Credit: Shutterstock photoStocks and exchange traded funds tied to cannabis, from Scotts Miracle-Gro ( SMG ) to ETFMG Alternative Harvest ETF ( MJX ), skidded on Thursday on news that Attorney General Jeff Sessions will roll back the measure that has encouraged more states to legalize using and selling the plant.
[ibd-display-video id=3037819 width=50 float=left autostart=true] The move comes just days after recreational marijuana became legal in California, the biggest potential market for cannabis. And it comes as scores of small businesses - increasingly confident that Sessions wouldn't crack down on the plant despite his vocal disdain for it - open up shop to sell marijuana candy, cannabidiol tinctures, THC coffee, and lighting, security and technology products related to the plant.
While the move by the Trump administration may make federal prosecutors take a harder stance, Cowen analyst Vivien Azer shrugged it off by noting that state and local officials in top cannabis markets remain more open.
"We don't view this as terribly disruptive, as enforcement decisions will seemingly be left to state-level AGs," she said in a research note. "In legal adult use cannabis states, given the tax revenue generation, we believe local governments and AGs are largely onboard with legalization."
Lawn-care company Scotts Miracle-Gro, which has been bulking up its hydroponics business, was down 1.5% in the stock market today , but had dropped as much as 5.2% earlier. Insys Therapeutics ( INSY ), whose shares jumped late last month after the FDA gave fast-track designation to a cannabidiol drug it was developing, plunged 15%. Cannabidiol, or CBD, has been used broadly as a relaxant.
ETFMG Alternative Harvest, an ETF tied to such stocks as GW Pharmaceuticals ( GWPH ) and Canopy Growth Corp., tumbled 5.5%. AdvisorShares Vice ETF ( ACT ), which allocates 20% of its holdings to the cannabis industry, lost 1.4%.
IBD'S TAKE:Even as investors in the cannabis industry try to get in on the ground floor, investing in the space in the U.S. can be tricky .
The Justice Department said it plans to rescind 2013's so-called Cole Memo, which essentially said the federal government would take a lighter enforcement approach to states that legalized marijuana, provided they kept the market under control. The Associated Press reported the move earlier.
U.S. prosecutors in states that have legalized the plant will determine how much they want to enforce federal law. Marijuana is still illegal on a federal level.
Cowen & Co. has estimated that cannabis could become a $50 billion market by 2026, potentially threatening the beer and wine industry and helping the fast-food industry - particularly restaurants concentrated in California.
But alcohol companies like Constellation Brands (STZ) and Molson Coors (TAP) have signaled interest in pot-related products.
Meanwhile, Jack in the Box (JACK) will be working with Merry Jane, a cannabis-focused media company co-founded by rapper Snoop Dogg, to launch a campaign to promote a late-night " Merry Munchie Meal " this month in parts of Southern California.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
