U.S. Attorney General Jeff Sessions is reportedly trying to build support to go after companies that sell marijuana in states that have legalized the drug. However, while the executive branch contemplates fighting marijuana, the legislative branch is taking the opposite approach.
Last week, several U.S. senators introduced legislation that would end federal prohibition of medical marijuana. If this bill ultimately becomes law, one thing is a near certainty: Marijuana stocks will soar.
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What's in the bill
Senators Corey Booker (D-New Jersey), Kirsten Gillibrand (D-New York), and Rand Paul (R-Kentucky) introduced the Compassionate Access, Research Expansion and Respect States, or CARERS, Act of 2017. The primary goal of this bill to "extend the principle of federalism to state drug policy." That basically means let the states make their own decisions instead of having the federal government interfere when it comes to legalization of medical marijuana.
The bill would change the Controlled Substances Act in several ways. It would reschedule marijuana and THC (the primary psychoactive chemical in marijuana) as Schedule 1 drugs instead of their current Schedule 2 status. Schedule 1 drugs are illegal under federal law because they have high abuse potential, no medical use, and serious safety concerns. Schedule 2 drugs are not illegal but are controlled because of their high potential for abuse.
This legislation would also specifically exclude cannabidiol (CBD) from the definition of marijuana in the Controlled Substances Act. CBD is a chemical in marijuana that doesn't have the same level of psychoactive effects as THC does.
In addition, the CARERS Act would eliminate many of the restrictions currently in place that limit the ability of banks to serve companies that sell marijuana-related products. The bill also would require the U.S. Food and Drug Administration to make it easier for companies to research and develop cannabinoid drugs.
Stocks set to take off
Passage of the CARERS Act would undoubtedly cause stocks of U.S.-based marijuana growers to skyrocket. Stocks of companies that maintain that they're already operating in compliance with federal marijuana laws, such as Medical Marijuana, Inc. (MJNA +0.00%), would also soar. Medical Marijuana, Inc. markets CBD products that it makes from parts of marijuana that are currently excluded from the Controlled Substances Act.
However, these wouldn't be the only stocks to benefit if the legislation becomes law. Biotechs that develop marijuana-based drugs could also rise if restrictions on research and development of cannabinoids in the U.S. are eased. Currently, companies like GW Pharmaceuticals (GWPH +0.00%) conduct their research outside of the U.S. because of tight restrictions.
Good news for companies that grow medical marijuana would also likely be good news for another stock -- Scotts Miracle-Gro Company (SMG +1.03%). Scotts Miracle-Gro is the largest provider of supplies that marijuana growers use. The company sells fertilizers, lighting, and hydroponic supplies that are critical in growing marijuana.
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Don't hold your breath
Should investors scoop up these marijuana stocks in anticipation of the passage of the CARERS Act? That would be highly premature.
This same bill was introduced in 2015 by the same senators. More than two years later, nothing further has been done. There hasn't even been a vote on it. At this point, whether the reintroduced bill gains traction is in doubt.
Even if legislation did win passage by both houses of Congress, there's no guarantee that the president would sign it into law. Although President Trump as a candidate indicated support for use of medical marijuana, his pick of Jeff Sessions as attorney general and comments made by his administration raise serious questions about his commitment to allowing states to make their own decisions about medical marijuana.
