were in a unique position when the regulations were eventually clarified. Regardless of what polling indicates about public opinion, the politics surrounding marijuana remain genuinely complex in Washington, where decisions that have not yet been made will determine whether cannabis follows that pattern.
The hemp loophole as it currently exists will not last forever. States are already taking steps to regulate delta-8 products, and as the Farm Bill is reauthorized, there will be some sort of federal clarification. That generates its own sense of urgency.
Businesses creating brands in the hemp-derived industry are rushing to build distribution connections and customer loyalty before the regulatory landscape tightens. Building as much as you can while the window is open and making adjustments when it closes is a well-known dynamic. The market is currently pricing with a great deal of optimism and possibly not enough caution as to whether that is a wise strategy or a race against a closing door.
