The reason that the principal, Mrs. Davenport, orders Greg to stop selling toys at school is that the toys are creating a distraction at school.

When Greg arrives in her office, he immediately sees the array of his merchandise on her desk, including mini superballs and sticky stretchy spiders. The principal also makes reference to "tiny trolls" that Greg had previously been selling.

She describes them as "nuisance items" and tells Greg that there's already enough of a problem with kids bringing such items to school from home. She tells him in no uncertain terms that she doesn't need the problem exacerbated by having toys sold on school property.

In this exchange, she also asks him why he has been selling toys, and he admits that his primary goal is "to make some money." This is important, because the first thing you need to know about Greg is that he is driven by his ongoing quest to earn money. This is why he initially has such a problem later in the story with Maura providing competition for his next business venture—comic books.

Mrs. Davenport's problem with Greg selling toys isn't the only obstacle he's come across. The kids are getting bored of his toys, and so is Greg himself. The time is right for Greg to give up on the toys and embark on a new endeavor.