By Trey Williams, MarketWatch
In case it wasn’t clear before: Marijuana is illegal at the federal level.
For an industry that was expected to generate roughly $40 billion in economic impact by 2021, Thursday’s move by U.S. Attorney General Jeff Sessions and his Justice Department to rescind an Obama-era policy used as a protection for states that have legalized marijuana could be a major blow.
“This should not come as a surprise,” said Rafael Lemaitre, former associate director for public affairs for the Drug Policy Office under President Obama.
“We don’t know how this might play out legally,” he said. “But this will create a significant chilling effect on investors who had hoped to cash in on a new ‘green rush.’ Before Trump, you would have to just be risk [tolerant] to put money behind the marijuana industry; now you’d have to be downright crazy. Despite public polling showing its popularity, the cards are stacked against a successful long-term business model here.”
The news comes just as the industry gained its biggest state ally as California began the sale for recreational adult use of marijuana. After a rally earlier this week, Thursday’s news saw marijuana stocks take a nose dive.
Shares of the Canada-based Horizons Marijuana Life Sciences ETF /zigman2/quotes/208856346/delayed CA:HMMJ -1.33% fell as much as 15% from the previous sessions’ close and the ETFMG Alternative Harvest ETF fell as much as 10%. The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.75% was up 0.5% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.09% was up 0.6%.
Nick Kovacevich, the chief executive of cannabis packaging company Kush Bottles Inc. , said the immediate response to the news is an overreaction considering what he views as the likely outcome, which is not a complete washout.
Shares of Kush Bottles, which trade over the counter, were down more than 33%.
“I think most people in the industry would say it’s going to continue to grow in the right direction,” Kovacevich said. “Are people going to pull their money out? Yes, some will, so there should be some concern about the industry’s ability to raise capital.
“But if companies can’t raise $10 million and can now only raise $1 million, it just means that company will grow slower. The momentum is already there.”
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Sessions and his department are doing away with what is known as the Cole Memo. Written by Obama’s Attorney General Eric Holder’s office, the four-page document outlined how the federal government would enforce marijuana laws, stating that the federal government would not interfere with states that legalize recreational and/or medical marijuana, as long as they adhere to a set of guidelines.
“It is the mission of the Department of Justice to enforce the laws of the United States, and the previous issuance of guidance undermines the rule of law and the ability of our local, state, tribal, and federal law enforcement partners to carry out this mission,” Sessions said in a statement.