High hopes for Canada’s cannabis industry

U.S. pot enforcement policy could give companies north of the border an advantage

A move by the U.S. Attorney General to quash an Obama-era policy that allowed legalized pot to flourish south of the border dealt a blow to marijuana stocks Thursday, but observers and industry players say the crackdown is a boon for the Canadian cannabis industry.

On Thursday, Jeff Sessions rescinded the 2013 Obama administration guidance that suggested the federal government would not intervene in U.S. states where the drug is legal, which has opened the door for several states to legalize pot for medical and recreational purposes.

In a new memo, President Donald Trump’s top law enforcement official said he will instead let federal prosecutors where marijuana is legal decide how aggressively to enforce federal law, which still prohibits the drug.

Several marijuana stocks saw a doubledigit pullback on the news, with Canada’s biggest licensed producer Canopy Growth down as much as 19 per cent before regaining lost ground by the end to close down nearly 10 per cent at $32.32.

Marijuana producer Aphria Inc., which has some U.S. exposure, was down as much as 22.6 per cent but closed down 13.79 per cent at $18.50.

Echelon Wealth Partners analyst Russell Stanley said if marijuana continues to be illegal at the federal level, it will benefit Canada as this will suppress the rise of any large U.S. cannabis companies to challenge Canadian marijuana producers as they expand globally.

“It keeps the United States out of that game and it allows Canada to pursue these opportunities with relatively little competition,” he said.

Under U.S. federal law it remains illegal to cultivate, distribute or possess the drug but the Obama administration guidance had seen more than two dozen states legalize medical marijuana, with California the latest state to legalize the recreational use of weed as of January 1.

Cam Battley, the executive vice-president of Edmonton-based licensed marijuana producer Aurora Cannabis Inc., called Sessions’s stance “misguided public policy” that is counter to broader U.S. public opinion.

However, he also said this will drive additional U.S. investment and investors north of the border.

“It cements the fact that we will not be seeing for the foreseeable future, well-capitalized U.S. competitors as we expand our operations around the world,” said Battley.

“And it just prolongs that unusual situation, where large-cap Canadian cannabis companies have the world to ourselves.”