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Why the Legal Marijuana Industry Is Suddenly Worried

Legal Marijuana

legal marijuana

The prospect of Senator Jeff Sessions as U.S. attorney general has cast uncertainty over the country’s nascent legal marijuana industry, souring deals and disrupting share prices since the longtime critic of the drug was nominated.

The U.S. Senate on Wednesday confirmed President Donald Trump’s nomination of Sessions by a vote of 52-47 after strong opposition from Democrats.. The Republican senator from Alabama has opposed attempts to legalize marijuana and reduce drug sentences and once urged the death penalty for drug traffickers.

Trump named Sessions as his choice to lead the Justice Department on Nov. 18, shaking the exuberance of an industry that last year reached $7 billion in legal marijuana sales and generated half a billion dollars in sales taxes.

The choice of Sessions drove some businesses back underground and scared away investors, industry experts said. Growers are seeking advice on how to protect themselves from a crackdown, while other cannabis companies are seeking ways to shield their records from investigators.

“Everyone’s back into wait-and-see mode,” said Sasha Kadey, chief marketing officer for Greenlane, which distributes cannabis accessories such as vapor smoking devices. “Because one doesn’t want to paint a target on one’s back.”

More than two dozen U.S. states have legalized some form of marijuana for medical or recreational use, but the drug remains illegal at the federal level.

The administration of former Democratic President Barack Obama mostly tolerated the state legalizations, focusing on big cases or transactions that involved other crimes, such as selling pot to children.

Trump has said in the past he would defer to states on legal marijuana, and has not addressed the issue since he was elected last November.

But Sessions, asked about marijuana policy at a Senate confirmation hearing last month, said that if Congress no longer wanted to criminalize marijuana, it “should pass a law that changes the rules.”

“It’s not so much the attorney general’s job to decide what laws to enforce. We should do our job and enforce laws effectively as we are able,” Sessions said.

Neither the administration nor Sessions responded to requests for comment.

‘Deals Lost’

Massroots, which makes a mobile app that allows people to review and discuss cannabis strains, lost 14% of its share price in the three trading days after Sessions’ nomination, and it was promptly removed from the Google Play app store, said Chief Executive Isaac Dietrich.

The share price has since recovered and is up 24% since Nov. 18.

At Greenlane, Kadey changed the company’s plans for a new line of premium, child-resistant packaging, deciding to market it without using the words marijuana or cannabis.

“There was a sharp drop in the stocks post-election,” said analyst Tom Adams, editor-in-chief of Arcview Market Research. “There were deals lost and second thoughts had by many people.”

An index of 33 publicly traded legal cannabis companies followed by Arcview dropped to a low of 284 points after the election from a high of 418 in October, analyst Michael Arrington said. The index has since regained much but not all of that value, hitting 379 on Jan. 6, the most recent date for which the company has data.

An effort to ramp up prosecution of federal marijuana offenses would reinvigorate the black market in cannabis and limit the states’ ability to regulate both legal and illegal sales, said Andrew Freedman, who last month left a job as Colorado’s top marijuana regulator to become a consultant in the industry.

Tighter enforcement could also threaten $140 million in taxes from marijuana sales that Colorado has used for education and other purposes, Freedman said.

Since the election, volatile valuations have complicated potential deals for companies that are up for sale, said Steve Gormley, CEO of the cannabis private equity firm Seventh Point.

Khurshid Khoja, a San Francisco Bay-area attorney who specializes in cannabis issues, said the climate was stalling deals as companies grow nervous about opening their books.

“It’s that they just don’t know,” Khoja said.

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