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Musk's Pentagon Review Exposes Pot's Gray Area

Marijuana may be moving into the mainstream, but it can still get you into trouble.

Musk's Pentagon Review Exposes Pot's Gray Area
Elon Musk, co-founder and chief executive officer of Tesla Inc. (Photographer: Robyn Beck/Pool via Bloomberg)

(Bloomberg) -- Marijuana may be moving into the mainstream, but it can still get you into trouble.

The Pentagon is reviewing the federal security clearance of Tesla Chief Executive Officer Elon Musk, following an appearance he made on a podcast last year where he smoked a joint with the show’s host, a U.S. official told Bloomberg News. Musk has a secret-level clearance because of his role as CEO of Space Exploration Technologies Corp., known as SpaceX, which is certified to launch military satellites.

A person familiar told Bloomberg that Musk has refiled a form that requires federal employees or contractors seeking a clearance to acknowledge drug use over the previous seven years.

The situation with Musk highlights the shifting, and sometimes confusing, regulations and attitudes surrounding cannabis. Demonized for decades, marijuana is now legal federally across Canada. Ten U.S. states have allowed adult use and about two dozen more have approved medical access.

Still, weed is banned by the U.S. government and listed alongside heroin as an illicit substance. That’s created a host of hurdles for investors and U.S. companies, and given Canada a first-mover advantage in the legal market.

Gottlieb Leaves

Cannabis stocks took a hit last week on news that FDA Commissioner Scott Gottlieb is departing. The industry has been waiting on the FDA to approve rules for CBD’s use as an ingredient in food and beverages and Gottlieb had said he’d hold hearings on the topic next month.

It’s unclear if those rules will be approved in 2019, according to analysts. The farm bill passed in December legalized hemp and CBD, effectively ending federal prohibition of cannabis compound and potentially opening a massive market for products in the U.S. But many companies -- and investors -- hoping to take advantage are waiting for the FDA to sign off.

Cannabis Bulls, Bears

Shares of Aurora Cannabis Inc. got a boost last week after a positive note from Vivien Azer, Cowen & Co.’s pot analyst. Azer initiated coverage of Aurora with a C$14 price target and gave the Edmonton, Alberta-based company the equivalent of a buy rating. The shares closed the week at C$10.37, and have jumped 53 percent this year.

Azer wrote that Aurora controls about 20 percent of the Canadian adult-use market and has a “large cultivation footprint.” The company should also be able to take advantage as more countries loosen the rules surrounding medical cannabis. Azer also started covering Cronos Group Inc., placing the equivalent of a hold rating on the stock.

Another analyst is betting against Tilray. Jefferies, which recently started covering cannabis, said in a note that Tilray’s valuation was too high mostly because of questions about how the global medical marijuana market will develop. Canadian companies, mostly shut off from selling pot in the U.S., are banking on sending cannabis abroad to countries like Germany and Australia with nascent medical programs.

Presidential Politics

Another week, another Democratic politician vying for the White House who wants to legalize pot. Bernie Sanders formally kicked off his campaign recently and said that too many lives were “being destroyed” by the federal prohibition on marijuana. Sanders said he’d smoked weed a few times but it was not his “cup of tea.” He said the law needs to be changed because of the disparities it has created in the criminal justice system.

Former Colorado Gov. John Hickenlooper announced his run for president last week. Hickenlooper opposed a measure to legalize weed in Colorado, but oversaw the implementation of the legal market there after it was approved by voters. Hickenlooper said federal cannabis laws should be reformed, with the drug being descheduled, but that he doesn’t support nationwide legalization.

More Bills

Rep. Don Young, an Alaska Republican, joined with Rep. Tulsi Gabbard, a Hawaii Democrat who’s also running for president, to introduce two cannabis bills. One would end federal prohibition of marijuana and allow states to decide how to regulate the drug, while the other would require the National Academy of Sciences to study the economic and health impacts of the legal state cannabis programs in the U.S.

Another bipartisan bill introduced in Congress last week, known as the SAFE Act, would allow financial institutions to work with legal cannabis businesses, something that’s been prevented by the federal ban on marijuana.

Data Deal

Nielsen, the company that measures television ratings and tracks sales across the consumer landscape, is getting into the pot game. In another sign that cannabis is increasingly being seen as an ingredient by food, beverage and beauty companies, the data and research firm announced it had formed a partnership with Headset, a marijuana data company, to provide insights into the legal market in the U.S. for so-called CPG, or consumer packaged goods, companies.

Upcoming Events This Week

  • GW Pharmaceuticals is scheduled to make a presentation at a Cowen & Co. conference on March 11 at 4:10 p.m.
  • CV Sciences, a top seller of CBD, will report earnings after the market closes on March 12
  • Acreage Holdings is scheduled to report earnings after the market closes on March 12

Our Top Stories of the Past Week

Musk’s Secret Clearance Said to Get Pentagon Review Over Pot Use
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New Jersey’s Lower Forecast Shows Marijuana No Financial Panacea
Cannabis Stocks Fall as Street Says New FDA Chief Means Delays
Melius Initiates Coverage on Cannabis, Citing Disruption Factor

To contact the reporter on this story: Craig Giammona in New York at cgiammona@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, David Scanlan, Matthew G. Miller

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