You'd struggle to find an industry with a faster and more consistent long-term growth rate than the legal marijuana industry.
According to cannabis research firm ArcView, sales of legal weed in North America rose by 34% to $6.9 billion in 2016, and based on estimates from investment firm Cowen & Co., U.S. legal sales could reach $50 billion by 2026. For added context, ArcView estimates that North American black market sales totaled $46.4 billion last year.
Image source: Getty Images.
Marijuana's phenomenal growth rate comes on the heels of rapidly changing consumer opinions toward the substance, as well as an influx of investing dollars and government interest that wants a piece of the "pot pie," so to speak.
In the year before California became the first state to legalize medical cannabis for compassionate use, only 25% of respondents in Gallup's marijuana poll wanted to see it legalized nationally. In 2016, the same survey yielded an all-time high of 60% of respondents that would like to see it legalized.
Likewise, rapid growth in the industry is attracting venture capitalists, as well as state governments that envision marijuana opening up new revenue channels. For instance, the passage of Prop 64 (recreational marijuana initiative) in California is expected to add, at minimum, $1 billion in extra tax and licensing revenue per year. Considering California's penchant for running a budget deficit, this added revenue should be a welcome sight for state legislators.
Pot's schedule 1 status is holding the industry back
But at the end of the day, pot remains a schedule 1 drug at the federal level, meaning it's deemed to have no medically beneficial qualities, and is therefore illegal. This scheduling means a mountain of obstacles for medical and recreational weed companies alike.
Image source: Getty Images.
As an example, marijuana companies are often unable to open a checking account or obtain a line of credit with financial institutions because they're selling a federally illegal substance. It's not that banks don't want to deal with pot companies, as there would be a presumed massive growth opportunity available to the currently underbanked industry. It's that banks ultimately answer to the federal government, and at the federal level marijuana is still illegal. Thus, allowing cannabis companies to open a checking account or borrow money could be construed as money laundering and expose any and all financial institutions participating to be fined. Plus, it also means marijuana businesses have to deal in cash, which can be a major security concern.
Another good example is corporate income tax. Marijuana businesses are severely hampered by U.S. Tax Code 280E, which disallows businesses that sell a federal illicit substance from taking normal business deductions. This essentially means pot businesses are paying tax on their gross profits instead of net profits, which leaves less money left over for hiring and business expansion.
Congressional lawmakers have repeatedly opined that they'd need more conclusive benefit and risk data from clinical studies to merit any sort of scheduling change on marijuana, but the Catch-22 is that its restrictive schedule 1 status makes running these needed studies practically impossible.
Surprise! A Republican lawmakers want to reschedule marijuana
However, this Catch-22 may soon come to an end if Republican Tom Garret of Virginia gets his way. On Feb. 27, Garrett introduced the "Ending Federal Marijuana Prohibition Act of 2017," which would take marijuana off the federally controlled substances list, placing it on par with the alcohol and tobacco industries.
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Here's what Garrett had to say:
There are, in particular, two unique aspects about this bill.
First, it was introduced by a Republican! Polling has shown that only two groups oppose the nationwide legalization of marijuana: 1) Seniors by a narrow margin, and 2) Republicans! In fact, of the 22 states that haven't legalized medical marijuana yet, a good number of them are led by Republicans. The fact that a Republican lawmaker is suggesting that marijuana be federally decriminalized and rescheduled should tell you just how far things have come for the industry over the past two decades.
Secondly, unlike the similar legislation that Bernie Sanders (I-Vt.) introduced in 2015, Garrett's bill already has co-sponsors. Considering how strong the public's support for marijuana is, Garrett's bill may actually have a shot at working its way through Congress and at least being voted upon.
Don't get your hopes up just yet
While Garrett's bill would seem to be a step in the right direction based on the desires of the public, it's still far too early to pop the champagne and celebrate.
Image source: U.S. Department of Homeland Security, Flickr.
Donald Trump, who during his campaign suggested that he would support state's rights once in office, has apparently backed off that approach. White House press secretary Sean Spicer recently noted that the federal government could be looking to step up enforcement of recreational marijuana in the months and years to come. No details were given as to how extensive this increase in federal enforcement would be, nor when exactly it might begin.
Also, Trump's Attorney General, Jeff Sessions, is clearly no fan of marijuana. While in the Senate, Sessions could arguably have been described as the most ardent opponent of pot. Though Sessions commented that he would follow the president's policies on marijuana during his confirmation hearings, it's pretty evident based on his past views that he doesn't support the expansion of marijuana in any form.
This essentially means that cannabis is continuing to fight an uphill battle, which isn't good news for businesses or investors who want to invest in these businesses. The industry's growth is clearly undeniable, but until there's a clearer path forward to decriminalization, investors would be wise to keep their distance.
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