Cannabis legalization is a hot topic. With the sudden boom in the cannabis industry, legalization at the national level is vital. Last week, President Trump might have dropped a hint about cannabis legalization.

President Trump and cannabis legalization

We all know that President Trump loves discussing and tweeting about topics, especially tariff-related topics. However, he hasn’t really discussed cannabis legalization. Previously, I discussed how cannabis could be an important topic in President Trump’s reelection campaign.

Last week, President Trump might have dropped a hint about his thoughts on cannabis legalization. On August 30, Marijuana Moment reported that President Trump expressed his views. DC Examiner reporter Steven Nelson asked him about federally legalizing marijuana while he is in office. President Trump said, “We’re going to see what’s going on. It’s a very big subject and right now we are allowing states to make that decision. A lot of states are making that decision, but we’re allowing states to make that decision.”

Why is cannabis legalization important at a federal level?

Currently, recreational marijuana is legal in ten states and Washington DC. Notably, 33 states have legalized medicinal marijuana, while 14 states have decriminalized marijuana. So, why is cannabis legalization important at the federal level? Regulations are vital to the cannabis industry.

A perfect example is the recent regulation scandals. CannTrust (CTST) (TRST), a major cannabis player, suffered due to regulation violations. The company didn’t comply with Health Canada regulations. CannTrust grew marijuana in unlicensed rooms. As a result, Health Canada seized five metric tons of the company’s cannabis. KPMG also withdrew its audit report for CannTrust.

The company’s CEO was fired after Health Canada’s accusation of non-compliant growth activities. As a result, the stock price took a hit in July and August. The stock has fallen 25.9% in August and 64% YTD (year-to-date).

HEXO (HEXO) also faced pressure after the possible scandal news spread. The stock has lost 5.6% in August and 23% YTD.

What does the White House think?

Last week, two White House drug officials discussed legalizing cannabis at the federal level. They think that more research on cannabis is needed at the state level before the decision reaches the federal level. I think that their view is fair. The US must know the pros and cons of marijuana before legalizing it.

What are the pros and cons of marijuana?

Marijuana has a lot of pros and cons. First, we’ll discuss the pros. Medical marijuana has various health benefits. Papers by Journal Pediatrics discussed how marijuana can help people with epilepsy.

The real estate industry can also benefit from the demand to grow cannabis. For example, Innovative Industrial Residential Properties (IIPR) is a marijuana REIT index. IIPR is a specialized REIT that provides real estate solutions to medical cannabis players. Notably, IIPR had a stellar performance in its recent quarter. IIPR’s rental revenues rose 155% YoY due to an acquisition and leasing new properties, which drove its stock price this year. The stock has risen 96% YTD. However, the stock lost 15.6% in August.

The cannabis industry can’t be touched by the recession, which gives it an edge. The industry can help generate a new stream of tax revenues for the federal government. Currently, only the states are benefiting.

The cons include marijuana’s many health effects. The FDA is concerned about CBD causing liver damage. Last week the U.S. Surgeon General issued an advisory about marijuana risks. Marijuana Moment reported that the advisory will be partially funded by $100,000 from President Trump’s salary donation.

Where are states based on legalization?

Previously, I discussed where Washington and California stand on cannabis reforms. Texas is still pretty strict with its cannabis laws. In Washington, marijuana laws have been pretty straightforward.

Marijuana contains THC (tetrahydrocannabinol) and CBD (cannabidiol). We know that CBD helps reduce the effects of THC if mixed in a higher proportion. However, the FDA has always been hesitant in allowing CBD as a food supplement. FDA officials think that more research needs to be done before hemp extracts like CBD can be allowed in food.

So, I don’t see the point of CBD being included as a food ingredient. I’m not surprised that Washington announced a ban on hemp-derived CBD in food and beverage products. Recently, driven by the FDA’s regulations on CBD products, Washington announced a ban on CBD products sold at grocery stores, bars, coffee shops, and restaurants.

The FDA issued warning letters to many cannabis companies this year. Notably, the FDA conducted a test to check the chemical content of CBD compounds in the companies’ products. The FDA sent out a letter to Curaleaf (CURLF). The company was accused of promoting unapproved CBD-based products. Curaleaf should have been careful before promoting products that don’t comply with FDA regulations.

What do we think?

I think that in the heavily regulated marijuana market, it’s hard to move the needle without regulatory approval. One misstep by cannabis companies could hamper their reputation and stock performance. The regulation scandals in July impacted the whole cannabis sector. The Horizons Marijuana Life Sciences ETF (HMMJ) lost 11% in July and 12.9% in August. HMMJ tracks the North American cannabis industry. As a result, regulations at the federal level are vital.

President Trump has basically restated his administration’s opinion. However, the U.S. Surgeon General’s advise on the harmful effects of marijuana could threaten the legalization decision. I think that other factors could be a headwind including the FDA, FTC, and CDC’s concerns about vaping cannabis. Also, the FBI’s investigation into corruption in the cannabis industry could hamper the sector’s reputation. Meanwhile, cannabis players are working to grow their business.

We need to wait and see if the pros outweigh the cons. Will cannabis legalization see daylight at the federal level? We’ll also wait for more on President Trump and other Democratic candidates’ stance on cannabis legalization.

Stay tuned with us for the latest updates on the cannabis industry.

Correction: Updated to clarify that CannTrust’s CEO was fired following regulation scandals.

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