When May 1, 2020, rolls around, you’ll won’t be able to smoke hemp in North Carolina legally. Just yesterday, the North Carolina House passed the North Carolina Farm Act with revisions to restrict smokable hemp.

Why was it banned?

The smokable hemp ban was widely supported by law enforcement agencies. Law enforcement officers might find it difficult to apprehend users of illegal marijuana because legal hemp has a similar odor and appearance.

David Hess, the first vice president of the NC Association of Chiefs of Police, recently stated, “As long as smokable hemp is legal in North Carolina, marijuana enforcement is crippled, effectively legalizing marijuana.”

What does this mean for cannabis companies?

This turn of events means ongoing challenges for cannabis companies. Despite hemp being legalized in the US on a federal level, each state can determine how they want to implement this law.

Canopy Growth (WEED)(CGC), for example, is creating a hemp industrial park in New York. Recently, Aurora Cannabis (ACB) completed its acquisition of Hempco Food and Fiber. Given the developments in North Carolina, it might not be easy for Canopy Growth and Aurora Cannabis to implement a one-size-fits-all hemp strategy in the US. There could be a limit to what Canopy Growth, Aurora Cannabis, and other cannabis companies can and cannot sell.

Tricky regulations

Unlike the innovative and rapidly changing tech industry, the marijuana industry is highly regulated. Companies can see their fortunes disappear with violations, illustrated by CannTrust’s (CTST) troubles with Health Canada. The company’s compliance violations pushed its share price down to $1.90 from $5.00.

Conversely, with the 2020 presidential election rapidly approaching, several Democratic candidates have made marijuana legalization a key policy. However, President Trump, the Republican incumbent, has yet to reveal his stance on marijuana.

A catalyst for marijuana investors

We are closely watching the developments on that front, as marijuana legalized at a federal level can unlock significant value for investors. Marijuana investors have lost a lot of wealth in this sector over the past couple of months. For example, Tilray (TLRY), which has lost nearly 57% YTD, popped 10% yesterday but reversed that gain today.

Innovative Industrial Properties (IIPR) was also down 6% while Canopy Growth lost nearly 4% today. The overall market sentiment for cannabis stocks has remained negative.

However, Aphria (APHA) has lifted the sector’s mood with its better-than-expected earnings. For more information, please read Aphria’s Strategic Growth Initiatives Drive APHA Stock.

Note: Due to a typographical error, an earlier version of this article inaccurately described the results of the North Carolina House vote.

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