This year truly is turning out to be an impressive one of marijuana firsts. Earlier this year, publicly traded cannabis investment company Cronos Group became the first pot stock to uplist from the over-the-counter exchange to the Nasdaq. Within the next two months, GW Pharmaceuticals (GWPH) could become the very first cannabinoid-based drug developer to get a therapy approved by the U.S. Food and Drug Administration (FDA).
GW Pharmaceuticals' lead drug Epidiolex, a cannabidiol-based therapeutic for two rare types of childhood-onset epilepsy, handily met its primary endpoint in two pivotal-stage trials for each indication (thus, four total trials). Even more recently, the FDA's advisory panel unanimously recommended GW Pharmaceuticals for approval. Though the FDA is under no obligation to follow the recommendation of its advisory panel, it often does.
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Perhaps most important, Canada stands on the verge of becoming the first developed country in the world to legalize recreational cannabis. The Cannabis Act is set for vote on June 7, and if passed, could soon after be signed into law. Legalizing recreational weed for adult use could lead to $5 billion or more in annual sales.
Amid a momentous year, the cannabis industry in the U.S. is going nowhere
Meanwhile, the U.S. cannabis industry is going virtually nowhere at the federal level -- but not for lack of effort. According to five national polls over the trailing year -- Gallup, Fox News, CBS News, Pew Research Center, and the independent Quinnipiac University -- between 59% and 64% of respondents favor legalizing marijuana. This support has been instrumental in the passage of sweeping medical cannabis laws in 29 states, along with recreational pot laws in nine states.
But when all is said and done, marijuana remains a Schedule I drug at the federal level. This means it's entirely illegal, highly prone to abuse, and has no recognized medical benefits. This classification also places pot-based businesses and medical patients at clear disadvantages.
For example, medical research is often stalled because there's just one approved federal grow facility in the entire country -- the University of Mississippi. Further, getting approval to run clinical studies involving medical cannabis is often difficult, given its Schedule I classification.
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As for marijuana-based businesses, most are unable to secure basic banking services, which includes something as simple as a checking account. This is because banks fear financial penalties or criminal charges for offering services to an industry that still is illegal at the federal level. Cannabis businesses also are forced to pay exorbitantly high corporate income tax rates since they can't deduct normal expenses.
Jeff Sessions said what about marijuana?
At the heart of this stalemate on cannabis is Attorney General Jeff Sessions, who might well be described as weed's most ardent opponent. Last year, Sessions requested that a few of his congressional colleagues repeal the Rohrabacher-Farr Amendment, which is what protects medical-marijuana businesses from federal prosecution. Though his request was denied, Sessions remained undeterred in his quest to slow, halt, or reverse the expansion of legal cannabis.
In January, Sessions announced that he was rescinding the Cole memo. Created by former Deputy Attorney General James Cole during the Obama administration, the Cole memo outlined a series of guidelines that legalized states would follow to keep the federal government off their backs, so to speak. For example, keeping adolescents away from pot and ensuing that weed grown within a state didn't leave that state, were paramount guidelines. The rescinding of this memo meant that state-level prosecutors would be able to use their discretion in bringing charges against businesses or individuals who violate the Controlled Substances Act.
Image source: Jeff Sessions' Senate webpage.
It's no secret that Sessions dislikes the marijuana industry -- which is why his commentary before the Senate Appropriations Commerce, Justice and Science Appropriations Subcommittee this past week is so incredible. While being questioned, Sessions said -- and I hope you're sitting down for this -- "there may well be some benefits from medical marijuana."
According to online publication Marijuana Moment, Sessions also intimated that additional federal grow facilities would become a reality for the purpose of cannabis research. "We are moving forward and we will add fairly soon, I believe, the paperwork and reviews will be completed and we will add additional suppliers of marijuana under the controlled circumstances," said Sessions.
Expanding clinical research is particularly important given that the U.S. Drug Enforcement Agency enacted new guidelines in 2016 allowing for broader medical research. Despite receiving more than two dozen federal grow applications for clinical purposes, the Justice Department hasn't yet OK'd a single one.
No, Sessions hasn't exactly changed his tune on cannabis
Admittedly, Sessions' commentary is a shock, given his seemingly diehard opposition to marijuana and its state-level expansion. But suggesting that marijuana may have benefits isn't the same thing as supporting the industry or clinical research. At no point in Sessions' dialogue did he commit to a specific time frame when the Justice Department would OK the licensing of additional grow facilities to be used for medical research.
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Sessions also was noncommittal about respecting the rights of states when it comes to cannabis, which is something President Trump has recently advocated for. When questioned by Sen. Lisa Murkowski (R-AK) about whether or not the attorney general would oppose federal cannabis reforms, Sessions replied, "I can't make a commitment about what position we would take at this time, until we know what's exactly involved."
Sessions did note that marijuana isn't a priority of the Justice Department. That honor goes to fentanyl, heroin, cocaine, and methamphetamine. But the attorney general said that if marijuana cases "are a big deal and illegal acting, and violating federal law, our agents may work that case."
In other words, Sessions, while perhaps being a bit more conciliatory than normal when it comes to marijuana, still is quite skeptical about the drug and the industry.
Will cannabis ever be legal in the U.S.?
The big question is: Will marijuana ever be legal in the United States? The answer will likely depend on the makeup of Congress.
Historically, Republicans tend to have a less favorable view of marijuana than Democrats and Independents. Given that the GOP controls the House and Senate until at least Jan. 2019, when the new Congress will take shape following midterm elections, changes to marijuana's scheduling look very unlikely.
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Beyond 2019, though, there's the possibility of change. If more Democrats are voted into Congress during midterm elections, or support for cannabis hits a tipping point whereby politicians have no choice but to support legalization or lose their elected seat in Washington, then it would be possible to see meaningful change at the federal level.
But should U.S. investors be betting on such change? I don't think so. As long as Trump is president and Sessions is the attorney general, the prospect for altering marijuana's scheduling is muted. Those investors looking to get their feet wet in the cannabis industry likely would do far better by considering Canadian growers and ancillary businesses rather than dabbling in the murky U.S. pot industry.
