US Attorney General Creates Opportunity in Pot Stocks

US Attorney General Jeff Sessions wants to turn the clock back to 1971. That’s when President Nixon declared a ‘war on drugs’, including cannabis.

From The New York Times:

‘…the growing industry is facing a federal crackdown under Attorney General Jeff Sessions, who has compared cannabis to heroin.

A task force Mr. Sessions appointed to, in part, review links between violent crimes and marijuana is scheduled to release its findings by the end of the month. But he has already asked Senate leaders to roll back rules that block the Justice Department from bypassing state laws to enforce a federal ban on medical marijuana

In February, Sean Spicer, the White House press secretary, said the Trump administration would look into enforcing federal law against recreational marijuana businesses.

To date, the US federal government has largely maintained a hands-off policy on states legalising medicinal and, more recently, recreational marijuana. And for good reason. 29 states and the District of Columbia have already legalised medicinal marijuana. And eight states have legalised its recreational use.

The results? An almost US$6 billion (legal) spend on cannabis in the US last year alone. No reported cannabis overdoses. Fewer people in jail. And scarce police resources redirected to fighting actual crimes.

The drift towards legalisation shows no sign of letting up. New Hampshire Governor Chris Sununu entered the fray this week. On Tuesday he signed a bill decriminalising the possession of up to 21 grams of cannabis.

Nonetheless, Jeff Sessions has cannabis in his crosshairs. And he’s looking to bring the federal government back into the war.

Holding back the tide

We reckon Sessions could learn a thing or two from King Canute. He ruled over Denmark, England, and Norway in the early 11th century.

You’re probably familiar with the story. It sees Canute demonstrate that even a king ruling over three nations can’t control everything…like the tide. To show his hangers-on just how true this is, he set his throne down near the low-tide line and commanded the tide not to wet his feet or robes.

The tide, of course, rolled right on in. And Canute’s lackeys were shocked by his defeat. A similar shock, we think, lies in wait for those backing Sessions’ latest drive to retool the stalled prohibition wagon.

We won’t rehash the failure of that effort in any great detail. The statistics speak for themselves.

The drug war funnelled billions of dollars into the black market, fuelling organised crime. It drew in America’s neighbours, with devastating results. And it left the US with the highest incarceration rate of any nation in the world, with the majority of inmates jailed for drug offences.

Meanwhile, the supply of drugs remained plentiful. And the price of marijuana and cocaine fell in real terms from 1980–2000, when the drug war raged in earnest.

Today, almost two-thirds of Americans support legalising cannabis. This has seen the war on marijuana wane. One state after another has waved the white flag. And the federal government has kept its head quietly tucked in the sand.

Until now.

Of course, not everyone is happy with Sessions’ plan to reignite the war on cannabis. As The New York Times notes:

“Our attorney general is giving everyone whiplash by trying to take us back to the 1960s,” said Representative Jared Huffman, Democrat of California, whose district includes the so-called Emerald Triangle that produces much of America’s marijuana…

Mr. Sessions is backed by a minority of Americans who view cannabis as a “gateway” drug that drives social problems, like the recent rise in opioid addiction.

Having let the genie out of the bottle, Sessions and the feds face an upwards battle. Not only against the majority of voters, but some companies with deep pockets too. The cannabis business in the US has blossomed into a huge industry almost overnight.

According to Arcview Group, US consumers spent US$5.9 billion (AU$7.5 billion) on legal cannabis last year. They predict that figure will reach US$19 billion by 2021.

Can you hear that Jeff? It sounds an awful lot like the tide coming in.

Buy the dip

However, the federal government’s sabre-rattling does look to be unsettling investors. As reported by The New York Times:

But marijuana businesses are bracing for a possible clampdown.

“People that were sort of on the fence — a family office, a high-net-worth individual thinking of privately financing a licensed opportunity — it has swayed them to go the other way and think: not just yet,” said Randy Maslow, a founder of iAnthus Capital Holdings. The public company raises money in Canada, where Prime Minister Justin Trudeau campaigned on a promise to legalize recreational use of marijuana.

Indeed, a quick review of some listed cannabis companies shows some selling activity this week.

US-based Corbus Pharmaceuticals Holdings Inc. [NASDAQ:CRBP] is a biotech company. It’s conducting clinical trials with marijuana-based drugs. And the share price is down 4% since Monday.

Zynerba Pharmaceuticals Inc. [NASDAQ:ZYNE] is another biotech firm working on medicinal marijuana. Its shares have fallen a more modest 2% this week.

Here in Australia, medicinal-marijuana company Auscann Group Holdings Ltd [ASX:AC8] is also down 2% since Monday. While Creso Pharma Ltd [ASX:CPH] has taken a larger hit, down 10%.

We can’t say that all of these losses are directly due to Sessions’ hostile intentions to the industry. But if he continues to ramp up federal efforts to stifle legal marijuana, these and other cannabis-related stocks may fall further.

That is, until the tide sweeps Sessions away.

The best listed cannabis companies will then likely see a repeat of this past year’s performance. And if you’re wondering just how good that performance was, over the past 12 months:

  • CRBP is up 137%
  • ZYNE is up 154%
  • AC8 is up 105%
  • CPH is up 73%

 

Those are some tidy gains. And with countries like Canada, Mexico, and Australia moving towards legalising medicinal marijuana (and, in Canada’s case, recreational), we expect this is just the beginning.

Sam Volkering has been atop this story since the beginning. He’s already recommended four of the best Australian ‘pot stocks’ to his readers at Australian Small-Cap Investigator. One is now well above his maximum buy-up-to price. But three remain active buy recommendations.

And with Sessions’ ongoing tirade against ‘the devil weed’, we see this as a great opportunity to buy the dip.

For all the details on Sam’s top Aussie pot stocks, go here.

Cheers,

Bernd Struben,
For Markets & Money


Bernd Struben is a contribution Editor of Markets & Money. He holds a degree in Economics and is a published novelist. Bernd’s career spans multiple countries on four continents. With his diverse background, he brings unique business insight and a libertarian twist to his columns and analysis in Markets & Money.


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