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The Ultimate Question Of Medical Marijuana

In the U.S., the official legalization of marijuana, at least for medical purposes, can be argued to have begun in 2003, when California became the first state to enact a medical marijuana program, although Oregon was the first state to formally decriminalize cannabis in the mid-1970s when it passed legislation treating the possession of small amounts of the drug as a civil rather than criminal offense. To date, 18 states, plus the District of Columbia, have enacted laws to legalize medical marijuana.

As would be expected, there is a growing queue of companies, including publicly traded companies, lined up to cash in on part of what had long ago established itself as a massive, if underground, industry.

Some of these companies include:

Growlife, Inc. (OTCQB: PHOT) - maker of LED lighting systems for growing plants indoors

Medical Marijuana, Inc. (OTC: MJNA) - producer of marijuana plants and associated extract based products

Cannabis Science, Inc. (OTCQB: CBIS) - producer of phytocannabinoid-based pharmaceutical products

Hemp, Inc. (OTC: HEMP) - supplier of services, products, and information related to medical marijuana

Medbox, Inc. (OTC: MDBX) - maker of a securitized prescription vending system for medical personnel

It would seem like an unstoppable freight train, offering astute investors the chance to get in on the ground floor of a very big deal. But is it possible that all of those investments could go up in smoke? Could putting your money in commercial marijuana actually be like investing in the brewing industry in 1919, one year before the passage of Prohibition?

There is, after all, a problem: The federal government still has laws against the possession, growing, or distribution of significant amounts of marijuana, together with a large and powerful agency, the Drug Enforcement Administration (NYSE:DEA), responsible for enforcing those laws. Under the government's Controlled Substances Act (NYSE:CSA), there is no differentiation between recreational and medical use of marijuana, and there is no recognized difference under the law between marijuana and harder drugs, such as heroin or cocaine. To the federal government, marijuana is not medicine, and no less than the U.S. Supreme Court declared in 2005 that the government has the constitutional authority to prohibit marijuana for all purposes, though stopping short of saying that the given state law was unconstitutional. In fact the states do have a constitutional right to decriminalize conduct which may be declared illegal under federal law. But that doesn't stop a federal agency from taking action. Given this, the DEA has not ignored the incipient industry, and has taken action against people around the country for the growing or distribution of medical marijuana. The DEA can also arrest individual users. Penalties applied can be severe, and have included extended jail time.

Just how far the DEA will ultimately go with its official mandate is unclear. Although the DEA is given the right to determine what is the best application of its resources, there is certainly no reason to believe that it will ever simply ignore the growing medical marijuana trade. Moreover, the IRS has gotten into the act, applying sections of the U.S. tax code, originally designed to target drug cartels, against medical marijuana dispensaries in what some say is a clear attempt to shut them down. Various other federal agencies have made it clear that they too consider dealing in medical marijuana a violation of the law.

Although movements are in place encouraging the President to thwart attempts at federal interference with state medical marijuana laws, there's little serious reason to believe that there could ever be an effective two-tiered application of the law, with the federal government enforcing some federal laws while choosing to ignore others. Such a selective disassociation from laws passed by elected representatives of the Congress would not stand for long.

Indeed the real question is whether Congress will ever choose to change its collective mind and back some form of medical marijuana. Independent polls suggest that the majority of Americans are in favor of legalizing marijuana and regulating it like alcohol, though marijuana can be easily grown and such regulation would be far easier said than done. It's doubtful that the current divisive atmosphere in Congress would encourage much political support for such a potentially inflammatory bill, unless it could be successfully joined with economic measures such as reducing the national debt. And until that happens, medical marijuana, with all its potential size and clout, is still mostly just smoke.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.