Despite pot legalization in Canada, cannabis stocks need more than a puff of smoke to stay on

Marijuana caught fire this week: Canada legalized the use for recreational purposes, the White House could consider federal cannabis reform after the mid-term elections and the sector witnessed a 682 merger. millions of dollars.

While the cannabis sector on the stock market has seen an increase of nearly 10% since the summer, it has still not hit the jackpot. Individual investors were enthusiastic, but the mistrust of institutional investors and a still mixed regulatory environment hindered overall success.

The stock market is divided between retail investors – individuals, including ordinary citizens investing in stocks – and institutional investors. The latter includes mutual funds, hedge funds, pension funds and private equity firms that have huge amounts of money.

Retail investors were enthusiastic about Cannabis-related stocks, most of which are listed in Canada, with some cross-listing on US stock exchanges. "There is a tremendous amount of new retail money on the market," said Tim Hockey, CEO of TD Ameritrade, at CNBC earlier this year. The two main drivers were cryptocurrency and cannabis, and Generation Y is particularly eager to enter the market.

The excitement of consumer interest in products, whether for medical or recreational use – estimated at 50 million people. "It's a real market," said Jon Trauben, a partner at Altitude Investment Management, which focuses on cannabis-producing companies. "Our business case is that the demand is there and customers will ultimately prefer to buy products that are safe and tested through legal channels."

The publicly traded cannabis companies include stocks quoted in cents and shares approaching $ 150 from the two largest names, Tilray of Canada and GW Pharmaceuticals, based in the United Kingdom.

There is growing interest in cannabis companies. Bloomberg announced that spirits giant Diageo wanted to invest in Canadian companies and eventually collaborate on cannabis-infused drinks. Constellation Brands, a beer, wine and liquor company, invested $ 191 million last year in Canadian company Canopy Growth and added an additional $ 4 billion to increase its stake to 38%.

Overall, however, institutional investment has been weak. Although the benefits are attractive, the regulatory and legal issues are considerable. In the United States, marijuana is still listed in Schedule 1, which means that the federal government considers that it "currently has no accepted medical use and is open to abuse". Pot's company includes LSD, peyote and heroin.

States that have legalized cannabis products for recreational or strictly medical purposes are technically in conflict with federal law. The Rohrabacher-Blumenauer Amendment prohibits the Department of Justice from using any funding to enforce the Controlled Substances Act to prevent states from applying their own cannabis laws to medical purposes. The Congress must renew this provision every year and has done so until December 8th.

The law does not prevent the Department of Justice from interfering with recreational use, even legalized by a state. Nor does it guarantee that US companies have access to basic banking and financial services, such as processing customers' credit card payments or obtaining access to commercial insurance.

A change in the direction of the federal government, as hinted at by the White House, could potentially reverse the situation and open the door to large influxes of money from institutions.