Why Potential Marijuana Investors Should Study Wiretapping

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Once upon a time, AT&T (T) urged its customers to "reach out and touch someone" with a long-distance phone call (which Ma Bell could charge extra for at the time). Those were simpler times.

Today, in our post-9/11 world, if you reach out by phone, you may end up touching more people than you bargain for. And those people may have guns, badges and court-approved wiretap warrants.

Top States for Wiretapping

This is especially true in Nevada, Colorado, California and New York. A recent report by the Administrative Office of U.S. Courts said these four states issue the majority of wiretap authorizations in America (measured proportionate to their populations):
  • Nevada authorized 38.2 wiretap authorizations per 500,000 residents
  • Colorado authorized 12.4 per 500,000
  • California authorized 11.7 per 500,000
  • And New York State authorized 10.7 per 500,000

Rounding out the top 10 states for state-sanctioned wiretapping are Arizona, Georgia, Kentucky, Maine, Missouri and New Jersey -- in that order. In each state, state and federal law enforcement sought and received authorizations to conduct more than six wiretaps per 500,000 residents. (In case you were wondering, that office points out that it is not authorized to collect and report data on NSA wiretaps regulated by the Foreign Intelligence Surveillance Act of 1978).

According to Pew Research, which analyzed the report, 90 percent of the wiretaps authorized in 2013 were authorized to investigate "criminal drug-related offenses."

The 3,576 total wiretaps authorized resulted in 3,744 arrests (more than the number of wiretaps authorized). But the conviction rate from these wiretaps was less than 19 percent -- just 709 convictions. (Curiously, AO also notes that in all of 2013, only one application for a wiretap was turned down.)

If that sounds bad, it is. According to a 2010 annual statistical report filed by the Justice Department's Executive Office for United States Attorneys, the average conviction rate in the federal criminal judicial system for that year was 93 percent.

What It Means to Investors

But we digress. To find out how all of this may be relevant to investors, let's return to the 90 percent figure. You'll notice that while Nevada is the No. 1 state for wiretapping, No. 2 is Colorado -- a state which in January decriminalized the recreational use of marijuana.

Now, there's been a lot of talk lately about the opportunities that marijuana legalization -- first in Colorado, and more recently in Washington state -- might offer for investors. Over the past year, shares of GW Pharmaceuticals (GWPH) have risen more than eight times, and microcap Advanced Cannabis Solutions (CANN) have more than tripled in value. Small cap Medical Marijuana (MJNA) has risen 50 percent.

Still, the fact remains that even if individual states are beginning to move toward legalization, the federal government and its Drug Enforcement Administration still consider marijuana an illegal drug, period. Until this changes, the fear of federal prosecution of a state-legal drug therefore still hangs over this industry.

Reading the Tea Leaves at the DEA

What will be our first clue that the DEA has begun backing off enforcement of drug laws in places like Colorado, where the state strictures are loosening? It could be this AO report we've been talking about up above. Let's quickly run back down the list of what we know:
  • Colorado is one of the states most active in issuing state and federal wiretap authorizations.
  • Nine out of 10 such wiretaps concern drug offenses.
  • Colorado no longer finds marijuana as offensive as it used to.
It will be interesting to watch what happens to Colorado's rank on the list of most frequent wiretappers when the AO issues its report on 2014 wiretap authorizations next summer. If Colorado falls a lot from No. 2, this could mean that law enforcement has decided to back off from prosecuting (at least marijuana-related) drug offenses in the state.

Such a development would bode well for marijuana stocks as more and more states vote to legalize, suggesting the DEA will bow to local interpretations of the drug laws.

If, on the other hand, Colorado continues to rank highly in the wiretap ratings -- look out. That will be our first clue that the heat is still on.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned either.

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GB

I expect at least two more states to go legal this year. I also expect that the Schedule One status will be completely unsustainable, considering that at least 10 of our allied countries, 23 of our states, plus Washington D.C. have "medical" marijuana, thereby sparking a widespread demand for it to be changed before President Obama leaves office. It will be virtually impossible to be anti marijuana and still get elected in 2016.

August 05 2014 at 10:10 AM Report abuse rate up rate down Reply
fakeconomics01

The DEA and Federal Authorities will try to catch celebrities, top name politicians and sports figures in Nevada.

August 05 2014 at 1:18 AM Report abuse rate up rate down Reply
hagglkdave

So what is going to happen after the 2016 election cycle? Or is anyone thinking that far ahead?

August 05 2014 at 1:03 AM Report abuse rate up rate down Reply
Pueblo Potter

Here's an interesting story -> http://www.healersfarm.com

August 04 2014 at 10:08 AM Report abuse -1 rate up rate down Reply