A quick note on language. Recently, there’s been a trend to rebrand the marijuana industry as the cannabis industry. While I understand the desire to move away from a word with a maligned origin, I can’t help but feel this escalates confusion; because hemp is cannabis, and marijuana is cannabis. And because legal definitions matter. To be sure, the ‘cannabis’ industry has two sides – the marijuana industry and the hemp industry. I use that terminology because those are our legal definitions, and going forward, that’s how I’ll refer to these respective industries. 

With that in mind, consider the U.S. marijuana industry. Over the last few years the speculation and investment in Multi-State Operators (MSOs) has been reminiscent of the dot-com bubble. And it’s admittedly far beyond what I thought we’d see without a change in federal marijuana policy. Where did this all start?

When Justin Trudeau was running for Prime Minister of Canada, he came out with his platform position to legalize cannabis. While Uruguay was the first country in the world to legalize cannabis across the board, the necessary capital investment wasn’t there to spur the growth of Uruguay-based marijuana companies; it still lacks broad-scale financial support.  

Shortly after Trudeau was elected, the Canadian Parliament enacted legislation allowing for adult-use cannabis, including cannabinoids derived from both hemp and marijuana varieties. This drove global investors to the Canadian market, the Canadian Stock Exchange, and the Toronto Stock Exchange, providing large capital to fund the build-out of Canadian Licensed Producers (LPs). Today, these companies — like Canopy Growth, Aurora, and Tilray — are the largest cannabis companies in the world. 

Early on, these LPs wouldn’t touch U.S. cannabis investment, even though the marijuana market was (and remains) much larger south of the Canadian border. Primarily, they chose to participate in markets where cannabis was federally legal and where clear regulatory pathways exist. 

This started to change a few years ago when the notion of MSOs became the buzzword. These raised a number of challenging questions, in part because very specific rules dictate who can own companies in the marijuana space, and these vary from state-to-state. Certain states require residency status and demand strict disclosure of all investors falling under a licensee. Take this issue for example: how can you be a publicly-traded company that operates in multiple jurisdictions, and own business in multiple states, if you can’t be a resident? Or if the individual investors do not want to be disclosed and/or if there are thousands of stockholding disclosable owners?

Despite the grey area, when industrial hemp was legalized in the U.S. under the 2014 Farm Bill, these Canadian LPs began to dabble in the U.S., especially with hemp-derived CBD. Fast forward to today, these companies are bold enough to invest and acquire U.S.-based MSOs in the still-unlawful U.S. marijuana space. 

Given the absence of federal legality, I did not expect to see outright listings for marijuana companies on the New York and the NASDAQ Stock Exchange or near institutional-level capital investing in the U.S. cannabis markets.  And it remains a surprise.   

Not only because you’re dealing with the complexities that exist when trying to comply with individual State regulations, but marijuana is still a controlled substance in the eyes of the federal government. Any day a marijuana growing operation or a dispensary in a state could be jeopardized or seized by the DEA (although there are certain limited budgetary restraints and political promises). 

Perhaps the political winds are right? The fact that the President has outright stated that this is not a priority and he’d legalize marijuana if Congress put it on his desk seems to be enough for investors. But, the marijuana industry could dramatically shift with one policy change or just one critical individual even talking about policy change – recall when Jeff Sessions rescinded the Cole Memorandum? The markets went nuts and all the deals were paused, if not dead. 

For now, it’s interesting to sit back and watch how, in a few short years, the dollars that once flooded Canada have migrated south of the border (into the U.S.). In the end, the U.S. marijuana market could not be ignored: millions of consumers, billions of dollars in revenue coming from direct cultivation and sales, innovative technology that drives delivery systems, and new ways to get the product into the human body – all bigger, better, and faster. For now, Jeff Sessions is gone, the deals are lucrative, and business is booming.  But how long will it last?