2018 Farm Bill for Hemp Legalization Clears House: What It Means for Marijuana Stocks in 2019

2018 Farm Bill
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2018 Farm Bill Could Have Big Impact

One of the biggest—and perhaps most under-the-radar—developments in the marijuana industry came late this year with the 2018 Farm Bill leading to hemp legalization across the United States.

While there was already some degree of legality when it came to hemp in the U.S., the plant is now officially legal to cultivate, and this could have huge consequences for marijuana legalization in the U.S. and marijuana stocks in 2019.

With the cultivation of hemp, the exciting cannabidiol (CBD) market is likely to open up as well. CBD oil is a derivative of the hemp and marijuana plants. It is often associated with restorative health effects, and does not get people high.

Hemp and CBD are very low in tetrahydrocannabinol (THC), meaning that, in a roundabout way, CBD oil was semi-legalized in the U.S. with the passing of the 2018 Farm Bill.

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I say “semi” because the Drug Enforcement Administration (DEA) still has very strict restrictions on CBD.

“Epidiolex,” the only marijuana-derived drug approved by the Food and Drug Administration (FDA), has a very high concentration of CBD and only has trace amounts of THC.

The approval of Epidiolex by the FDA forced the DEA to reclassify marijuana medicines containing little to no THC from Schedule I to Schedule V, representing a jump from heroin to everyday medicines in the eyes of the law.

This opened the door somewhat for the CBD market in the U.S., and will allow hemp producers to tool around with different plants and yields to see what will work within the law.

The CBD industry is already valued by some at $1.0 billion. (Source: “Congress just quietly passed a law that could spark a boom for the $1 billion marijuana-linked CBD industry,” Business Insider, December 15, 2018.)

It’s worth noting that CBD is still considered illegal by the DEA for recreational consumption, meaning that most breakthroughs in the U.S. around the extract will have to be focused on the medical side of things.

2018 Farm Bill and Marijuana Stocks in 2019

The hemp legalization in the 2018 Farm Bill will likely result in a federal marijuana legalization boost, since it will see CBD oil play a bigger part in the American market next year.

While legal boundaries still exist, this is the closest the U.S. has come to federally legalizing marijuana.

While the bill still needs to be signed into law by President Donald Trump, that is more than likely to happen. Trump’s approval pending, this bill could reshape the way Americans look at and interact with cannabis derivatives.

Consider that, across the world, medical marijuana legalization almost always precedes recreational cannabis legalization as consumers become more acquainted and comfortable with the drug. There’s no reason for me to believe that hemp legalization won’t help build on that effect.

Furthermore, many recent polls have shown that an overwhelming majority of Americans support marijuana legalization.

All this could be huge for marijuana stocks in 2019.

While it’s unlikely that the current federal administration will push for pot legalization, the 2018 Farm Bill could help nudge Democrats toward adopting the issue as a pillar of their platform in the 2020 presidential race.

After all, the presidential campaigns are among the most publicized events in the U.S., and the Democrats are desperate for a win. Adopting marijuana legalization could be a cause célèbre that helps jolt younger voters (who support marijuana in even higher numbers) to hit the polls.

Whether the 2018 Farm Bill furthers the cause for U.S. marijuana legalization or only helps open the CBD market, the effect on marijuana stocks could be profound. If hemp becomes big business in the country following the passing of this legislation, expect marijuana companies to find a way to get involved.

Canopy Growth Corp (NYSE:CGC),  a Canadian company long hungry to get into the U.S. market, was one of the first marijuana companies to express support for the bill.

After the bill was passed, Canopy Growth CEO Bruce Linton reiterated his support for the legislation. “The world’s changing: This is the first step in the U.S. to manage cannabinoids,” said Linton. (Source: “Canopy Growth CEO says Farm Bill passage is ‘first step’ toward US expansion,” CNBC, December 12, 2018.)

And it’s easy to understand why. Post-legalization of hemp, even with the current restrictions in place, we could see CBD medicines rapidly displace competitors.

Two major segments of the pharmaceutical industry, after all, are vulnerable to CBD: sleep aids and pain medication. Both segments are firmly under the grips of Big Pharma, and both of them are often considered to be highly addictive and deleterious to one’s health.

CBD being introduced to the U.S. market via hemp, however, could create a competitor that provides similar benefits without the negative drawbacks.

After all, consider that the opioid epidemic that has been sweeping the U.S. and much of the western world was brought on primarily through prescription drugs meant as pain remedies. CBD could mitigate the crisis by replace opioids as the pain medication of choice.

While hemp legalization doesn’t guarantee that this shift from Big Pharma to the marijuana industry is going to take place, it certainly opens the door to that possibility.

After all, it makes too much sense politically.

A medicine that has widespread approval across the country, offers the possibility of lowering addiction rates and overdose deaths, is plant-based, and has more applications beyond pain management—it would be hard for savvy politicians to ignore.

Analyst Take

Marijuana stocks in 2019 are going to be bolstered by the opening of the CBD market in the United States.

One of the biggest problems with the marijuana industry as it stands now is that it cannot legally access, by-and-large, the budding U.S. market.

Federal restrictions make it nearly impossible to have large stakes in the U.S. pot sector. As such, the most lucrative market on earth that is somewhat friendly to pot on the state-level basis is still largely closed off to investors.

Federal hemp legalization could be the first step toward changing that.

We are closer than we’ve ever been to seeing a full-on marijuana legalization push in the country. If CBD becomes as popular as many suggest, then I fully expect to see a marijuana legalization boost.