The Department of Justice (DOJ) has initiated an important first step in moving away from the criminalization of marijuana. Without yielding any authority to prosecute violations of the Controlled Substances Act (CSA), the country’s chief law enforcement agency is showing that it is willing to compromise with state legalization to allow medicinal and recreational use of marijuana. This action and its defining reason for change will accelerate the removal of prohibition and allow for significant expansion of cannabis-based businesses.
The DOJ is openly acknowledging that the current policy is incongruent with the limited resources of federal law enforcement agencies. This is not new information and its public proclamation is long overdue. In fact, continuous enforcement of the outdated laws is also unsustainable.
Suppressing an underground economy that, when legalized, could create jobs, generate needed revenue and relieve the costs associated with incarcerating nonviolent users seeking a “buzz” or medicinal relief is finally coming to an end. While this seemingly simple first step will have far-reaching implications, I don’t think market participants have fully grasped the long-range impact on businesses in the cannabis sector.
Following the DOJ’s announcement at the end of last week, the market reaction lifted the publicly-traded companies in the marijuana space. This was followed by a decline moving into Friday’s trading across the board. I’m sure the prospect of the US firing missiles at Syria had an effect on the overall market’s decline, but many still expected the “MJ” stocks to continue their run. Let’s face it, the stocks in this space have been on a rollercoaster ride and it’s not always easy to predict market reaction in any industry.
What I think the market didn’t recognize is that while the DOJ’s announcement did not produce a catalyst for money to come rushing into the industry in the form of profits from product sales, it did change the playing field for many big businesses. Larger corporations will now have to review their corporate strategies and alter their strategic planning objectives and timelines to appropriately manage the risk to their respective market shares.
Most investors think about the mega-businesses such as “big pharma”, “big alcohol”, and “big tobacco” as the main types of entities that will take note. This is certainly true, but other industries will also start to look closer at cannabis. The versatility of the cannabis plant will transform the economy in many ways that may not yet seem obvious. The market potential expands to textiles, nutritional products, cosmetics and the food industry, to name just a few out of thousands of possibilities. Could you imagine a Lays™ potato chip infused with THC? How many of those could you eat?
Cannabidiol (CBD)--which doesn’t produce any psychoactive effects--will also be in high demand as its health benefits become more widely known. The compound is already showing an uncanny ability to reduce seizures for epilepsy sufferers, which was highlighted in Dr. Sanjay Gupta’s CNN documentary, Weed. High quality CBD can be extracted from the hemp plant’s seed and stalk and is legal to consume in the United States.
There is much of the rhetoric that talks about how marijuana and hemp are plants that can’t be patented. This assumption somehow completely ignores the fact that KannaLife Sciences, a subsidiary of Medical Marijuana, Inc’s (MJNA. PK) and PhytoSPHERE Systems and its intellectual property holder, CannaVest Corp. (OTC: CANV), already have an exclusive license agreement with the "National Institutes of Health - Office of Technology Transfer ("NIH-OTT") for the commercialization of U.S. Patent 6,630,507, "Cannabinoids as Antioxidants and Neuroprotectants" (the "'507 Patent")" to focus on Hepatic Encephalopathy (HE), which is associated with reduced brain function due to various forms of liver toxicity.
While this is great news for MJNA and CANV in one respect, the nutritional supplements business also creates significant opportunity for revenue and expansion without patents. The argument about not being able to patent a plant is often accompanied with the question: Why would someone buy something they can grow? My answer is simple: because it’s more convenient. Let’s consider the convenience factor a little further. If a person catches a cold, are they more likely to buy a bottle of high-dose Vitamin C or buy a bag of thirty oranges? If you chose a bag of oranges, you may want to consider an investment advisor.
The DOJ has opened the door to market expansion for products created with marijuana and hemp. While large corporations will come into the fray, it won’t be all about using cash to dominate the little guys. Traditional industry will be looking for strong brands and strategic partnerships that will allow them to enter the industry with minimal cost. The melee will most likely be among the larger businesses vying for partnerships and alliances with the smaller, well-established companies such as the subsidiaries of MJNA.
From September 25-28, The MJNA portfolio company and contracted marketing company for CannaVest Corp. HempMedsPX will be representing both MJNA and US Hemp Oil as Gold Sponsor of Natural Products Expo East in Baltimore, MD. This event comes on the heels of a defining moment for economic transformation and a major shift in business strategies for many industries. The DOJ is returning common sense to the legal landscape and our economy. Don’t be left on the sidelines as this new era takes shape.