SHARE THIS POST

On January 4, 2018, Attorney General Jeff Session announced that the Trump Administration is rescinding the Cole Memo, which creates significant uncertainty about the regulatory environment at the state level.

Early Responses

Bridget Hill-Zayat, Esq., of Cannabis Law Firm, Hoban Law Group, said that “The status of the law remains unchanged. Cannabis was always federally illegal, and there was always a conflict of state and federal law. Replacing the Cole Memo is wildly unpopular with both Democrats and Republicans. This move by Sessions creates a hurdle for sure, but as long as there are veterans and patients, it will remain political suicide for federally elected leaders to support further prohibition. To that end, Governor Wolf of Pennsylvania today announced he plans to protect patients. Indeed, Colorado Senator Cory Gardner said he would hold up Trump’s DOJ nominations over this policy shift. The state will fight back and so will voters in the next election.”

Justin Hobson, Co-Chair Cannabis Group, Lane Powell (Seattle & Portland), said that “This development, while anticipated for some time, could have a significant effect on cannabis markets, and especially on the financing of cannabis businesses. The action also provides the possibility for U.S. Attorneys to take aggressive actions against industry participants. It is too early to say what might happen with this rescission, but needless to say people in the industry should now follow legal developments in the area even more closely.”

In California,

Lori Ajax, Director of California’s Bureau of Cannabis Control, said that “The administration is conferring with the California Attorney General and other states in response in response to this action. We expect the federal government to respect the rights of states and the votes of millions of people across America and if they won’t, Congress should act. Regardless, we’ll continue to move forward with the state’s regulatory processes covering both medicinal and adult-use cannabis consistent with the will of California’s voters, while defending our state’s laws to the fullest extent.”

California Lt. Governor Gavin Newsom, said that “Jeff Sessions has destructively doubled down on the failed, costly, and racially discriminatory war on drugs, ignoring facts and logic, and trampling on the will of CA voters” adding “Have no doubt – CA will pursue all options to protect our reforms and rights.”

Representative Dana Rohrabacher (R-California), said that “This is a profound misreading of the Constitution, which allows states, not the heavy-handed federal government, to determine such issues. How ironic that the attorney general has long championed states’ rights when it suits other parts of his agenda! More than that, by attacking the clear will of the American people, the attorney general contradicts President Trump’s campaign pledges to leave medical and recreational marijuana questions for he states to decide. By taking this benighted minority position, he actually places Republicans’ electoral fortunes in jeopardy.”

On January 12, 69 lawmakers wrote a letter to leaders of the House, within the context of funding for the Department of Justice in any FY 2018 appropriations legislation, asking that any forthcoming appropriations or funding bill include the following language called the McClintock-Polis amendment:

“None of the funds made available by this act to the Department of Justice may be used, with respect to any of the States of Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming, to prevent any of them from implementing their own laws that authorize the use, distribution, possession or cultivation of marijuana on non-Federal lands within their respective jurisdictions.”

As reported by New Leaf Data Services via Cannabis Benchmarks, more downward pressure this past week on pricing, a consequence of oversupply in the markets.

This was a reversal from the week ended January 5 ended which prices slightly stronger over the prior week December 29, 2017:

February forward prices are down $75 to $1,450 per pound.

Given the continuing strong demand and growth in the vape and edibles categories, the bright spot in the markets is in oils, which continue to maintain more pricing stability, enabling producers to remain price-makers as opposed to price takers. Cannabis Benchmarks reported that “The broad spread oversupply in the West Coast states and Colorado was on acute display this week and is expected to continue to exert downward pressure on those market prices for months to come as surplus inventory works its way through the supply chain. With a large swath of cultivators under strain, potential scenarios include an increased proportion of harvests devoted to higher-margin extraction, as well as some diversion to illicit markets.”

The February forward pricing is an 8.2% premium to current spot prices, and forecasts are for continued strength through July.

Implications for Cannabis Stocks

The downward pressure on prices, in addition to uncertainty about the regulatory environment and to be sure, valuations that had become totally speculative, led to profit taking this week in cannabis stock prices.

Cannabis Stock Performance Week Ended January 12, 2018

MJIC’s indexes are a much narrower look at the cannabis stock universe than our lists below, with significantly less volatility.

On a consolidated basis of segments across the cannabis value chain, stocks were down 11% on the week, but continue to hold an impressive 37% gain year-to-date.

Looking at performance on a more isolated basis: