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United States Attorney General Jeff Sessions put the legal marijuana industry on notice after saying that he would rescind a policy that protected marijuana businesses in states where it is legal. While this development is concerning, Sessions’ decision was criticized by several high-profile Republican lawmakers.

Colorado Republican Senator Cory Gardner said he would hold up the confirmation of future Department of Justice staff unless the Sessions policy was changed. U.S. Attorney for the District of Colorado Bob Troyer said that there would be no changes to enforcement in the state because of this federal policy shift.

The Cannabis Rally Comes to a Halt as Stocks Sell-off

Prior to this announcement, the cannabis sector was in the middle of a major rally but that came to a quick halt after this development. This weakness was industry wide and cannabis stocks not levered to the U.S. market were also under considerable pressure.

We were surprised to see Canadian cannabis stocks trade lower on this news since the large licensed marijuana producers are not focused on the United States marijuana market.

A Catalyst for Canadian Licensed Producers?

This development is actually a catalyst for the Canadian cannabis industry and we remain bullish on this opportunity. Canada has become a global cannabis leader and the country is capitalizing on opportunities in Germany, Denmark, Australia, Chile, Colombia, Israel, and many more.

In late 2017, Canopy Growth Corp (WEED.TO) (TWMJF) received a $250 million investment from Constellation Brands (STZ) and this Canadian licensed marijuana producer has significant exposure to legal markets in Germany, Denmark, Australia, and Chile.

Shares of Canopy Growth fell 10% yesterday and we are monitoring this pullback. During the last month, WEED.TO rallied approx. 80% and this correction makes the shares look much more attractive. We are monitoring Canopy Growth and remain bullish on the company’s long-term outlook.

Over the last year, Aurora Cannabis (ACB.TO) (ACBFF) has become a global cannabis leader and the company is seeing tremendous growth out of its German subsidiary. While many investors view California as the biggest marijuana opportunity, we are very bullish on the German market.

Germany has a population that is twice the size of California and medical marijuana is covered by insurance. Over the next year, we expect to see this market become the next big thing and we are bullish on Aurora’s position within it.

Aphria (APH.TO) (APHQF) took the biggest hit yesterday and we are not surprised by this drop since the company is levered to the United States medical marijuana market. The cannabis licensed producer has made investments into marijuana firms based in Arizona and Florida, and these investments have been scrutinized by the TSX exchange.

In late 2017, Aphria announced that it is focused on divesting these assets and we expect this initiative to become more of a priority after Sessions’ policy change. While we are bullish on Aphria, we would not be surprised if the shares remained under pressure in the near-term.

United States Cannabis Stocks Plunge

United States marijuana stocks were the hardest hit and yesterday, several companies recorded 20% to 40% declines. While we are favorable on the statements issued by lawmakers in Colorado and California, we would not be surprised if the sector remained under pressure.

Even though Kush Bottles (KSHB) has no direct involvement with the cannabis plant or any cannabis products, shares were under significant pressure yesterday, falling more than 18%. During the 2017 fiscal year, Kush Bottles generated $18.8 million in revenue and has significantly expanded its reach, servicing more than 4,000 legal cannabis businesses across North America, South America, and Europe. We remain favorable on Kush Bottles but will monitor how the shares continue to trade.

MPX Bioceuticals (MPX.CN) (MPXEF) and Friday Night (TGIF.CN) (TGIFF), Canadian-based companies that are capitalizing on the United States cannabis market, plunged yesterday and we are monitoring how the stocks continue to trade.

MPX sell cannabis products out of dispensaries in Arizona, Maryland and Nevada, while Friday Night sells cannabis products out of dispensaries in Nevada. Prior to yesterday, these stocks were in the middle of a major rally and we will monitor how they continue to move.

Terra Tech (TRTC) was one of the first publicly traded cannabis companies and the holding company sells marijuana out of company-owned dispensaries in California and Nevada. Terra Tech plunged more than 30% yesterday and the shares gave up most of its recent gains.

Terra Tech has seen a lot of insider selling over the last year and we expect to see more insider sales after Sessions’ announcement. Yesterday, the company filed a Form 4 after Terra Tech President, COO, Secretary, and Treasurer Michael Nahass sold 330,000 shares at $0.478.

EVIO Inc. (EVIO), a cannabis lab testing company, fell more than 23% yesterday and we are monitoring how the shares trade from here. EVIO is focused on becoming one of the largest cannabis lab testing firms in the United States and we are favorable on this side of the cannabis industry.

With operational labs in Colorado, California and Oregon, EVIO is well positioned for growth. The recent comments by lawmakers in Colorado, California and Oregon, we remain favorable on the company. With a market cap below $17 million, EVIO has an attractive valuation and we think this is a stock to watch.

Announcement Could Amount to Nothing

The surprised announcement caught everyone by surprise and the Justice Department had trouble explaining why Sessions was making his move now and what immediate ramifications there would be for the decision.

In a morning teleconference with reporters, a senior DOJ official simply said, “U.S. Attorneys’ offices need to determine what cases need to be brought.”

By giving discretion to federal prosecutors, the new policy could amount to nothing at all. We remain bullish on the legal cannabis industry and believe that this pullback will create a great buying opportunity for investors.