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Jeff Sessions Won't Get a Penny to Go After States Legalizing Marijuana: Good News for Marijuana Stocks?

By Keith Speights – May 7, 2017 at 3:03PM

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Will the new federal spending bill mean marijuana stocks will go even higher?

There has been considerable uncertainty over what the Trump administration might do regarding states that have legalized marijuana despite federal laws against use of the drug. Those uncertainties intensified with President Trump's pick of Jeff Sessions as U.S. Attorney General. Sessions has been a longtime vocal opponent to marijuana legalization.

Now, however, those concerns have been greatly alleviated. A bipartisan budget bill to avoid a government shutdown includes $1 trillion in spending, but not even a penny of that amount was allocated for Sessions to target states that have flouted federal anti-marijuana laws. Is this good news for marijuana stocks?

A wooden gavel resting next to marijuana buds.

Image source: Getty Images.

Stating the states

It wasn't just that the budget bill omitted money for the attorney general to enforce federal laws in states that have legalized marijuana. If that were the case, Sessions could potentially divert some Department of Justice (DOJ) funds to go after those states.

The bill instead explicitly prohibits the DOJ from using budget money for this purpose. Here's the exact language in Section 537 of the bill:

None of the funds made available in this Act to the Department of Justice may be used, with respect to any of the States of Alabama, Alaska, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming, or with respect to the District of Columbia, Guam, or Puerto Rico, to prevent any of them from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

There are a couple of things to note with the language of the bill. First, it specifically names 44 states plus the District of Columbia, Guam, and Puerto Rico. Twenty-nine of these states, along with the District of Columbia, Guam, and Puerto Rico, have enacted comprehensive medical-marijuana laws. The other 15 states listed have laws allowing limited access to medical marijuana. Even if he wanted to, Sessions won't be able to attempt to enforce federal laws in any of these states or territories.

Second, a couple of states that have passed medical-marijuana laws weren't included (perhaps because of an oversight by the congressional staff drafting the language of the amendment). North Dakota passed a comprehensive medical-marijuana law in November, while Indiana Gov. Eric Holcomb signed a bill on April 27 legalizing cannabidiol (CBD) for treating epilepsy.

Impact on marijuana stocks

You'd think this spending bill would be great for marijuana stocks. However, most marijuana stocks haven't moved much on the news of the bipartisan budget compromise. Why?

Some marijuana stocks simply aren't affected by the bill. Biotechs such as Axim Biotechnologies (AXIM 22.07%) must abide by U.S. Food and Drug Administration (FDA) regulations anyway. Others, such as Aphria, target the Canadian market and aren't affected by U.S. laws. 

But what about stocks of U.S.-based marijuana growers? One reason these stocks haven't taken off is that the letter of the law only applies to prohibiting use of funds to keep states from implementing medical marijuana laws.

Eight states plus the District of Columbia have enacted laws allowing recreational use of marijuana. Technically, the DOJ could go after these states. However, the budget bill does not specifically allocate funds for this purpose. This limitation, though, is significant because of the large markets in the states that have legalized recreational marijuana. 

Perhaps the bigger issue is that the spending bill is only temporary. The bill only funds federal spending through September. 

Why it's still important

Although the budget legislation hasn't served as a catalyst for marijuana stocks, it's still important in the big scheme of things. Passage of the language prohibiting use of federal funds in going after states that have legalized medical marijuana underscores growing bipartisan political support for marijuana legalization. If that support continues to grow, it could lead to changes to federal marijuana laws.

These changes would help marijuana growers and retailers but could also positively affect biotechs focusing on cannabinoid development. Marijuana-legalization supporters hope to enact legislation that makes it easier for companies such as Axim Biotechnologies to conduct clinical studies using cannabis in the United States. It's possible that the temporary budget bill could be one step along the path that ultimately leads to truly good news for marijuana stocks down the road. 

Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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