Jeff Sessions Is Against the Cole Memorandum
U.S. Attorney General Jeff Sessions announced that he is retracting the Cole Memorandum, which allows individual states to legalize cannabis (also known as marijuana) without any fear of the federal government going after companies or individuals. If Sessions gets his way, ending the Cole Memorandum will allow the federal government to charge businesses with drug trafficking offences.
This announcement from Sessions resulted in marijuana stocks and exchange-traded funds (ETF) seeing a major sell-off. Some companies saw losses of 20% to 30% in market-cap value in one day. This could be summed up as a panic for investors, with trading volumes increasing dramatically in the sector.
Looking forward, does this mean that investors should stay away from companies in the marijuana sector? Or is this a case of investors just hitting the panic button without doing any research on the impact of a possible change in the Cole Memorandum? First, let’s go through what the Cole Memorandum is, and what it means.
What Is the Cole Memorandum?
The Cole Memorandum was drafted in August 2013 by United States Deputy Attorney General James Cole. This was completed under President Barrack Obama, who was a supporter of a pro-marijuana environment.
This memorandum was intended to give states legal permission for the selling of marijuana, for both medical and recreational purposes, and not see any federal prosecutor charges. This simply meant that states that have a pro-marijuana status would allow businesses to sell their products—and consumers to purchase them—without any issues. This rule was formed because, at the federal level, any business in the marijuana sector (and any individual using marijuana) was breaking the law.
In order to become a state where it was legal to sell or grow marijuana, the state government had to go through an approval process with the federal government. That process was done in a checklist format.
The memorandum being in place resulted in eight states having businesses legally being able to sell their products for medical and recreational use. There are an additional 22 states which have pro-marijuana rules in place for medical use, but some of them have restrictions. Eventually, there is the possibility that these 22 states lessen their rules and create more of a open market. (Source: “Marijuana legalization by the numbers,” CNN, January 4, 2018.)
What Would Be Sessions’s Reasoning for the End of the Cole Memorandum?
When it was determined that Donald Trump won the presidential election in November 2016, he announced that he would nominate Jeff Sessions as Attorney General of the United States. Sessions eventually was appointed to the position.
A few months later, Sessions personally asked for the amendment of the Cole Memorandum. Sessions wanted the federal government to use its power over local state governments and prosecute both companies and individual users of marijuana. Trump also supports Sessions in this endeavor.
The reason for the pushback was to reduce drug activity and drug-related crimes in the country. Another concern is that the youth can have easy access to marijuana.
Since marijuana is going against the federal laws, there are no federal tax dollars coming from the revenue from marijuana companies. The pushback from Sessions could also be a result of no tax dollars being generated for the federal government. However, local states do benefit from the selling of marijuana. Senators who have a pro-marijuana stance have spoken against Sessions and his opinion.
What Does This Mean for the Marijuana Market?
When the government intervenes and makes decisions for the business world, it goes in a positive or negative way. The current rules under the Cole Memorandum are great for companies that generate a profit by selling products in the marijuana space; this would be considered as a positive. If Sessions does follow through with his desire to change the rules, it will not be great news for investors, business owners, or America’s economy.
First off, from the business standpoint, there could be businesses that will not operate as they once did, in terms of having freedom. This will result in fear from the business owners and operators. There may not be as much ambition as before to operate businesses in the marijuana segment. Sessions’s rule could result in marijuana companies downsizing their operations or getting out of the sector.
One example is that Mike Tyson (former heavyweight boxer) and his group of investors could be negatively impacted by Sessions’s decision. One day before Sessions told the public about his plans, Tyson announced that a 40-acre plot of land in California would be transformed into a marijuana plant and supply store. Included in the construction development is a school, campgrounds, cabins, and an extraction facility. This is just one example of many investments that are being made into the sector. Now there is a possibility of seeing delays or a cancellation of the project. (Source: “Mike Tyson opening 40-acre marijuana farm in California,” theScore, January 2, 2018.)
Sessions’ rules would not be good for the marijuana sector as a whole. It will create a lot of fear and unknown questions. For instance, a company can simply ignore everything that Sessions has said and operate business as usual. However, there is the possibility of seeing a penalty of some sort being charged at the federal level. This would mean there would be less money for growth, re-investment, and rewarding shareholders. The unpredictable status of these companies will mean that investors will prefer to keep their capital away from them.
What Are the Options for Marijuana Investors?
If Sessions gets his way and changes the rules surrounding the Cole Memorandum, U.S. marijuana investors may look outside the country. Thanks to the Internet and globalization, there are many legal marijuana investment opportunities to look at around the world.
One country that is attracting many new investors and investment dollars is Canada; the country located right above America. Canada is actually the global leader in the cannabis industry, and this is because there is full support by the federal government. The rules are not as confusing as they are in the United States, where each state has its own set of rules. (Source: “Jeff Sessions Ignites Marijuana Stock Selloff But Fuels Canadian Cannabis Long Term,” Forbes, January 4, 2018.)
Canada is going through with a plan to fully legalize marijuana in the entire country in July 2018. Canadian companies could be looked at as a safe haven in the space because the government is in support.
Also, Canadian marijuana companies have so much freedom that they are treated like any other business in the country. For example, marijuana companies are able to obtain insurance for their crops, get access to bank loans to grow their businesses, apply for business tax credits, and export their products and expand overseas. No other country in the world would compare to these standards.
U.S. investors can purchase shares of a company on the Canadian exchange, which would result in foreign exchange transaction. Or, there is the opportunity to purchase a Canadian marijuana company on a U.S. trading exchange. Even though the companies are based in Canada, they are inter-listed to ensure they reach as many investors as possible.
If you were to follow through with an investment in a Canadian company, it will help remove the uncertainty surrounding the U.S. marijuana investment sector.
Final Thoughts About Sessions’s Decision
Jeff Sessions may face a lot of pushback from state governments, investors, entrepreneurs, and users of marijuana. Reversing the rules that were put in place under the Obama administration could result in more harm than benefits for the country. Now is a great time to look at the sector for investment opportunities or research current companies held within your investment portfolio.