A Silver Lining In The Fight Over Cannabis

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Includes: ACAN, ACBFF, CANN, MSRT
by: Daniel Goldman

Summary

President Trump has threatened to increase federal enforcement against cannabis.

In response, members of Congress have put forward legislation legalizing marijuana on the federal level.

While there is a question of whether or not such legislation will make it into law, the potential reward is significant.

Thesis: The threat to enforce federal marijuana laws might backfire by pushing Congress to legalize marijuana on the federal level. While in the short term, marijuana related stocks might suffer, if legislation is passed and signed into law, it would not only ease fears, but also make it more likely that more states will follow along with the pot legalization trend. This will have a long term positive effect on marijuana stocks.

The Threat

Right now, even though it flies in the face of reality and evidence, marijuana is listed as a schedule one drug: a drug with high potential for abuse, no currently accepted medical treatment use in the U.S., and lack of accepted safety for use of the drug or substance under medical supervision.

President Trump has threatened to increase enforcement of federal cannabis laws. One might think that this will have a negative impact on marijuana and marijuana related stocks like Aurora Cannabis (OTCQX:ACBFF), General Cannabis (OTCQB:CANN), Americann (OTCQB:ACAN), and MassRoots (OTCQB:MSRT), and if implemented it probably would be devastating, both to publicly traded marijuana companies, and to local companies in regions that have legalized pot.

The Silver Lining

While this sounds bad, this might actually be a gift horse. For a long time now, state laws allowing for pot have been at odds with federal law and regulation. This conflict has slowed down the trend of marijuana legalization. And now, because of Trump's threat, members of Congress are starting to act. Tom Garrett (R-VA) and Tulsi Gabbard (D-HI) are working on passing a bipartisan bill, originally introduced by Bernie Sanders in 2015: the "Ending Federal Marijuana Prohibition Act of 2017."

If passed and signed into law, this bill would be groundbreaking. It would finally settle the question of whether or not states could legalize marijuana without facing any threats.

Federal legalization will also likely result in marijuana stock IPOs. NASDAQ rejected MSRT, back in May of 2016, and a large reason for that has to do with the fact that pot is still illegal on the federal level.

Odds of Success

Republicans are in control of Congress at the moment, so the chances are not quite as good as if Congress were Democrat controlled. However, according to PEW, even among Republicans, 41% want to see marijuana legalized. In total, 57% of Americans want to see pot legalization, and only 37% oppose it. Many Republicans may also want to follow through with the "states rights" rhetoric, and thus support the bill, even if they oppose legal marijuana.

Moreover, there are currently 28 states where at least medical marijuana is legal. Representatives from these states are very unlikely to do anything that would impact the industry in their home states.

However, even if the bill is passed by both the House and the Senate, there is still the matter of getting it signed into law. Given that President Trump is the one currently opposing marijuana, it might be difficult to avoid a presidential veto. So there is some risk.

Conclusion

While the threats by President Trump have put the marijuana industry at some risk, it also offers a great opportunity by pushing for the legalization of marijuana on the federal level, and with it, an opportunity to buy into the fastest-growing industry in the United States, as of 2015.

Disclosure: I am/we are long MSRT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.