Domestic Marijuana stocks rose Friday, but they remain down overall since Attorney General Jeff Sessions announced new Justice Department rules allowing for prosecutions against state-legal marijuana businesses.
The U.S. Marijuana Index, comprised of 15 publicly-traded companies directly involved in the legal marijuana industry, had lost roughly 25 percent of its value from the close of trading on Wednesday to opening Friday, driven by investor anxiety over what the new policy would mean for marijuana businesses. On Friday, the stocks clawed back about one-third of those loses as the index rose just more than 10 percent.
The industry appears to be taking a cautiously optimistic wait-and-see approach with regard to the new federal rules.
“There has been no indication for a widespread directive to cease and desist state regulated cannabis markets and we expect law enforcement priorities to remain status quo,” said Matt Karnes of Greenwave Advisors, an industry financial firm, in an email.
However, investors are likely to see how things shake out before pouring more money into the industry. “We think the confusion caused by the Sessions rescission will arguably lead many investors to remain cautiously observant from the sidelines,” Karnes added.
“This is a speed bump in the industry,” said Jesse Peters, CEO of Eco Firma Farms, a marijuana growing business. “There is no coincidence that this announcement came three days after California implemented sales to adults 21 and over. It is an attempt by the current administration to slow the flow of cash from investors into a state that can make an unstoppable dent in full legalization.”
The loosening of state regulations in the past two decades have created a growing marijuana industry involved in everything from the production to the sale to the consumption of the still federally illicit plant. Industry sources estimate that sales in 2016 topped $6.7 billion, and that the industry employed between 165,000 and 230,000 workers last year.
Many of those companies have listed themselves on stock markets like the New York Stock Exchange, Nasdaq and others, allowing investors to buy and sell shares in the companies just like they would any other business.
But marijuana's unique legal status — approved under some state laws but stringently prohibited by the federal government — has meant that pot stocks have had a bumpy ride over the past few years. Industry consulting firm MJIC Inc started the index in January of 2015, and in the subsequent year the index lost nearly 75 percent of its value.
The index regained most of that lost value through the 2016 election, when voters in four states, including California, approved recreational use of the drug. It fell again, by roughly 50 percent, through 2017, tempered by new uncertainties under a Trump administration disinclined to view marijuana favorably. The market rallied again in October in anticipation of legal pot sales in California starting on January 1.
Just three days later the Attorney General set the stage for a new federal pot crackdown.
“It is a tough day for those of us who have worked so hard to get here,” said Eco Firma Farms' Peters, “but nothing we are not used to. We will persevere.”