The midterm election results suggest that cannabis stocks could be lighting up across America sooner rather than later.
The U.S. market has long been the light at the end of the tunnel for high-valuation pot stocks -- Tilray (TLRY) in particular -- as the long-term opportunity helps to justify a disconnect between sales and stock price.
After the midterms added Michigan to the legalization wave as well as Missouri and Utah to the medical marijuana camp, that long-term opportunity is coming closer into focus. Marijuana is now recreationally legal in 10 states and the District of Columbia and the vast majority of states now permit medical marijuana.
The legalization wave may ensnare the straggling states soon, too. Pew Research Center found that the percentage of Americans who favor legalizing marijuana has grown to 62% of citizens, a strong majority. The high figure reflects a stark contrast from the just 12% favorability the motion commanded in 1969 when Pew first polled on the issue.
J. Smoke Wallin, President of Vertical Companies, told Real Money in an interview ahead of the midterms that full legalization could be coming as soon as 2019 based on the accelerated sentiment shift he was already picking up on.
He added that without former Attorney General Jeff Sessions in the way of legalization, a compelling states rights argument could be made even by hardline conservatives.
Interestingly enough, the champion of the states rights argument for cannabis is liberal Massachusetts senator Elizabeth Warren.
Through the STATES (Strengthening the Tenth Amendment Through Entrusting States) Act that she is co-sponsoring alongside Colorado senator Cory Gardner, the states that have legalized marijuana would be protected from federal crackdowns that hamper industry stability.
The bill also reinforces pro-hemp policies that Kentucky senator Mitch McConnell's farm bill is already pursuing and seeks to remove transactions in states with legal marijuana from the purview of controlled substances and trafficking laws.
McConnell has suggested that marijuana could be "the next tobacco" for farmers in need of a new cash crop. If in fact true, it will be difficult for legislators to deny farmers and agricultural workers of the opportunity to cash in.
The issue is that even a states rights argument does little to settle the issue of interstate commerce, as laid down by Gibbons v. Ogden.
While the federal government may indeed respect the right of states to regulate cannabis within their state borders, it would put no obligation on the federal government to allow for interstate trade and certainly not trade with the saturated Canadian market.
"In regulating commerce with foreign nations, the power of Congress does not stop at the jurisdictional lines of the several states. It would be a very useless power if it could not pass those lines."
-Chief Justice John Marshall, Gibbons v. Ogden, March 2, 1824
The issue that remains in solving the interstate and international issue is the question of who might succeed the anti-cannabis crusader Jeff Sessions as Attorney General.
Of concern to cannabis investors is the possibility that former New Jersey Governor Chris Christie is selected as heir apparent.
Christie has long been an outspoken critic of marijuana legalization, famously declaring that legal cannabis would be tantamount to "blood money."
"[Cannabis] should not be permitted in our society," he bluntly declared in 2015. "Every bit of objective data tells us that it's a gateway drug to other drugs."
Given those stances, a tradeoff from Sessions to Christie would do little to ease the path for Canadian cannabis giants like Canopy Growth (CGC) and Tilray, nor would it allow for the growth of a domestic industry in fear of trading across state lines.
Investors will have to hope that Christie's recent statements at Politicon in his debate with YouTube political personality Kyle Kulinski reflect a change of heart after he said "states have the right to do what they want."
If not, cannabis investors will have to hope for another candidate if they want the United States to emulate Canada. As has been apparent from Sessions' tenure, even one man can severely hamper those chances.