Reported U.S. move to slow legalization trims weed valuations
Analyst says federal policy signal may have little effect at state level
Cannabis stocks plunged on a report that U.S. Attorney General Jeff Sessions is moving to revoke policies that allowed the legalization of marijuana to spread across several U.S. states — including California, which is now the world’s biggest market for the drug.
Canada’s Canopy Growth Corp., the biggest pot company by market value, fell 17 per cent to $29.86 in late morning trading in Toronto, while Aphria Inc. plunged 19 per cent to $17.38. Scotts MiracleGro Co. , the U.S. maker of lawn and garden products that has been expanding into fertilizers and lighting for cannabis, fell as much as 5.2 per cent, the biggest intraday drop in eight months. ETFMG Alternative Harvest ETF, the first pure-play pot ETF to be listed in the U.S., dropped 9.3 per cent. Shares recovered somewhat later in the day but still finished in negative territory.
The shares were reacting to the announcement that Sessions is rescinding the Obama-era Cole Memo that allowed legalized marijuana to flourish in states across the U.S. The move, which comes just days after California began selling recreational pot, would leave it to U.S. attorneys where pot is legal to decide whether to aggressively enforce federal marijuana law.
“My feeling is Sessions wanted to take some of the enthusiasm away from headlines that the nation’s most populous state had begun legal recreational cannabis sales with gusto on January 1,” Chris Damas, a Barrie, Ont.-based editor of the BCMI Cannabis Report, said in an email.
Eight states and Washington, D.C., have legalized cannabis for all adults to use as they please. Twenty-one additional states have voted to allow the plant to be used for medicinal purposes. The market is expected to skyrocket to US$50 billion by 2026 from US$6 billion in 2016, according to Cowen & Co.
Some analysts were skeptical any move would temper the drive toward recreational use.
Enforcement decisions will be left to state-level attorneys general, analyst Vivien Azer a New York-based analyst at Cowen and Co. wrote in a note. “In legal adult-use cannabis states, given the tax revenue generation, we believe local governments and AG’s are largely on-board with legalization,” Azer said.
Public opinion has also turned in cannabis’s favour. Sixty-four per cent of the U.S. population now wants to make pot legal, according to a Gallup poll released in October. Canada plans to make recreational use legal by July.
“By rescinding the Cole Memo, Jeff Sessions is acting on his warped desire to return America to the failed beliefs of the ‘Just Say No’ and Reefer Madness eras,” said Erik Altieri, executive director of NORML, a marijuana advocacy group, in a statement. “This action flies in the face of sensible public policy and broad public opinion.”
The Bloomberg Intelligence Global Cannabis Competitive Peers Index dropped as much as 22 per cent after AP’s story was released. Most companies in that group are small. Still, there are a few big names that could be hit by the changing policy. Constellation Brands Inc., which sells Corona beer and Svedka vodka in the U.S., got involved in the cannabis industry in October when it acquired a minority stake in Canopy.