For those new to the cannabis industry, there are three distinct groups of cannabis: indica, sativa, and hybrid. All of the different types of strains are considered marijuana but classifying them into the three groups helps to determine the types of effects, smells, and flavors that should be expected from a particular strain.
A History of Cannabis
Just as trees have evolved to suit their climate, so have indica and sativa strains. For example, indica strains are thought to have originated near Central Asia. From there it spread to India, Nepal, Pakistan, Afghanistan, Morocco, and Turkey. These strains adapted to local growing conditions and were generally found between 30° and 50° latitude. Names such as Afghani Kush, Hindu Kush, and Mazar I Sharif have been given to the plants that thrived in this region.
In comparison, sativa grows in warmer weather near or on the equator. Countries such as Colombia, Mexico, Thailand, and Southeast Asia, where there are humid and tropical climates have seen sativa bloom into strains called Durban Poison, Panama Red, and Acapulco Gold. There are many regions today where sativa still grows wild.
Both of these naturally-growing landraces have formed the backbone, genetically speaking, for modern cannabis cultivars. Crossbreeding of particular landraces, as well as strains produced, have given the marijuana industry the wide variety of cannabis strains now available, each with its own distinct characteristics.
It is possible to identify whether a plant is indica or sativa by looking at how the plant grows. Indica grows short and bushy and is usually under 6 feet tall. Sativa can reach upwards of 20 feet when grown outdoors. The branches of the sativa plant spread outwards and upwards with long, narrow leaves, while the leaves of the indica plant are much thicker and broader.
Since indica plants grow smaller, many prefer them for indoor cultivation. These plants typically produce less of a yield than their taller counterparts, but there is a shorter growing cycle which offsets the lower yield.
Sativa plants can take anywhere from 10 to 16 weeks to mature during their flowering period, much longer than indica. However, the longer maturation time results in a much higher yield.
Chemical Characteristics and Composition
On a molecular level, sativa and indica strains differ in the make-up of the cannabinoid content, terpenes, and other compounds.
Terpenes give the cannabis plant and flowers a diversity in aroma and flavor. These essential oils are secreted into the flower’s resin glands. Terpenes, in addition to providing a flower with its distinct aroma, also provide therapeutic abilities. Flavor profiles in indica strains can range from sweet must to rich earth to dark fruit, while sativa strains often evoke a citrus, pine, or even tropical profile.
With over 100 cannabinoids identified in the cannabis plan, the two most well-known are tetrahydrocannabinol (THC) and cannabidiol (CBD).
Pure sativa strains are high in THC and low in CBD content, while indica strains tend to have a higher CBD content and lower THC. When crossbred, growers are able to have both indica and sativa strains with varying ratios of THC:CBD cannabinoid concentrations.
THC and CBD work together inside the cannabis plant. TCH is the most prevalent cannabinoid with CBD coming in second. THC’s interaction and effect with the body is controlled by CBD and pay modulate the high a strain produces.
The Effects of Cannabis
A strain can have a personality that will manifest itself with each cannabis strain having different nuances that effect the body and mind. Traditionally, indica affects the body and sativa affects the mind. Through the hundreds of different hybrids available, the effects from these two strains can differ widely in their exact effects on the body and mind.
Typically, indica strains cause changes to the body, including feelings of:
Used by many after strenuous activity to manage recovery time, chronic issues where a calm or relaxing state should be achieved, or even relaxing at home before bedtime, indica-dominant strains provide a mellow high.
In contrast, sativa strains give a more cerebral high and tend to manifest their effects in the mind. The effects can be:
Sativa strains can enhance creativity, allow for deep conversation, and are suited for daytime use or social situation. Many users struggling with mood issues turn to the sativa strains of medical marijuana.
Hybrids of Sativa and Indica
Through hybridization, there are many different strains of sativa and indica. By combining the effects of the parent genetics into a single strain, botanists have produced a wide variety of sub-strains. From these sub-strains, many of the genetic pieces have been pulled and combined with parent genetics to form new hybrid strains.
For example, Girl Scout Cookies is a very popular strain. It pulls genetic pieces from the pure sativa Durban Poison along with the hybrid strain OG Kush. Girl Scout Cookies, even as a product of crossbreeding, is itself used as a parent to create dozens of new strains now available on dispensary shelves.
The Cannabis Family Tree
Just as humans are able to trace their DNA back generations, hybrid strains can also be traced. Tracing hybrid strains can become a confusing endeavor with over two thousand different strains named, each claiming a unique genetic family tree.
Taking on the parent strains characteristics, including scent and flavor profiles, the ability to combine breed strains together gives breeders an almost endless way to combine cannabinoid and terpene compositions. The effects will manifest as sativa-dominant, indica-dominant, or a hybrid balance of the two. Knowing the parent genetics of a strain and the ratio of dominance, either indica or sativa, users are better able to find the strain that fits their individual needs.
Genotype VS Phenotype
The DNA of a plan, a strain’s genetics, is the genotype. A plants observable characteristic is its phenotype. Genetics and environmental influences determine a plants phenotype. Variations may occur within a particular strain when grown. Therefore, due to phenotype and environmental factors, buyers may experience a slightly different taste or smell or even stronger indica or sativa effect than expected.
Once again, the federal government stands in the way of businesses in the marijuana industry that operate in states where marijuana is legalized. In January, the Internal Revenue Service (IRS) issued new policy updates totaling over 280 pages. In this extensive policy update, buried deep inside, there is a ban on future nonprofit organizations who lobby for the marijuana industry. For advocacy groups trying to change federal cannabis laws, life could get a lot harder.
The IRS hid inside the 280-page policy update a provision that declares that the agency will no longer acknowledge any tax-exempt applications for an organization “whose purpose is directed to the improvement of business condition…relating to an activity involving controlled substances…which is prohibited by federal law regardless of its legality in the state in which such activity is conducted.”
The Obama-era Department of Justice policies that protected the marijuana business have essentially destroyed. The IRS policy change can just two short days before U.S. Attorney General Jeff Sessions revoked the Cole Memorandum that protected marijuana industries from federal prosecution.
Rachel Gillette, a Colorado-based cannabis attorney, stated that the IRS’s new policy is not shocking. “It’s another example of the IRS’ punitive policies towards the cannabis industry.”
Another professional involved in the cannabis industry, California accountant Jerry Chin stated that the policy change is, “an interpretation of what the IRS sees in its own rules and regulations.”
Chin added, “What the IRS is saying is, if your trade association’s main purpose is the advocacy of a Schedule I substance, then we’re going to deny your application for that fact alone.”
Groups Affected by the IRS Change
There has already been one nascent marijuana trade group affected. The New Jersey Cannabis Industry Association (NJCIA), which celebrated its one-year creation in January, was denied an IRS determination letter for its application for tax-exempt status. The organizations president, Hugh O’Beirne, had fought back-and-forth with the IRS for months before the final decision came down.
It first appeared as if O’Beirne’s hard work was paying off as the conversation between the IRS and NJCIA was moving along with the IRS asking the organization for “further details on our application,” according to O’Beirne.
Then, at the “eleventh hour,” he was informed by the IRS of the procedural rule change and told that the IRS would not be issuing those types of letters to “your type of company.” All of this happened within 7 days of the procedural rule change announcement.
Whether other newly formed trade associations have been denied determination letters or tax-exempt status is unclear at this point. The IRS has not responded to requests from various publications. Additionally, since the policy change is so new, there is a great deal of confusion of how this change will affect the cannabis industry or organizations that are associated with the industry.
The Effect to Established Groups
There are no answers for current, long-standing marijuana advocacy groups wondering if their tax-exempt status will be revoked or whether the policy change applies only to organizations initially applying for tax-exempt status. Experts are not in agreement on that point.
The National Cannabis Industry Association (NCIA) has been registered as a 501(c)6 nonprofit organization since 2010. They feel as if they are a target for the IRS. For the NCIA, taxes owed to the IRS would total $210,000 for 2017 revenue received if not for the tax-exempt status.
Chin, who has been working with the cannabis industry since 2012, estimates that this type of cost could affect all marijuana nonprofit organizations under the new federal policy. His estimates for NCIA are based on their $3 million in revenue less $2 million in deductible business expenses for 2017.
He believes that there is the “distinct possibility” that the IRS may use the new policy to revoke the tax-exempt status previously granted to organizations like the NCIA. Unfortunately, the IRS has the ability to review the status of any organization and revoke it based on policy changes.
However, Henry Wykowski, a San Francisco based attorney, who serves as NCIA’s general counsel disagrees with Chin. He believes that the IRS does not have the power to remove an organization’s tax-exempt status except under limited circumstances and that the new policy is just another kick to the shins to the marijuana industry.
He believes that in order for the IRS to remove any tax-exempt status, an organization must “run afoul” of their tax-exempt obligations. He also believes that the new policy does not apply to any entity that may have already received a determination. He added that if the IRS revokes NCIA’s tax-exempt status that the organization could sue the IRS in U.S. Tax Court.
There is currently no clarity on whether the IRS will implement the new policy retroactively. Ed Bartlett, a Boston-based tax attorney stated, “The IRS would have to rule specifically that an organization no longer qualified for tax-exempt status. Until that happens, existing organizations should continue to function as tax-exempt entities.”
The IRS could potentially use the new policy to target groups already granted tax-exempt status. This could affect groups that work indirectly with the cannabis business and are not directly involved in the production aspect, such as Marijuana Policy Project (MPP) or Americans for Safe Access.
Hundreds of marijuana organizations that currently have tax-exempt status are potential targets if policy is interpreted to include state chapters of national nonprofits dedicated to reforming cannabis laws.
Companies such as NCIA are “prepared to fight” if the IRS tries to remove their tax-exempt status. Aaron Smith, executive director of NCIA, stated that he has not heard from the IRS about the policy change.
If nonprofit organizations lose their tax-exempt status, their profits will be tax, leaving fewer dollars to advocate for law changes. However, this is the worst potential outcome, according to industry insiders. Chin noted that a trade group that loses or is never issued tax-exempt status is subject to a 21% federal tax on any profits.
Even if the IRS decides to deny groups that have yet to receive tax-exempt status, it will still harm those particular groups’ effectiveness and credibility. With 21% less dollars to spend on advocacy, the groups will not be able to truly operate as nonprofits and complete the work expected of their members.
Thanks to the U.S. Attorney General Jeff Sessions, cannabis stocks dropped significantly after rising 40% in November leaving many investors with losses instead of gains. Earlier this month, A.G. Sessions rescinded the Cole Memorandum with a “return to the rule of law” announcement.
What the Sessions Memo Says
In Sessions’ memo sent to all U.S. attorneys, Sessions reminded readers that when deciding which marijuana activities to prosecute with the finite resources given to the Justice Department, there are “well-established principles that govern all federal prosecutions.”
He went on to say that those principles were established in 1980 by Attorney General Benjamin Civiletti. Over time, these principles have been refined and require federal prosecutors to decide which cases to prosecute on four main considerations:
- Federal law enforcement priorities
- Seriousness of the crime
- Deterrent effect of criminal prosecution
- Cumulative impact of particular crimes on the community
He finished by saying that specific guidance to marijuana enforcement is unnecessary and therefore rescinded.
It is a well-known secret that Sessions has hated marijuana and the Cole Memorandum. However, with his inaction his first year with the Trump administration, many were lulled into believing that he would not change any current guidance. Instead, he responded to conservatives by rescinding the Cole Memo. Or did he?
What U.S. Citizens Believe
Several surveys taken around the country show that a majority of people believe that marijuana should be legalized for medical and recreational use. Even Sessions’ home state of Alabama showed overwhelming support for cannabis legalization. According to the Pew Research Center, the percentages are actually astounding.
In 2016, a survey showed that 57% of adults in the U.S. favored legal marijuana compared to only 37% who said it should remain illegal.
- Millennials, ages 18 to 35, are the largest supporters with 71% in favor of legalizing marijuana.
- Generation X, ages 36-51, showed support in line with the general public at 57%.
- Even the Baby Boomers, ages 52-70, show favor with 56% supporting legalization.
In 2017, over 1,200 adults in the U.S. were asked about marijuana legalization based on political party.
- Democrats favored legalization of marijuana with 66% in favor and 30% not in favor.
- Surprisingly, 63% of Republicans who identify as moderate or liberal Republicans favor legalizing marijuana.
- Conservative Republicans are the only political group surveyed that opposed legalizing marijuana use, with 62% against.
Pew Research Center surveys have also found that blacks and whites are identically in favor of legal marijuana at 59% each, while Hispanics are less supportive at 46%.
Good News for Those Who Are Concerned
Even though Sessions rescinded the Cole Memo, the situation is not necessarily changed for the cannabis industry. With his memo, he left room for each state attorney general to decide whether to act or not. Xavier Becerra, California’s state attorney general, supports the laws passed by California voters and therefore will probably not act.
Congress also has the ability to keep the reigns tightened on Sessions. The Rohrabacher-Blumenauer amendment was created to keep funds away from the Justice Department to enforce the laws. It has been renewed every year and 2017 was no exception. On December 22, the Rohrabacher-Blumenauer amendment was included in legislation to fund the government for two weeks. The intention of the amendment was to protect medical marijuana, but a limited Justice Department budget will affect all areas of the cannabis industry.
The Effect on Marijuana Stocks
Leading up to California’s legalization of adult use marijuana, cannabis stocks had been bullish. In November, stocks rose 40% with anticipated strong sales of adult-use recreational marijuana. Up until January 4th, the date when Sessions released his memo in regards to the Cole Amendment, stocks were continually rising. However, as soon as word got out of the Sessions memo, stocks began to drop.
For example, companies such as MassRoots (MSRT) and Insys Therapeutics (INSY) dropped a staggering 26%, while Innovative Industrial Properties (IIPR) drop 18%. One company that seemed to fare best was GW Pharmaceuticals (GWPH) with a decline of only 0.36%.
Canada Is Also Affected
The AG’s letter to federal prosecutors allows individual prosecutors to decide whether or not to prosecute. This uncertain environment creates a problem for cannabis companies. Jonathan Sherman, an attorney at Cassels Brock, a Canadian law firm that specializes in cannabis legalization, stated, “If the Cole Memo no longer applies, the CSA (Canadian Securities Administrators) policy, with respect to U.S. cannabis operations, may be reversed as the Cole Memo was part of the reason why the CSA was comfortable to allow cannabis companies with U.S. operations to be listed.”
He went on to say that since the implications of the changing federal government’s approach are uncertain, there still will be a “significant concern to Canadian cannabis companies with U.S. operations.”
American cannabis companies now seem to be a risky investment for Canadian investors, whereas only a month ago, these same companies seemed like a good investment. The Toronto Stock Exchange (TSE) warned investors in October about American cannabis companies. The TSE did not want the Canadian companies listed to engage in activity with U.S. cannabis companies because of federal marijuana laws.
However, the Canadian Stock Exchange was more lenient. The Canadian companies that were cash heavy from money raised in the public markets, have been aggressively acquiring stock in U.S. cannabis companies. After the release of Sessions’ memo, Canadian company Horizons Marijuana Life Sciences ETF closed down 8.7% the same day.
What This Means for U.S. Investors
While the Sessions’ memo sent a slight shockwave through the cannabis stock market, this has not kept many investors from continuing to buy stocks in a range of companies in the marijuana industry. For the savvy investor, research into all companies is advised. The investor who does his or her homework can reap the benefits of future legislation as more and more states legalize medical and adult-use recreational marijuana.
Congressman Earl Blumenauer said it best. “Congress must act to put an end to the cycle of uncertainty and permanently protect state medical marijuana programs—and adult use—from federal interference. The American people have spoken. It’s past time that Congress catch up.”
Many states have already passed recreational marijuana laws and many more are considering passing legislation this year. For example, fifty-seven percent of Michigan voters are in favor of legalizing recreational marijuana.
Michigan Voters in Favor of Legalization
TV station WDIV Local 4 and the Detroit News conducted a survey that asked Michigan voters whether they were supportive of a proposal to legalize marijuana in their state.
The poll found that 56.6% of voters supported the proposal, 36.7% opposed it, and 6.7% were undecided. With the voters who supported and opposed legalization, there were subgroups within the supporters and detractors with regards to their level of support.
- Almost thirty-eight percent strongly supported the proposal
- Twenty-nine percent strongly opposed the proposal
Party lines have some influence on how voters believe:
- Those who identify as strong Democrats support legalization overwhelmingly with 71.5% in favor of legalization
- Those who lean toward Democratic beliefs support legalization by 675
- A little over half of Independents (51.1%) support legalization
- Voters who lean toward GOP support legalization with 44.7%
- Even strong GOP voters still support legalization with 43.5%
Surprisingly, the greatest indicator on a voters’ position is not party affiliation, but rather on past behavior. Forty-seven percent of voters polled stated they have smoked marijuana while forty-nine percent said they have not.
- For voters who have tried marijuana in the past, 72.7% were in favor of legalization
- For voters who have never tried marijuana, only 40.6% were in favor of legalization
However, with fifty-seven percent of Michigan voters admitting that they were in favor of some measure to legalize recreational marijuana, it seems that Michigan is heading toward a vote sometime this year. The Michigan Regulation and Taxation of Marihuana Act is likely to come to Michigan voters in November.
The Michigan Regulation and Taxation of Marihuana Act
The ballot measure proposes establishment of a statewide commercial marijuana production and sale licensing program. Adults 21 years old and older may possess up to 2.5 ounces of marijuana for personal use. They would also be able to grow up to 12 marijuana plants at home.
In addition to growing plants for personal use, there would be state-approved dispensaries. A 10 percent excise tax and 6 percent sales tax would accompany any sales from these dispensaries with the proceeds going to K-12 public schools, road construction, and local governments. Each local government would be given the option to allow marijuana businesses in their communities.
In addition to marijuana, hemp is part of the discussion for legalization. Hemp, a low tetrahydrocannabinol (THC) cannabis plant used for cultivation, is used to make textiles, food, clothing, and cannabidiol (CBD) hemp oil. Legal in all 50 states, CBD oil is already used by many people.
In order to secure a spot on the upcoming general election ballot, 252,523 signatures were needed. Last November, 363,000 signatures were submitted by the Coalition to Regulate Marijuana Like Alcohol. However, Michigan’s secretary of state has not yet approved the measure formally.
The Coalition to Regulate Marijuana Like Alcohol gains support from both national and local advocacy organizations such as:
- The Marijuana Policy Project
- The National Cannabis Industry Association
- The ACLU of Michigan
- The Drug Policy Alliance
- Michigan NORML
- The National Patients’ Rights Association
- MI Legalize
If passed in November, Michigan would be the tenth U.S. state to legalize recreational marijuana. As one of the 29 states to already have legalized medical marijuana, Michigan seems to be in step the with direction of U.S. voters.
Other States Considering Marijuana Legalization This Year
Michigan is not alone in putting forth marijuana legislation in 2018. Other states include:
- Vermont – In early 2018, Vermont lawmakers moved to approve recreational marijuana. Governor Phil Scott signed the law into effect January 22 of this year.
- New Jersey – Governor-elect Phil Murphy has pledge to sign legislation for adult use marijuana within his first 100 days in office. Although, this depends on a Democrat-led Legislature sending the new governor a bill to sign.
- Delaware – A 25-member panel called the Adult Use Cannabis Task Force is expected to release a report in February evaluating the impact of legal cannabis in the state.
- Rhode Island – As neighboring states Main and Massachusetts have implemented their own policies, Rhode Island lawmakers are hoping to have some type of legislation passed on recreational marijuana before July 2018.
- Connecticut – In 2017, the Hartford City Council approved legalizing recreational marijuana. Although this was a symbolic move, it was hoped to spur conversation in the statehouse of legalization.
- Ohio – Responsible Ohio, a group campaigning to legalize recreational marijuana, is currently collecting signatures for a ballot proposal for 2018.
- Oklahoma – Depending on Governor Mary Fallin’s decision, Oklahoma voters will get to decide whether to legalize medical marijuana in June or November.
- Kentucky – Secretary of State Alison Grimes is pushing legislation aimed at legalizing medical marijuana in her state. She created a task force to draft the bill that aids veterans and patients who suffer from severe illnesses.
- South Dakota – Currently, the secretary of state in South Dakota is reviewing collected signatures for a ballot imitative for limited medical marijuana legalization. Results are expected in March allowing voters to decide whether medical marijuana would be legalized in their state.
- Utah – Currently, activists in Utah are gathering signatures of a 2018 ballot initiative to approve medical marijuana. By April 2018, organizers need 113,000 in order to get the initiative on the ballot.
- Missouri – New Approach Missouri currently has 100,000 of the 170,000 signatures needed for a ballot initiative to legalize medical marijuana. There are two other initiatives backed by former state lawmakers that are also in the works.
With so many states changing their laws pertaining to recreational adult use and medical marijuana, the face of the United States is changing from red and blue to green. Democrats, Independents, Republicans, men, and women are in support of change in their state. Is your state included?