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  Earlier this month, A.G. Sessions rescinded the Cole Memorandum with a “return to the rule of law” announcement.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He finished by saying that specific guidance to marijuana enforcement is unnecessary and therefore rescinded.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.”