The 3 Most Likely Scenarios for Marijuana With Jeff Sessions as Attorney General

By Sean Williams Markets Fool.com


Image source: Getty Images.

Continue Reading Below

With the exception of 1996, when California first legalized medical cannabis, or 2012, when Colorado and Washington became the first states to legalize recreational pot, 2016 was probably marijuana's best year ever.

When 2016 began, medical marijuana was legal in 23 states, and recreational weed could be purchased legally by adults 21 and up in four states. By year's end, 28 states had legalized medicinal cannabis (two of which did so entirely through the legislative process), while the number of recreation-legal states had doubled to eight. Among those was California, which on its own is one of the largest economies in the world. Once the recreational business is ramped up, California is expected to generate $1 billion or more in added annual tax and licensing revenue from marijuana.

Changing perceptions of pot among the public is a big reason marijuana has flourished in recent years. Gallup, which conducts somewhat regular surveys on the public's opinion of weed, has shown that in roughly 20 years, the percentage of respondents who want to see marijuana legalized nationally has more than doubled to 60% from 25%.

What's next for marijuana with Sessions as attorney general?

The industry is facing a brand-new challenge in 2017: the appointment of Senator Jeff Sessions (R-Al.) as the nation's next Attorney General.

Continue Reading Below

Sen. Jeff Sessions (R-Al.). Image source: Jeff Sessions Senate webpage.

Sessions is an ardent opponent of the legalization of marijuana. In a Senate drug hearing last April, Sessions cited a 20% increase in the number of traffic deaths in certain states where marijuana has been legalized as a reason the drug is a problem. Furthermore, Sessions has blamed the Obama administration's relaxed marijuana policies for reversing what he believes was a positive hostility toward illegal drugs, including pot, that began during the Reagan years.

Perhaps the biggest uncertainty to face the marijuana industry in 2017 and beyond is what will happen once Donald Trump takes office and Sessions becomes the nation's attorney general. Though there are a handful of possible scenarios, three seem most likely.

Most likely: The status quo continues

Though the appointment of Sessions should rightly strike fear in pro-legalization enthusiasts and among the marijuana industry, Sessions also has to contend with two key elements.

Image source: www.futureatlas.com, Flickr.

First, the public is overwhelmingly behind the idea of legalizing pot. Gallup's poll shows that 6 in 10 Americans favor the full legalization of weed, while a CBS News poll from 2015 found that 84% of Americans favor the nationwide legalization of medical cannabis. Scaling back state-level pot laws now could be a devastating blow to the Republican Party's popularity when so many Americans' views on cannabis have changed over the past two decades.

The other factor here is that Donald Trump has come out on a few occasions during his campaigning to support the legalization of medical cannabis nationally. His opinion on recreational cannabis could be construed as mixed, with Trump advocating more of a wait-and-see approach, but he's been clear about his stance that medical marijuana should be federally legal.

Can Trump convince a Republican congress to legalize medical marijuana? My guess is probably not, since many of the states that continue to hold cannabis as illegal on all levels are run by Republicans lawmakers. However, Sessions could have difficultly swaying Trump to make any changes to the current status quo given Trump's campaign opinions and a desire not to anger a majority of the public. More than likely, the status quo of state-level legalization and regulation will remain intact.

Second most likely: Restrictions on new states, status quo continues for existing legal states

A second possibility, though I would put the likelihood of this happening pretty far behind the first scenario, is that Sessions could put the kibosh on state-level legalizations for new states, at least when it comes to recreational marijuana. Under such a scenario, the eight existing legal marijuana states would serve as something of a guinea pig for Congress to monitor before deciding whether or not to allow additional states to legalize.

Image source: Getty Images.

Banning new states from legalizing pot would be a modest win for Sessions, but I don't believe he could convince Congress or Trump to disallow the state-level legalization of medical marijuana in any of the remaining 22 states that haven't legalized (should they decide to do so). Even though the Food and Drug Administration and Drug Enforcement Agency don't recognize cannabis as having medically beneficial qualities, a number of university research studies have observed benefits from either marijuana itselfor its cannabinoids. Plus, with so many people favoring the legalization of medical cannabis, cutting off access to medical pot could be negative publicity that Trump and his cabinet simply don't need.

Third most likely: Recreational pot legalization is taken off the table at the state level

Image source: Taber Andrew Bain, Flickr.

A third scenario, which is probably the least likely of the bunch, is that Sessions manages to convince Trump and a conservative Congress to remove the hands-off approach when it comes to recreational marijuana. In other words, this scenario would allow states that have legalized medical cannabis to keep their dispensaries intact, but it would shut down the recreational sale of pot in the eight legal states.

For Sessions, this would probably represent his greatest victory as attorney general, given his stance on marijuana. Of course, it's also the least likely given the heat Congress and Trump would take from both the marijuana industry and the American public. In order for Sessions to succeed in pulling the cord on recreational marijuana, he would need to present some unequivocal evidence demonstrating the dangers of recreational marijuana to society. Traffic fatality data could potentially help his case, but he'd likely need far more to sway Trump and Congress.

Uncertainty begets caution

There's little denying the huge dollar potential behind the steady expansion of the marijuana industry. According to investment company Cowen & Co., the legal pot industry could be worth $50 billion in a decade. These figures are certainly juicy enough to entice investors to take a shot on the pot industry.

Unfortunately, the appointment of Sessions, even if the status quo remains, makes investing in marijuana far too risky.


Image source: Getty Images.

Aside from Sessions likely looking to scale back the marijuana industry by any means possible, pot businesses are set to face ongoing inherent disadvantages. For example, marijuana companies have limited access to basic banking services since most banks fear federal prosecution at some point in the future for dealing with pot businesses. Being forced to deal solely with cash is a security concern and an expansion inhibitor.

Additionally, marijuana businesses are stuck paying tax on their gross profits instead of net profits because they're disallowed from taking normal corporate income tax deductions. Neither of these disadvantages is expected to change with Sessions as attorney general.

Long story short, the uncertainty of having Sessions as attorney general means investors should keep their distance from marijuana stocks and monitor them from afar.

10 stocks we like better thanWal-Mart
When investing geniuses David and TomGardner have a stock tip, it can pay to listen. After all, the newsletter theyhave run for over a decade, the Motley Fool Stock Advisor, has tripled the market.*

David and Tomjust revealed what they believe are theten best stocksfor investors to buy right now...and Wal-Mart wasn't one of them! That's right -- theythink these 10 stocks are even better buys.

Click hereto learn about these picks!

*StockAdvisor returns as of December 12, 2016.
The author(s) may have a position in any stocks mentioned.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, 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. The Motley Fool has adisclosure policy.