When it comes to the fastest, most consistently growing industries in the U.S. right now, legal marijuana is near the top of the list. Investment firm Cowen & Co. has predicted that U.S. legal pot sales could grow to as much as $50 billion by 2026, with research firm ArcView estimating a compound annual growth rate (CAGR) of 26% between 2016 and 2021.
These rapid growth rates have played a big role in attracting a lot of money to the industry. A majority of the largest marijuana stocks has at least doubled in value over the trailing-12-month period, and an estimated CAGR of 26% is only likely to fuel the imaginations and expectations of pot stock investors.
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Congress puts the kibosh on marijuana's expansion
Yet in spite of an impressive performance in equities, and the rapid annual growth rate in the U.S. legal pot industry, the ceiling on the marijuana industry is pretty low -- and Congress is to blame.
Marijuana firmly remains a Schedule I substance at the federal level, meaning it's on par with heroin and LSD in being entirely illegal and having no recognized medical benefits. Its strict scheduling also creates a number of problems for marijuana businesses. This includes an inability to take normal corporate income-tax deductions since they're selling a federally illegal substance, and having virtually no access to basic banking services since financial institutions fear potential repercussions from working with pot-based businesses.
Additionally, it's exceptionally difficult for researchers to get approval to run clinical studies involving cannabis because of its current scheduling. This makes it impossible to give lawmakers the benefit-versus-risk analysis that many have called for.
An overwhelming number of Americans support legalizing medical marijuana
But here's the truth: America wants to see marijuana legalized. In three separate polls conducted by Gallup, CBS News, and Quinnipiac University, a respective 60%, 61%, and 60% of respondents answered that they wanted to see pot legalized nationally. Of course, moving toward a full legalization would be a major step for a government that hasn't even legalized medical cannabis. In fact, only Uruguay has completely legalized marijuana, with Canada also considering such a move.
A more logical approach for pro-legalization enthusiasts would be to see the federal government legalize medical marijuana. The aforementioned April 2017 Quinnipiac University poll found that an overwhelming 94% of respondents want medical pot to be legal, compared to just 5% who opposed such an idea. What's more, by a margin of 76% to 18%, respondents believe that the federal government should respect states' rights and allow pot businesses in legal states to operate without federal interference.
Evidence is growing that medical marijuana can treat certain diseases
On top of Quinnipiac's polling data, we've also witnessed evidence via Food and Drug Administration-approved studies that cannabinoids can be helpful in treating certain ailments.
GW Pharmaceuticals (NASDAQ: GWPH), the largest marijuana stock by market cap, has dazzled in late-stage studies with its lead drug Epidiolex, an oral cannabidiol treatment for patients with two rare types of childhood-onset epilepsy, Dravet syndrome and Lennox-Gastaut syndrome. In two late-stage trials for each indication, Epidiolex wound up reducing seizure frequency by a statistically significant margin compared to the placebo. While there are no cannabinoid-based drugs approved in the U.S., and therefore no precedent for the FDA, it's still more likely than not that Epidiolex will gain approval based on its clearly positive study results -- and put cannabinoids on the map.
Another example comes from Insys Therapeutics (NASDAQ: INSY) and its FDA approval last year for oral dronabinol solution Syndros. Syndros is essentially a synthetic version of tetrahydrocannabinol, or THC, the psychoactive component of cannabis. Syndros, which was labeled a Schedule II substance by the U.S. Drug Enforcement Agency, was approved to treat chemotherapy-induced nausea and vomiting, as well as anorexia associated with AIDS.
Don't count on change anytime soon
Despite these positive clinical studies, Congress is still likely a long ways off from legalizing medical marijuana.
In particular, Quinnipiac's poll broke down support and opposition for (recreational) marijuana across a number of categories, including political affiliation, age, sex, and race. What stood out is that senior citizens and Republicans remained the two groups most opposed to marijuana's expansion. Right now, Republicans have control of Congress, meaning the chance of change at the federal level is minimal at best.
Another factor that has to be weighed is how active Attorney General Jeff Sessions is in thwarting the expansion of marijuana. As a reminder, Sessions sent a letter to congressional leaders in May requesting that they repeal the Rohrabacher-Farr Amendment, which protects pot businesses in legal states from federal prosecution. Sessions will seemingly stop at nothing to ensure that marijuana's use is not expanded at the federal level.
We also have to consider what's already on Congress' plate. President Trump has once again requested that the GOP work on healthcare reform, and tax reform is also right around the corner. There's simply no time for lawmakers to discuss the idea of legalizing medical marijuana at the moment.
In short, America wants change when it comes to cannabis, but there's virtually no chance of that happening at the federal level anytime soon. That's potentially bad news for the medical community, and not particularly good news for marijuana stock investors.
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