Looking at Legalization
Implications for an Evolving Industry
Lawmakers in both in the United States and Canada have had a complicated relationship with marijuana for over a hundred years, ever since it was first entered into the United States Pharmacopeia in 1850. Nowadays, most U.S. states allow the use of medical marijuana, and a few have approved recreational use of the drug as well. In Canada, as of October 17th, recreational marijuana use will be permitted nationwide.
The beginning of the trend
Today, baby boomers can recall the widespread recreational use of marijuana as a cultural staple during their youth: the time of Woodstock, psychedelic art, and journeys of self-discovery – whether seeking ancient wonders in India, draft-dodging from the United States to Canada, or just embarking on cross-country road trips in a VW bus, at a time before gas prices became outrageous.
Of course, the medicinal effects of the marijuana or cannabis plant have been well-established since long before that time, but it wasn’t until the 1970s and 1980s – perhaps due to the influence of the “spirit of the ‘60s” – that a number of U.S. states began to consider legislation that would regulate its use by certain patients. Medical marijuana was eventually successfully legalized in the State of California in 1996, and several other states followed suit in the following years. Health Canada began regulating the plant’s use in 2001.
As of now, recreational marijuana use for adults 21 and over is legal in nine states and the District of Columbia, as reported by the National Conference of State Legislatures. Specifically, recreational use is legal across the West Coast of the United States: in California, Oregon, Washington, and Nevada. It is also permitted in Alaska, Colorado, Vermont, Maine, and Massachusetts.
Additionally, a total of 31 states, DC, Puerto Rico and Guam have comprehensive laws supporting marijuana’s medical use. Of those states that do not have such laws (which include Utah, Texas, and much of the Deep South), there is legislation in place to protect users of “low THC” cannabis products for limited medical use or as a legal defense. THC, or tetrahydrocannabinol, is the cannabis plant’s main psychoactive constituent.
Cannabis is now only completely outlawed under all circumstances in four U.S. states: Idaho, South Dakota, Nebraska, and Kansas.
What legalization means for recreational users
According to the Government of Canada, when the Cannabis Act comes into force on the 17th, adults of 19 or over (18 in Quebec and Alberta) will be able to: purchase cannabis products by licensed sellers; consume the product in their homes and other locations that are authorized by local jurisdictions; possess up to 30 grams of cannabis in public spaces (such as a car); share the product with other adults; grow up to four cannabis plants per household (except in Manitoba and Quebec, which have not acceded to home growing); and make their own homemade cannabis edibles. As with the nine U.S. states that have also legalized the herb, no doctor’s note is required.
The Cannabis Act, also known as Bill C-45, is an act that the government introduced in 2017 “with the goals of keeping cannabis out of the hands of youth and keeping profits out of the hands of criminals and organized crime,” as stated by Canada.ca.
Bearing that in mind, it follows that legalization is far from a free-for-all. As The Guardian points out, marijuana restrictions are similar to those of public (cigarette) smoking or drinking. Driving high is prohibited, as is selling without a license and sharing your stash with a minor. Any of these crimes can result in four-figure fines or jail time. Since employers are left with the authority to enforce their own drug use policies, it is unlikely to be permitted in workplaces, if smoking marijuana is treated similarly to on-the-job drinking. This of course does not apply to medical marijuana, which employers are legally required to treat as they would any other medical prescription.
Because Bill Blair, a Member of Parliament who heads the Canada’s legalization Task Force, has made statements that licensed medical producers offer a very strong model to build upon as Ottawa tries to build a functional market, marijuana business consultants are expecting that it is these already established medical businesses who will be serving the recreational cannabis market when it opens this month.
Should you invest?
Medical and health research cannabis businesses have blossomed over the last couple of years. One of the most prominent examples is Canopy Growth Corp. Headquartered in the small town of Smiths Falls, Ontario, Canopy Growth is the first federally regulated, publicly traded cannabis producer on the continent (TSE:WEED and NYSE:CGC). It has been available on the Toronto Stock Exchange since July 2016, and on the New York Stock Exchange since May 2018. Like all producers, Canopy Growth is licensed by Health Canada.
But Canopy Growth is doing more than growing cannabis. It’s also an exporter, researcher, producer of medical cannabis products, and acquirer of other companies. Its numerous acquisitions and partnerships (it’s the exclusive distributor of Snoop Dogg’s “Leafs by Snoop” brand through its online marketplace) have made Canopy Growth a well-known name in the blooming industry, pun intended. Trading at about $36CAD in May (at the time it first entered the NYSE), its current price is closer to $60CAD – likely higher by the time this article is published.
There seems to be no time like the present for investors to get into a hot market, but as always, it’s important to proceed with caution. On August 30th, shares of Cronos Group Inc. (TSE:CRON and NASDAQ:CRON) plummeted by 27 percent. As the Financial Post reveals, the Toronto-based cannabis company and global distributor experienced the stock drop after a Citron Research report accused the company of deception by deliberately not disclosing the size of its distribution agreements with Canadian provinces. Citron also implied the agreements are too small to justify Cronos’ stock prices.
“When the reason you buy a stock is because of its price movement, that’s when you’ve started to speculate rather than invest, and that’s where you start to expose yourself to significant risk,” financial writer David Jagielski said of the Cronos dip.
That being said, a calculated and well-researched investment into a reputable cannabis company with a robust business plan is, overall, a smart move for investors.