Reefer Madness is gripping America. I’m not talking about the 1936 cult movie classic that so many of us rolled our eyes at as teenagers. I’m talking about the billions of dollars that are flowing into U.S. and Canadian stock markets to buy shares of companies that sell legal marijuana and other cannabis derivatives. 

With news that Canada will be the first nation in the industrialized world to legalize recreational marijuana beginning October 17, there’s been a lot of attention paid to Canadian firms poised to enter this multi-billion–dollar market. Lately, this attention has been laser focused 

Stocks in cannabis companies have soared in recent weeks, sparked in large part by the August 15 announcement that one of the largest beverage companies on earth – Constellation Brands – was investing $4 billion USD in the Canadian cannabis company Canopy Growth Corporation. Since then, Canopy’s stock has risen more than 75%, making it the world’s largest legal marijuana company based on market capitalization. 

Other marijuana stocks are also riding high, with investor speculation of similar deals and growth potential involving other cannabis companies. Tilray, Inc. debuted on the NASDAQ Stock Exchange in mid-July with an initial pubic offering price of $17 a share. As of August 28, it was trading at nearly $60 a share. Another company called Aurora Cannabis has also seen significant gains in recent weeks, as have other companies. These are gains that dwarf the returns of the Dow Jones Industrial Average, the S&P 500, NASDAQ and other global indices. 

Much of this explosive growth is being fueled by institutional investors who see big profits to be made in cannabis. Wall Street suits are now buying tens of millions of shares in these companies. Marijuana has gone mainstream in the centers of finance. 

Some investors liken the opportunity to buying stock in Anheuser-Busch in the months before the 21st Amendment was ratified in 1933, ending the nightmare of the noble but doomed experiment of Prohibition. As with any other emerging trend, there’s no shortage of hyperbole and hype. Some financial writers have called Canopy the “Google of Pot,” while other headlines have referred to various cannabis companies the “Amazon of marijuana,” providing no shortage of click-bait for those who read financial news online. 

Set aside for a moment the issue of whether one holds a moral position regarding the legal use of marijuana, recreationally or medically. This industry sector is now a part of the macro-economy here, in Canada and around the globe. It is a very small part of the economy but nonetheless contributes to it. Over time, it’s contribution to the broader economy will only grow. 

Whether the industry is petroleum, consumer goods, restaurants or anything else, cannabis can only successfully contribute to the economy through adherence to applicable laws and regulations. Failure to abide by these legal strictures not only risks individual businesses but entire sectors. Decisions to not abide to the rule of law casts a shadow over individual corporations and, potentially entire business sectors. 

This is particularly true when it comes to new and emerging businesses like cannabis, which is already having a significant impact in Washington state. Washington state collected some $319 million in taxes and fees associated with legal cannabis in 2017 on sales of $1.3 billion. That’s not nothing and the only way to continue to grow this nascent industry is to make sure that every participant runs a buttoned-down operation. 

The only way to ensure that this new industry, like it or not, continues contributing to our economy, is to make sure that bad actors do not circumvent the law. Doing so harms growth, stifles job creation and creates a drag on an industry that is otherwise adding to our economy and tax base. Diligent adherence to law and robust enforcement are absolutely vital to ensure public trust and the future viability of the industry in Washington state and elsewhere. 

As a small-government guy, I’m no fan of bureaucratic overreach on regulatory matters. But we do need some degree of oversight to ensure consumer protection and responsible corporate citizenship. It’s critical in all industries and especially so for new industries like cannabis.