US Weed Industry in Peril, Canadian Pot Companies Set to Soar?
Let me be blunt. The announcements by US Attorney General Jeff Sessions and White House Press Secretary Sean Spicer on a federal crackdown of recreational marijuana go beyond the realm of common sense.
Unfortunately, there is little doubt that Sessions and his boss Donald Trump are seriously considering a policy to arrest and prosecute people involved in the legal recreational marijuana industry.
“I’m definitely not a fan of expanded use of marijuana,” Sessions said in February. “States, they can pass the laws they choose. I would just say it does remain a violation of federal law to distribute marijuana throughout any place in the United States, whether a state legalizes it or not.”
That statement leaves little doubt that, should he get his way, Sessions will indeed try to crash the legal cannabis industry.
Sessions has long opposed marijuana legalization, and continues his opposition even though well over half of American voters support it, and several states have either legalized marijuana or are in the process of doing so.
Will Sessions really unleash the hounds on people involved in this legal industry?
A lot of people believe he will. But what happens then?
What Happens if Sessions Gets His Way on Weed
I detailed some of the costs and innate stupidity of the War on Cannabis in my recent article on Session’s attempt to boost private prisons in America.
In this article, I want to specifically address the impact such a policy will have on the marijuana industry in the US, Mexico and Canada.
To sum up, if Sessions does indeed crack down on recreational marijuana, the industry in the United States will crater, and the once soaring stock prices will crash.
On the other hand, Canadian weed stocks will likely rise even faster, as US and foreign investors turn away from American companies and bet on the only legal game in town.
A Different Perspective
I’ve got a fairly unique perspective on the marijuana industry in North America. As regular readers will know, I was an investigative crime reporter for some 25 years, and covered some pretty brutal drug wars in the US and Canada.
As I detailed in “The Biggest Benefit to Marijuana Legalization,” the murders and the other associated crimes by the drug gangs convinced me the War on Drugs had failed, and was creating far more harm than good.
I advocated for legalization of marijuana as a journalist because I believe legalization will take the power and money out of the hands of drug cartels, and put control in the hands of elected officials.
I have also been very involved in the legal marijuana industry, and have invested heavily in several Canadian companies involved in the production and distribution of medical marijuana. In total, I’ve raised well over $10 million for the industry in Canada over the past three years alone.
I’m saying up front that I’m a believer in legalization, and that I think the benefits to society far outweigh the fully admitted downside.
I also believe in the industry, and I think it has the potential to become one of the largest and most profitable industries in the country, with direct revenues of more than $10 billion a year.
In the US that industry would of course be much larger, with estimates ranging from $50 billion to $100 billion a year.
Now, an out of touch 70-year-old political appointee could destroy that industry with the stroke of a pen. Marijuana growers, dispensary owners and even key investors could be exposed to criminal prosecution by the Department of Justice. The list of defendants would number in the thousands.
When Sessions and then Spicer both implied a federal crackdown is imminent, marijuana company stocks tumbled both in the US and in Canada … but they fell faster in the US and did not recover as much or as quickly.
Sessions and His Affect on Stocks
Canada’s largest producer Canopy Growth Corp (stock symbol ‘WEED’) saw it’s red hot share prices drop by 4.64 per cent the day after these remarks. Most of the US weed stocks dropped by at least eight per cent, and many dropped by well over 10 per cent, and some of them by 15 per cent.
While the Dow was hitting record highs, pot stocks were taking a beating.
If you track the marijuana stock index, you can see share prices sank sharply on the North American index in December, around the time Sessions was first touted as a candidate for Attorney General.
Shares rose again through January and February, and then dropped sharply once more after the remarks by Sessions and Spicer.
The Index of 17 US public companies fell from 81.30 on Feb. 21 to a low of 70.78 on March 1, a decline of 12.9 per cent.
The Index of the 10 Canadian public companies fell from 344.57 on Feb. 21 to a low of 314.54 on Feb. 28, drop of 8.7 per cent.
As well, Canadian pot stocks began to rally on March 1 … but US stocks did not.
A bigger question will be what the future holds.
The Canadian public companies in this sector are massively outperforming their American counterparts … and I expect this gap will widen over the next eight months.
Canadian Prime Minister Justin Trudeau announced this week he expects to have draft legislation in place by summer to legalize recreational marijuana across the country.
By contrast, you have Sessions, Trump and Spicer talking about flaunting the will of state voters and making recreational marijuana illegal across the US.
It’s small wonder that last week Seeking Alpha analyst Ted Ohashi called these announcements “… the most important event since the start of the legalization process for recreational marijuana in Canada ….”
Simply put, making recreational marijuana illegal in America will have a disastrous impact on any company producing or selling cannabis in the United States. It will have little or no impact on Canadian companies, because Canadian companies don’t sell cannabis across the border.
While you may see a short term drop in share prices for Canadian pot producers, it is more likely that there will be a shift of capital from the US to Canada.
That has already been happening. Canadian weedco PharmaCann was bought out by US interests last year, and on a much smaller scale, I personally raised $3 million for a Canadian applicant from American investors just over two years ago. Why? They didn’t want to invest in the US, due to the uncertainty over federal drug laws.
US investors like the fact that Canada’s marijuana laws are regulated federally, and that the federal government is so solidly behind legalization.
It will be tragic if Sessions does indeed swing a wrecking ball at the US cannabis industry, but as in every tragedy, there are always those who suffer and those who profit.
We strongly expect that over the next 12 months investors from the US and other countries will vote with their feet, and their money will head north to back Canada’s growing cannabis industry.
If you’re smart, you’ll do the same.