Trump's Pick for Attorney General Is a Worst-Case Scenario for the Marijuana Industry

By Markets Fool.com


Image source: Getty Images.

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Arguably the most interesting election season in recent history is now over, and for most supporters of the marijuana legalization movement, it was an election to be excited about.

A near sweep on Election Day

Heading into Election Day, we knew that residents in nine states would be voting on a marijuana initiative or amendment. While a select few states looked to be locks to legalize, many were still a toss-up at best heading into Election Day. When the dust settled, residents in eight out of nine states had chosen to legalize marijuana. This included California, Nevada, Massachusetts, and Maine, which legalized recreational marijuana and effectively doubled the number of states that have done so, as well as Florida, Arkansas, and North Dakota, which legalized medical cannabis and made it so that more than half of all U.S. states now recognize medical cannabis as legal when prescribed by a physician for select ailments.

It's not hard to understand why marijuana initiatives had such a strong showing this election season. According to the latest national poll from Gallup, 60% of Americans want to see pot legalized. This figure represents an all-time high, and it's up from an approval rating for weed of just 31% in 2000. The support to legalize medical cannabis is even higher, with 84% of Americans in favor of such a measure in 2015 per CBS News.

The election of Donald Trump as our next president can also be viewed as a win by the pot industry. Trump has gone on the record as being "in favor of medical marijuana 100%," and he's long supported the idea of states' rights when it comes to regulating recreational marijuana industries. In other words, Trump would keep the current status quo in place for recreational sales, but he'd like to see Congress move to legalize medical cannabis.

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Presumably, these are all positives for the marijuana industry.


Sen. Jeff Sessions (R-AL). Image source: Jeff Sessions Senate webpage.

Trump's attorney general selection could be bad news for marijuana

However, the tables turned last week and that optimism hit a proverbial brick wall when multiple news sources announced that Trump plans to nominate Alabama's Republican Senator Jeff Sessions to be the next attorney general of the United States. Without mincing words, Sessions could be the most ardent opponent of marijuana's legalization in the entirety of the Senate.

Sessions' opposition to marijuana dates back roughly three decades. As noted by The Washington Post, Sessions had a number of potentially damaging things to say about the illicit drug at a Senate drug hearing back in April. Among them, Sessions argued that there's been a 20% increase in the number of traffic deaths related to marijuana in certain states, and advocated that "good people don't smoke marijuana."

Furthermore, at the hearing Sessions blamed the lax policies of the Obama administration for reversing what had been two decades of "hostility to drugs that that began really when Nancy Reagan started 'Just Say No.'" Sessions further opined that "we need grown-ups in charge in Washington to say marijuana is not the kind of thing that ought to be legalized, it ought not to be minimized, that it's in fact a very real danger."

It's unclear at this point if Sessions' appointment (should it be accepted) would mean changes for the marijuana industry. It's possible Sessions could get the federal government more involved with state-level marijuana regulatory enforcement or, worse yet for the industry, he could always choose to impose federal laws on the states. Remember, cannabis is still a schedule 1 (i.e., illegal) drug at the federal level, and if the federal government chose to enforce its superseding law, states would be compelled to comply, all but crushing each and every marijuana business. Though this extreme seems unlikely given the public's growing support for marijuana, it can't be ruled out with such an ardent opponent to marijuana potentially becoming our next attorney general.


Image source: Getty Images.

Even if medical marijuana is legalized, challenges remain

But, even if Trump gets his way and medical marijuana is rescheduled, it doesn't necessarily make things any easier for the pot industry. Though it would establish cannabis as having medically beneficial properties, it would open Pandora's box when it comes to federal regulation.

Rescheduling marijuana would essentially make cannabis a legalized drug. As such, it would come under the regulation of the U.S. Food and Drug Administration, which would have the power to oversee the marketing and packaging of marijuana products and to monitor the growing and processing of cannabis to ensure that THC content is consistent from one batch to the next. Most importantly, it could require that clinical trials be run to confirm that cannabis has the medical benefits that are implied. In other words, that pot is often legalized medically in states for glaucoma, cancer pain, and epilepsy are good examples. The FDA could require that rigorously crafted clinical studies be run to confirm these positive medical benefits. If this happened, we could be looking at a crippling spike in costs for the marijuana industry under such a scenario.

If things don't change from the current status quo, then the cannabis industry could face a number of inherent challenges, such as minimal access to basic banking services and an inability to take normal business deductions come tax time, thus increasing their tax liability. Added to this scenario is the potential for Jeff Sessions to stymie or reverse the industry's progress at some point in the future.

While legal marijuana's growth prospects could be enormous (Cowen & Co. estimates nearly 24% compound annual growth between now and 2026), it continues to present a hostile environment for investors. Few, if any, publicly traded pot companies are profitable. Most trade on non-reputable exchanges, and the potential for added regulatory costs or ongoing profit-crushing disadvantages makes owning companies in this industry a big risk.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.

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