Marijuana Stocks And Legalization, the Complex Relationship

stock picture hbtv hemp beach tvI have been following much of the chatter on Seeking Alpha and elsewhere regarding the publicly traded companies of Medical Marijuana, Inc. (MJNA.PK); Hemp, Inc. (HEMP.PK); MediSwipe, Inc. (MWIP.OB); Tranzbyte Corp (ERBB.PK); Growlife Inc. (PHOT.OB); Medbox, Inc. (MDBX.PK); AVT, Inc. (AVTCE.OB) – delinquent in reporting at the time of this article as noted by the appended E; Terra Tech Corp. (TRTC.OB); Rapid Fire Marketing, Inc. (RFMK.PK); GW Pharmaceuticals Plc. (GWPRF.PK), and a few others for quite some time now. I am not going to analyze each of these stocks fundamentally or technically for you as there are authors here on Seeking Alpha who attempt to do this, instead I am going to briefly cover what most of the others have not – the topic of legalization and why at this stage it matters more than the quarterly statement of any publicly traded company in this budding industry.

When it comes to the legalization of any substance classified as a Schedule I drug there are many considerations that must be taken into account. The road to rescheduling anything that is under this classification is difficult and complex to navigate for many reasons. It is for these reasons I believe many of the other authors here are concerned about the wrong negative or positive aspects regarding the companies in question. Seeking Alpha, being a place where nearly anyone can publish information, has likely been the number one site publishing and distributing articles on the topic of marijuana stocks. In responses to these articles, many contributing commenters have questioned legalization, yet nobody has gone into what it will really take, why this is moving slowly on the federal level, or what this could mean for these stocks.

State and Federal Law – the First Consideration

Many people believe that the federal government is taking its sweet time to respond to the legalization in Colorado and Washington states. In a sense they are, but there are reasons for this.

In their response the federal government on one hand could favor legalization. This would open doors that are currently closed to these companies in terms of capitalization, product assortment/selection, R&D, ability to conduct business freely, and the ability to provide (for reputable companies) more disclosure and increasing transparency to shareholders with regard to company operations. On the other hand a response in favor of continuing the current quasi-legal medical status or continuing with the “war on marijuana” could leave each of these companies open to the repossession of all assets and criminal actions justified under federal racketeering (specifically see pages 22 and 46) and money laundering laws; these federal violations are in addition to numerous other state and federal laws regulating possession and usage of marijuana while it is considered a Schedule I drug. For these reasons it is difficult for these companies to capitalize via traditional methods and why institutional investors will not be attracted to, or participate in, the trading of these stocks at the moment.

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