This Trigger Event Could Devastate Marijuana Stocks

Marijuana Stocks
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Marijuana Stocks Depend on Donald Trump

Have you ever wondered why marijuana stocks became so popular in the last three years?

Most people think it is because states like Colorado and Washington legalized cannabis, and they are partly correct. The flurry of state-wide referendums brought marijuana stocks to life, but the real question is: Why did states only start to hold those referendums now?

The answer lies in something called the “Cole Memo.” (Source: “Memorandum for all United States Attorneys,” Office of the Deputy Attorney General, August 29, 2013.)

In 2013, a deputy U.S. Attorney General named James M. Cole took an unprecedented step in the U.S. Department of Justice. He wrote a memorandum that allowed states to regulate cannabis as a commercial activity, which is the only reason we have marijuana stocks at all.

Cole acknowledged that many states wanted to “authorize marijuana production, distribution, and possession by establishing a regulatory scheme,” and then argued that these goals weren’t necessarily bad. He laid out some ground rules for how they could align with federal laws, and that was it.

So even though Colorado and Washington state had already legalized recreational marijuana, the federal government had enough power to cause problems. Cole could have thrown a bunch of hurdles in the way, but instead he made it clear that individual states could do whatever they wanted.

“Jurisdictions that have enacted laws legalizing marijuana in some form…in compliance with those laws and regulations [are] less likely to threaten federal priorities,” wrote Cole. As such, “state and local law enforcement and regulatory bodies should remain the primary means of addressing marijuana-related activity.”

It’s hard to overstate how important the “Cole Memo” was to marijuana stocks. By stepping out of the way, the Department of Justice had removed uncertainty and paved the way for a flurry of legalization.

Maryland, Minnesota, New York, Alaska, and Oregon all turned green the following year. Next came Delaware and Illinois. Then, during the 2016 election, California, Nevada, Maine, and Massachusetts all voted to legalize recreational cannabis.

On the surface, this seems like great news for marijuana stocks. More legal states means more legal customers, and therefore higher profits. But there’s one small problem: the “Cole Memo” can be reversed by a new administration.

Cole himself was appointed by President Barack Obama. If his successor is appointed by President-elect Donald Trump, there could be a significant shift in policy regarding marijuana stocks. After all, neither Trump nor his Republican (GOP) allies in Congress are friendly toward the marijuana industry.

Some analysts worry that the GOP will try to bring cannabis back under federal jurisdiction. If they do (and they certainly have the authority to), then marijuana stocks are in for a world of hurt.