Image source: Flickr user Carlos Gracia.
Continue Reading Below
According to cannabis research firm ArcView Market Research, legal marijuana is the fastest growing industry in the United States, and it very well could keep this title, or stay very near the top in terms of growth for years to come.
Marijuana's mammoth momentum
The latest report from ArcView projects a compound annual growth rate for the legal marijuana industry of 30%. This would mean the estimated $5.4 billion in legal marijuana sales from 2015 could translate into north of $22 billion in legal sales by 2020, with or without federal legalization of the drug.
Image source: Pictures of Money via Flickr.
This rapid growth is what's got the attention of select states and lawmakers, who see the money-making potential of this little green bud. Colorado, in only its second year of retailing recreational marijuana in pot shops, tallied $996 million in combined medical and recreational marijuana, up from $699 million in the prior-year period, as well as $135 million in taxes and license fees. Of this $135 million, at least $35 million has been earmarked for Colorado's education system. Some of the remaining revenue will more than likely be divvied out to law enforcement agencies and drug abuse programs within the state, too. Other states are seeing the tax revenue potential of marijuana and are considering putting its legalization to vote.
Americans also have a generalized softening of opinion from the general public toward marijuana. In a nationwide Gallup poll conducted in the mid-1990s, just a quarter of respondents wanted to see marijuana legalized. By October 2015, this figure had jumped to 58%, tying an all-time high in this particular Gallup poll. Favorability toward legalization is even higher for medical marijuana, with a CBS News poll in April 2015 showing support at 84%.
Continue Reading Below
Needless to say, marijuana has a ton of wind in its sails at the moment. The key is whether or not it can keep up this momentum into and after the November elections.
The three most critical marijuana battleground states
According to various new sources and grassroots campaigns which are attempting to gather support for marijuana initiatives, we could have about one dozen states voting on whether or not they want to legalize marijuana, either medically, recreationally, or simultaneously medically and recreationally this November. While all state-level legalizations help the marijuana movement, three states in particular stand out as being critical to the marijuana movement's future.
Image source: Pixabay.
California is arguably the biggest prize for the marijuana industry. California was the first state to legalize medical marijuana back in 1996, so it seems like a logical choice to put a recreational ballot initiative in front of voters this fall.
Why didn't California join Colorado and Washington state in 2012 or Alaska and Oregon in 2014 with a marijuana ballot initiative? The answer is marijuana reform backers simply didn't feel they had enough public support and funding to mount a proper campaign. In fact, in 2014 the Coalition for Cannabis Policy Reform, which is comprised of the Drug Policy Alliance, Marijuana Majority, and California NORML, announced their decision in 2014 to wait until 2016 to make a run at recreational legalization. The CCPR noted its lack of financial backing and high-profile support at the time and opted to use the next couple of years to strength both.
California by itself is one of the largest economies in the world, so gaining approval would be a monumental leap forward for the marijuana industry. Medical marijuana is already a $1 billion-plus business in California, so we can only presume that recreational marijuana would more than likely top $1 billion in sales annually as well, resulting in an estimated $519.3 million in sales and excise tax revenue per year.
Columbus, OH. Image source: Pixabay.
Ohio is an interesting case because it tried to become the first state ever to legalize medical and recreational marijuana at the same time in Nov. 2015. Usually, states will go the route of legalizing medical marijuana first to understand the ins and outs of the industry, analyze how societal factors might be affected, and develop the needed infrastructure should recreational marijuana ever make it onto the ballot. Ohio, though, was planning to upset this established order and go for the gold immediately. What actually occurred, though, was a brutal thumping of Issue 3, the dual-approval initiative.
What went wrong? What I can say is it wasn't for lack of support for marijuana. Ohioans appear to support medical marijuana's legalization as much as anyone and are roughly evenly split when it comes to recreational marijuana. The problem with Issue 3 that residents of the state couldn't get over was the parsing out of just 10 growing licenses. These licenses would have restricted access to new growers for a number of years and created something of an oligopoly, which residents of the state didn't seem to care for.
If the grassroots campaigns in Ohio can get another marijuana initiative on the ballot this year, and get it passed, it would potentially signify the importance of competition in the marijuana industry and a drive to lower prices in order to compete against the black market, and it would point to the importance of the small-business entrepreneur within the industry.
Image source: Pixabay.
Finally, we have Florida, which will once again be a marijuana battleground state.
For those who may not recall, Florida attempted to legalize medical marijuana in 2014. The final vote tallied 58% in favor and 42% against. In a majority of states this would have been more than enough to put medical marijuana in state-approved shops. However, in Florida a 60% "yes" vote was needed since it would have required an amendment to the state's constitution. Long story short, medical marijuana in Florida came oh so close, but ultimately failed to garner approval.
Will a new medical marijuana initiative be back in 2016? I'd personally be surprised if there wasn't a marijuana initiative for Floridians to vote on in the upcoming election. The big question is whether this time will be the charm. Florida has a notably higher concentration of retirees than most states, and retirees tend to have a more negative view of marijuana than younger generations. However, we've also witnessed a softening view of marijuana as time has passed. Could this indeed be the year that Florida garners enough votes for approval?
Image source: Pixabay.
One thing to keep in mind
While it's an exciting time for marijuana supporters, it's important for potential investors in the industry to understand that state-level legalizations may still not equate to success for publicly traded companies. Until the federal government alters its stance on marijuana, the industry will continue to play behind the eight-ball.
Marijuana's current federal scheduling as an illicit substance places businesses at a major tax disadvantage, since normal business deductions can't be taken. It also stymies these companies' expansion efforts due to their inability to secure basic financial services such as checking accounts or lines of credit. Banks simply don't want to run the risk of getting on the federal government's bad side.
The November elections could certainly shake things up, but until then marijuana remains a dangerous investment that may be best off avoided.
The article The 3 Most Important Marijuana Battleground States in This Year's Elections originally appeared on Fool.com.
Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
Copyright 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.