“Marijuana investors skittish after Sessions' shot at pot,” read an Associated Press headline after Attorney General Jeff Sessions’ decision to rescind the Cole Memo. “Pot stocks plunge on report U.S. to rescind expansion policy,” reported Bloomberg.
The Cole Memo – an Obama-era Justice Department guidance – was in some ways the basis of the entire U.S. legal marijuana industry. State lawmakers looked towards the memo when crafting their cannabis regulations, eager to show that their state was complying with federal guidelines. So it was no surprise that Sessions’ decision to rescind the memo (days after the launch of California’s recreational market) caused much consternation from the pro-cannabis camp.
But for investors who are already active in the industry, the Cole Memo’s rescission hardly changes a thing.
“Sessions' memo, on its face, does not change the status of marijuana in America from what it was last week, and informed investors know that,” Ryan Ansin, an investor, president of the Family Office Association and Managing Director of Revolutionary Clinics, said in an email.
Indeed, Sessions has done nothing to change federal law.
“The guidance now is for federal prosecutors to use their discretion,” said Cristina Buccola, an attorney whose practice is focused on the cannabis industry. “[It’s] really not that different from the Cole Memo itself.”
Even though the decision is reverberating in the public markets, investors who dabble in marijuana stocks aren’t committed to the industry. Buccola says she’s working on several deals in the space, and that Sessions’ announcement didn’t have much impact on her clients. “This is not causing [investors] to turn away from these investment opportunities,” she said. “None of the projects have been put on pause.”
Some marijuana investors were active in the industry even before the guidance was in place. Poseidon Asset Management, an investment firm focused on cannabis, was making investments in the industry for half a year before the Cole Memo was drafted in August 2013.
“It is not clear yet what the Department of Justice's plans are other than what was stated in their memo,” Morgan Paxhia, Managing Director of Poseidon, said in an email. “We will continue researching the matter closely… Poseidon makes investment decisions based on data and information, not emotion.”
Some might even see greater opportunity in the cannabis space now that Sessions has scared off some interested parties who were standing on the sidelines. Longtime investors “understand the inherent risk,” said Buccola. “This does not do much to change [an investor’s] mindset… The risks have been there.”
For Ansin and other investors he knows in the cannabis space, the post-Cole Memo feeling is one of optimism. “This could end up being a great evolution for the fully licensed and compliant businesses,” he said. Authorities could end up targeting non-compliant businesses like the recent crackdown on the Denver-based Sweet Leaf dispensary chain.
But there is some concern when it comes to banking. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has previously issued guidance for banks who want to work with marijuana businesses. The guidance is based on the Cole Memo. First Green Bank, which was once serving medical marijuana businesses in Florida, announced that it was pulling the plug on its cannabis clients in late December.
First Green’s founder and chairman Ken LaRoe says the true culprit is Sessions. Sessions’ announcement rescinding the Cole Memo “forced First Green Bank to make the tough business decision to end our medical cannabis services effective immediately,” LaRoe said in a statement. “We anticipated this decision and were attempting to find alternative banking solutions for our customers in the industry.”
The bank was in the process of a "a slow and strategic exit" out of the cannabis industry, said LaRoe in an email. "However, pursuant to the requirements placed upon us by our bank regulator to exit the industry within 24 hours of a rescission of the Cole Memorandum, we immediately did so."
In the meantime, FinCEN is staying mum on how its previous guidance will be impacted by Sessions’ Cole Memo decision. When asked about how the new memo would impact its guidance on marijuana-related businesses, a FinCEN spokesman offered this statement: “FinCEN works closely with law enforcement and the financial sector to combat illicit finance and provide relevant information that allows law enforcement to pursue their priorities. We will continue to work with DOJ and other stakeholders on this issue.”
Sessions has seen significant pushback for the decision from both sides of the aisle. Republican Senator Cory Gardner of Colorado threatened to withhold support for the Trump administration’s DOJ nominees. Even Senator Orrin Hatch, a Republican from Utah, issued a statement asking the Justice Department to “remove bureaucratic red tape — not put up roadblocks” for medical marijuana research.
The backlash has been “extremely encouraging,” said Ansin. In his home state of Massachusetts, "the Governor, Attorney General and others, including many who opposed the [legalization] ballot question in the first place, are stepping in to defend the will of the voters.”
“I don’t expect this will have any sort of immediate impact [on the cannabis industry],” said Buccola. “I think it will galvanize bipartisan support to get something done at the federal level.”
This post has been updated with additional comment from Ken LaRoe.
Full disclosure: Buccola is a friend and has also provided legal services to my startup Word on the Tree.
