While it's not a done deal until Congress formally approves it and President Trump signs it, the budget proposal agreed to by Congressional leaders last night would keep medical cannabis protections in effect through September 30, as fellow Forbes contributor Tom Angell noted last night. As I shared two months ago, the rescission of the Cole Memo in early January by Attorney General Jeff Sessions had left the industry vulnerable to federal enforcement of the Controlled Substances Act if the Rohrabacher-Blumenauer Amendment were not to be included in the next budget. My caution on cannabis stocks has been warranted, as the Global Cannabis Stock Index has sold off more than 27% over the past two months since my warning.
While the language in the new budget didn't go so far as to protect the use of cannabis beyond medical purposes, the Department of Justice hasn't had that restriction imposed on it since Jeff Sessions took the helm over a year ago. Further, the inclusion of the amendment is a powerful signal that Congress supports the rights of states to regulate and tax cannabis, suggesting that any attempts to interfere at all by the Department of Justice would face political backlash. While it's too early to predict, there is a significant number of bills that have been introduced that would help reform federal cannabis policy on a more permanent basis than the budget-to-budget protections offered over the past few years.
With prices having pulled back and a major risk on the verge of being contained for at least six months, now could be a good time for investors to consider cannabis stocks. I wrote a few weeks about a five stocks that investors should definitely avoid, but there are many that are worth considering in my view. A good place to start one's diligence, in my view, are the stocks of companies that are generating revenue, have access to capital and possess reasonably strong balance sheets. In terms of revenue generators, New Cannabis Ventures updates a list of companies on track to sales of $10 million or more in sales per year, though this doesn't mean these stocks are an automatic buy. Those companies listed that would be positively impacted by the budget passage would include Golden Leaf Holdings, GrowGeneration, Kush Bottles, MPX Bioceutical and Terra Tech. Note that I have no personal positions in any of these, but GrowGeneration, Kush Bottles and MPX Bioceuticals are clients of New Cannabis Ventures, where I am the managing partner.
With Massachusetts legal cannabis sales commencing on July 1 and states like New Jersey moving in that direction, the cannabis sector is likely to offer dynamic growth over the next few years. Investors need to carefully monitor federal enforcement policy, but it appears that the threat of raids by the Department of Justice is lifting. As always, investors should be careful with the cannabis sector, which trades primarily on the OTC rather than listed exchanges, as most of the stocks don't accurately reflect the cannabis industry and instead are get-rich schemes for the people running the companies and their financiers.
