A long standing legal prohibition on federal enforcement against state legal medical cannabis operators expired on December 21, 2018 when the U.S. Government partially shut down. The amendment had been renewed and extended multiple times through that date.
First adopted in 2014, the amendment to annual appropriations bills known as the Rohrabacher-Blumenauer Amendment is expected to be reimplemented when the Government is reopened and the current budget stalemate resolved. In the meantime, however, technically, federal enforcement against state legal medical cannabis companies is possible. That said, most of the government agencies who could pursue such enforcement remain unfunded and shut down.
Most commentators also do not expect to see any change in federal enforcement activity as public sentiment, Congressional activity and state legalization efforts are all moving in the direction of ultimately eliminating prohibition on the medical and adult use of cannabis.
New York Governor Andrew Cuomo today said that he will support legalization of adult use of cannabis as a key part of the 2019 legislative agenda. In fact news reports suggest he wants to get this done within the first 100 days of his new term next year.
In his remarks on the subject he focused on reversing the stigma of cannabis use and eliminating the targeting of people of color in enforcement of anti-cannabis laws. According to ABC News, in New York City, Comptroller Scott Stringer estimated that legalizing cannabis could yield as much as $1.3 billion in annual tax revenue for the state and about $350 million for New York City alone.
In August the Governor commissioned a work group to focus on drafting the legislation, following the advice of a task force that the benefits of legalization outweigh the risks. The work group has been conducting “listening sessions” throughout the state.
As recently as 2017 the Governor had called cannabis a gateway drug. Given the national trend to legalization and the fact that New York’s neighbor, New Jersey, is about to pass adult use legislation, however, Cuomo has felt political pressure to move ahead.
Following guidelines already in place at the New York Department of Health, Gov. Andrew Cuomo signed a bill last month formally adding “acute pain management” to its list of conditions for which medical cannabis can be prescribed. This change is important since it allows doctors to offer cannabis as an alternative to opioids for acute pain, not just chronic pain, which was previously added to the list. Substance use disorder sufferers also would be permitted under the bill to obtain medical cannabis to manage their pain, again with the hope of avoiding the use of opioids.
We need not recite the well-documented human destruction that has been caused by the US opioid epidemic. Not limited to those with addictive tendencies, many are innocently prescribed these drugs following surgeries or with other acute pain and become hooked. Now NY doctors will have a state legal alternative in these situations. And while there are no clear statistics yet, a study published by JAMA in April of this year concludes, “[L]iberalized prescribing of marijuana may result in decreased use of opioids, and hence, fewer subsequent opioid-related overdose events.” In this population-based, cross-sectional study using Medicaid prescription data for 2011 to 2016, medical marijuana laws and adult-use marijuana laws were associated with lower opioid prescribing rates.
As we know, Gov. Cuomo in the last year or so has gone from considering cannabis a gateway drug to appearing to support adult use legislation, which is currently being drafted by a task force he commissioned. If he wins reelection in November, which is widely expected, many believe he will support such legislation if passed. His Republican opponent, Marc Molinaro, previously supported adult use legalization but recently has been stopping short, agreeing with the availability of medical cannabis and decriminalization to avoid cannabis users facing jail time.
Many believe that cannabis stocks are experiencing a “bubble,” meaning that market valuations are unjustified, unrealistic and based on investor hype as opposed to typical fundamental markers such as revenues, assets and profit. Some, like The Motley Fool, believe this is a bubble ready to burst. The Wall Street Journal includes quotes from new entrants in the space suggesting this is much like the Internet stocks of 1997 or 1998, remembering that in 2000 the Internet stocks crashed mightily, taking years to recover after many companies did not survive the shakeout.
The cannabis data analytics company New Frontier Data reports that, year to date, seven of the top 12 cannabis stocks have posted more than 200% gains. The data company also seems to be recommending that, “As cannabis stocks continue to rally, prudent investors should consider taking profits and exercising caution.” The AP just quoted a stock analyst warning, “[i]f there is a bubble, larger investors will protect themselves and won’t overinvest in single companies, but smaller investors who see a chance to get rich quickly could suffer painful losses.”
It is true that, in particular in Canada, cannabis stocks are trading at extremely high valuations relative to the companies’ financial condition and results. One company, for example, with around $20 million in first half revenues, is trading at the same valuation as Macy’s, which has $25 billion in annual revenue. In the US the valuations are a bit more down to earth, but also considered by most to be high given performance.
Many others, including leaders of companies with these high-flying stocks, strongly believe these valuations are justified based on the tremendous future potential of the cannabis industry as we get closer to federal legalization in the US and global growth proceeds as well. They believe that as long as investors continue to believe in the future of the very rapidly growing industry, the valuations will continue to stay strong and be justified, and performance will grow to further support the bubble pricing. But the thing about bubbles…
Earlier this month, surprising many in the industry, the Drug Enforcement Administration announced it is proposing to significantly increase the amount of cannabis it will permit to be grown for research purposes in 2019. The 2018 limit, about 1000 pounds, will be increased to over 5400 for 2019, an over five-fold increase. The proposal remains open for public comment for the next 30 days, then the DEA will make final decisions on the matter.
Until 2016, only the University of Mississippi was permitted to grow cannabis for federally approved research purposes. But very few licenses were approved, and in most cases researchers learned that the low quality of product from Ole Miss made research essentially worthless. The Obama Administration, in its last months, approved a dramatic increase in research and opened up the right for other institutions to apply to grow cannabis for that purpose. Dozens applied, but Attorney General Jeff Sessions, until now, had not let any licenses be approved. Some believe it is relentless pressure on Sessions from the Senate that has led him not to stand in the way of this new action. In a hearing almost a year ago he had even admitted that adding more grow facilities for research could be “healthy.”
Cannabis medical research has been exploding elsewhere, particularly in Israel. For example, a published, peer-reviewed study earlier this year from there showed that over 95% of thousands of tested cancer patients said their condition improved with the use of cannabis. There is also a state-funded “Center for Medical Cannabis Research” in California that has commenced several studies, including one on the efficacy of CBD on autism spectrum disorder. Another California group is studying whether smoked cannabis can help with post-traumatic stress disorder. Most of these studies, however, are not “double blind” clinical trials given the federal restrictions. Many in the industry hope that the expanded DEA licensing will open the door to more exploration of the potential medical benefits of cannabis.
In a rather symbolic moment in the march to the legalization of industrial hemp, the caretakers at George Washington’s Mount Vernon farm announced in May (although it has only recently received news attention) that they have planted a small crop of industrial hemp. They are doing so under Virginia law and say they are going to use the plant “as an interpretative tool to help better tell the story of Washington’s role as a farmer.”
As many know, hemp was a critical crop in Colonial times and some states, including Virginia, actually required farmers to grow it. Hemp was used particularly to make rope, thread, canvas and sailing cloth. Washington’s primary crop actually was hemp. Thomas Jefferson grew hemp as well.
The Mount Vernon farmers intend to use the hemp they grow to give fiber-making demonstrations at the site, which is owned by the Mount Vernon Ladies Association of the Union. They bought the site from Washington’s descendants in 1858 for $200,000 and now about a million visitors each year tour the facility. Many do not realize that Mount Vernon is not owned by the Federal government and is not a national park.
Hemp, while derived from the cannabis plant, contains no THC and has no psychoactive effects. In June, the Senate passed a farm bill that included language effectively legalizing industrial hemp. However, the House version of the bill is silent on hemp, and a conference to deal with the differences is being arranged. Senate Majority Leader Mitch McConnell (R-KY) is a strong supporter of legalizing hemp, which many believe will help sway some skeptical House Republicans to support those provisions.
The United Kingdom this week approved the legalization of medical cannabis. The decision was made by the Home Secretary, Sajid Javid, who said, “Recent cases involving sick children made it clear to me that our position on cannabis-related medicinal products was not satisfactory.” As a result, medical cannabis will become available to children and adults with a prescription. The specifics of how this will be implemented have not yet been determined.
Javid did add, however, that this was “in no way a first step to the legalization of cannabis for recreational use.” This follows a widely watched story involving a 12-year old boy with a rare form of epilepsy who had received a special emergency license to be treated with medical marijuana in Northern Ireland.
Over 30 countries have legalized medical cannabis at this point, including a number of European countries. Press reports on the UK decision included enthusiastic quotes, especially from parents of children facing difficult illnesses. With over 65 million people, the UK represents a big increase in those now able to access medical cannabis worldwide.
The US Senate, by an overwhelming 86-11 vote, last week approved the sweeping Farm Bill containing language which fully legalizes industrial hemp. As we know, hemp, which is derived from cannabis plants, is used to make products from rope to clothing and does not contain THC, the psychoactive part of the plant. In colonial days hemp was so crucial that farmers, like George Washington, were legally required to grow it.
Most believe the House will follow suit. Hemp has not been legal on a federal level since federal criminalization of cannabis in the 1930s. Many believe that occurred in part because of fears of hemp competing with powerful timber interests and DuPont’s then new patent on nylon. After the 1930s bill was declared unconstitutional in 1968, the Nixon Administration helped orchestrate passing the Controlled Substances Act. That law, still in force, declared all parts of the cannabis plant as Schedule I drugs, as dangerous as heroin and LSD. A top Nixon aide later admitted, “Did we know we were lying about the drugs? Of course we did.” Constitutional challenges thus far have been unsuccessful.
Legalization of hemp could yield a variety of products that previously could only be produced with imported hemp. These could include food, building materials, paper products and many others. Currently, it it believed that China is the largest producer of hemp, since it is legal to do so in a number of Chinese provinces. They started farming it during the Vietnam War to make more breathable uniforms for their soldiers in the intense heat. This Senate vote is indeed a significant step towards relaxation of federal cannabis regulation.
The New York Times reported yesterday that the New York State Health Department is ready to recommend legalizing adult use of cannabis in the Empire State. Commissioner Howard Zucker was quoted as saying they had reviewed the pluses and minuses and concluded, in a study requested by NY Governor Andrew Cuomo, that “the pros outweighed the cons.” The study, started in January, has not been released yet.
Governor Cuomo, as recently as last year, said that cannabis is a “gateway drug.” But he is now facing strong opposition on the issue from his primary opponent Cynthia Nixon. Even his Republican opponent wants to legalize cannabis and use the money to fix New York’s transportation system. He is also feeling pressure from New Jersey’s apparent plan to legalize adult use in the near future, not to mention Massachusetts’ full adult use rollout commencing very soon. This led to his commissioning the Zucker study.
Even with this study recommending legalization, the NY legislature would have to pass a law to make it happen. Republicans, who tend to be more anti-legalization, currently control the Senate while Democrats control the Assembly. So there is no certainty of getting a bill passed. But it appears the momentum is building towards adult use legislation in the nation’s fourth largest state.
On the White House lawn this morning, getting ready to leave for the G-7 summit in Canada, Pres. Trump made positive comments about the cannabis bill introduced yesterday by Sen. Cory Gardner (R-CO) and Elizabeth Warren (D-MA). The STATES Act would allow states the freedom to legalize cannabis within their borders with no federal enforcement action permitted. The text of the Senate bill, just released, removes state legal cannabis from enforcement under the Controlled Substances Act.
On the lawn, the President said of the bill, “I probably will end up supporting that, yes.” He said, “We’re looking at it,” but also noted that he “really” supports Sen. Gardner. Of course the bill has to be passed by Congress before being sent to the President. The question is whether the process can be completed before the “silly season” of midterm elections brings most legislative activity to a stop. Trump promised to support a bill like this in exchange for Sen. Gardner resuming approval of judicial nominations, which he had stopped after Attorney General Jeff Sessions rescinded an Obama-era memo de-emphasizing federal enforcement against actors in cannabis legal states.
The House version of the bill was introduced this morning but text is not yet available. The initial sponsors will be Rep. Jared Polis (D-CO), David Joyce (R-OH) and Earl Blumenauer (D-OR). The bill also appears to effectively repeal IRS Code Section 280E which prevents cannabis companies from deducting ordinary business expenses. It also removes activity by cannabis companies being assumed to be money laundering, which will hopefully help more banks to take cannabis companies as customers. Certainly a dramatic potential development.