The Justice Department issued a memo on Thursday rescinding the Cole Amendment and announcing a “return to the rule of law.” In the memorandum, Attorney General Jeff Sessions directs all U.S. Attorneys to enforce the laws enacted by Congress and to follow well-established principles when pursuing prosecutions related to marijuana activities.
The cannabis industry had always been aware that Sessions hated marijuana and the Cole Memorandum, yet his inaction in the first year of the Trump presidency lulled many into believing he would remain on the sidelines. Instead, he responded to his conservative base by making the move. Smart Approaches to Marijuana’s Kevin Sabet tweeted, “Rescinding Cole slows down today’s version if Big Tobacco. It’s a good thing. Not about going after individual users” and a simple “BOOM.”
The rescinding of the Cole Memorandum though doesn’t necessarily change the situation for the cannabis industry. Sessions put the onus on the state attorney generals to act and if a state AG like say Xavier Becerra in California supports the laws, he may choose to not act. It also doesn’t change the Rohrabacher-Blumenauer amendment that keeps funds away from the Justice Department to enforce the laws. If this amendment continues to be renewed, the Justice still has no teeth to bite the industry with.
The Effect On Stocks
Marijuana stocks had been on a strong rally leading up to the legalization of adult use marijuana in California. November results had stocks rising 40% in anticipation of strong sales. Those transactions began on January 1 and they did not disappoint. Yet, as soon as the word got out cannabis stocks began to tumble.
Across the board, these stocks dropped as investors saw no difference between pharmaceutical companies or real estate companies. MassRoots (MSRT) declined a whopping 26%, biotech company Insys Therapeutics (INSY) also plunged 26% and Innovative Industrial Properties (IIPR) dropped 18%. GW Pharmaceuticals (GWPH) seemed to fare the best as it only declined by 0.36%.
Canada Caught By Surprise
“The attorney general’s letter to federal prosecutors leaves the decision to prosecute up to the individual prosecutor, which creates a highly uncertain environment for cannabis companies,” said Jonathan Sherman, a marijuana securities lawyer at Cassels Brock, a Canadian law firm specializing in cannabis legalization. He added, “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. The CSA staff notice in October indicated that the policy may be re-evaluated if there was a change in the federal government’s approach. This change now appears imminent, although the implications are uncertain. This would be of significant concern to Canadian cannabis companies with U.S. operations.”
The Toronto Stock Exchange (TSE) had warned companies in October about acquiring or doing business with American cannabis companies. The TSE had said that it recognized cannabis to be federally illegal in the U.S. and as such did not want its listed companies to engage in such activity. The Canadian Stock Exchange seemed a little more lenient. Many Canadian companies loaded with cash raised in the public markets had been aggressively acquiring and taking big stakes in U.S. cannabis companies. Canada’s Horizons Marijuana Life Sciences ETF closed down 8.7% after today’s news.