The marijuana industry is budding before our eyes. In less than three weeks, our neighbor to the north, Canada, will wave the proverbial green flag on recreational cannabis, paving the way for the industry to generate billions of dollars in added annual sales. And globally, around 30 countries have passed broad-based laws permitting the use of medical marijuana.
But within the U.S., we have something of a bifurcated story. On one hand, 30 states have passed legislation allowing physicians to prescribe medical cannabis to patients. Nine of these 30 states also allow adult-use weed to be legally consumed. Yet, marijuana remains a Schedule I substance at the federal level. This means it's entirely illegal, prone to abuse, and has no recognized medical benefits. Since federal law supersedes state law on this matter, it creates something of a murky market for marijuana in the United States.
Could Attorney General Jeff Sessions be fired?
However, this cloudy picture didn't stop pot stocks from steaming to big gains late last week after the feud between President Donald Trump and Attorney General Jeff Sessions escalated to new levels. In an interview with The Hill, Trump said, "I don't have an attorney general. It's very sad."
Trump and Sessions have been sparring for about a year now, since Sessions recused himself from the investigation into Russia's alleged meddling in the 2016 U.S. elections. But things have worsened in recent weeks, with the president also disagreeing with the way Sessions has handled border policies. In fact, the tension between Trump and Sessions has become so critical that there are rumblings Sessions could be fired from his position.
The reason marijuana investors are so excited about this development is because Sessions has easily been the most vocal opponent of marijuana (both medical and recreational) on Capitol Hill. His departure would be viewed as a decisive win for the legalization movement in the United States.
For those who may not recall, Sessions was the one who rescinded the Cole memo on Jan. 4, 2018. Implemented during the Obama presidency, the Cole memo provided a loose set of guidelines that legalized states would need to follow to keep the federal government off their backs, so to speak. These guidelines included things like keeping weed away from adolescents and ensuring that marijuana grown in a legalized state stayed within its borders. When the Cole memo was rescinded, it gave state-level prosecutors the discretion to bring charges against individuals and businesses in violation of the Controlled Substances Act, even in instances where a state had chosen to legalize the drug.
Last year, Sessions also sent a letter to a handful of his allies in Congress requesting that they repeal the Rohrabacher-Farr Amendment (also known as Rohrabacher-Blumenauer). This rider, which is included with each federal spending bill, disallows the Justice Department from using federal dollars to prosecute medical marijuana businesses operating in legal states. Had Sessions been successful in gaining this repeal, he'd probably have gone after larger-scale medical marijuana businesses.
Sessions' ouster, or his resignation, would appear to improve a path to legalization in the United States. Unfortunately, that's probably not what would happen.
Even if Sessions is fired or resigns, legalization remains unlikely
For as much vitriol as Jeff Sessions has toward the marijuana industry, he's still but one person, and it's Congress that needs the convincing that cannabis should be rescheduled or removed from the controlled substances list.
The first hurdle that would need to be overcome is the fact that the legislative branch is controlled by Republicans. In surveys, self-identified members of the GOP consistently have a negative to mixed view on marijuana, and are therefore unlikely to approve any measure that would legalize or even reschedule the drug. It's possible that a shake-up from the midterm elections could lead to more Democrats and Independents in Congress, thereby giving marijuana a better chance of being rescheduled or removed from the controlled substances list, but there are no certainties at this point.
Next, lawmakers would need to be convinced that the benefits of marijuana outweigh the risks. Now, there are positives here, such as the approval of GW Pharmaceuticals' (NASDAQ:GWPH) cannabidiol-based drug Epidiolex in June by the Food and Drug Administration. This approval to treat two forms of childhood-onset epilepsy allowed GW Pharmaceuticals to be the first to bring a cannabis-derived drug to market. It also demonstrated that cannabis does have medical benefits, contrary to the definition of a Schedule I drug. But there isn't enough clinical data as of yet, at least in the minds of lawmakers, to convince Congress to act to legalize marijuana.
There's also a money issue that lawmakers aren't going to talk about. Per Section 280E of the U.S. tax code, businesses that sell a Schedule I or II substance aren't allowed to take normal corporate income tax deductions, save for cost of goods, which is usually a small percentage. This allows the federal government to tax cannabis income at a very high rate. If marijuana were removed from the controlled substances list, the federal government would actually bring in less money than it does now, because businesses would be allowed to take normal deductions. And simply raising taxes isn't the solution, because higher product prices would push consumers into illicit channels.
Lastly, don't overlook the role Sessions has played in fueling the cannabis movement. If Sessions and his anti-weed views were to step out of the spotlight, it's possible that pro-cannabis momentum could lose steam without that voice of opposition. What might look like an instant positive for the industry if Sessions is fired or resigns is actually not that big of a deal, after all.