Pot stocks just notched their biggest weekly rally since March 2020 amid hopes of a lower-risk rating from the DEA

• America's marijuana industry has felt a prolonged slump as the drug remains classified as dangerous as heroin.
• But pot stocks rallied last week on the news that the DEA agreed to review cannabis's risk-rating.

Marijuana stocks ended Friday's trading with their best week since March 2020 on the hopes that a review by the Drug Enforcement Administration could lower the drug's risk rating.

The MJ PurePlay 100 Index – which contains 100 cannabis-related stocks – notched its best weekly gain in two and a half years, rising 28%. The Roundhill Cannabis ETF gained a record 42% last week.

The weeklong rally followed the recommendation on Wednesday from Assistant Secretary for Health Rachel Levine, who asked the DEA for cannabis to be classified as a Schedule III drug under the Controlled Substances Act, Bloomberg reported.

The shares rose further after the DEA confirmed it had received the recommendation and signaled that it would launch its own review to decide on the reclassification, per Bloomberg.

Marijuana is currently classed as a Schedule I drug in the US, the same category as heroin and LSD, despite widespread legalization.

This classification has been a drag on the industry for years and a lower risk rating would open up greater access to the financial services industry for cannabis companies.

"A move to Schedule III would eliminate the onerous tax treatment of U.S. MSOs [multi-state operators], and represent a major legitimizing event for the industry that could draw participation from institutions and strategic investors who have hitherto largely been sidelined by its Schedule I status," Eight Capital analyst Ty Collin told Reuters.

As it stands, banks are largely prohibited from working with weed-producing companies because the substance remains illegal at the federal level. This forces many companies to rely on cash or resort to ways around traditional financing.

The SAFE Banking Act aims to change this – though it has not yet managed to pass through the Senate.

Reclassifying marijuana to Schedule III would put it in the same category as ketamine and anabolic steroids. It would be a first step towards federal legalization and that could even allow major stock exchanges, like the NYSE and Nasdaq, to list cannabis companies.