Chances are that you’d struggle to find an industry within the U.S. that’s growing at a faster and more consistent pace than legal marijuana.
Colorado, one of the eight states that’s legalized recreational and medical cannabis, and the first state to sell adult-use weed, saw combined sales of legal weed soar by more than 30%, to over $1.3 billion in 2016. This surge in sales is a result of organic growth in recreational weed, right along with an increase in tourism to the state.
On a broader basis, Marijuana Business Daily‘s latest report, entitled “Marijuana Business Factbook 2017,” projects legal marijuana sales growth in the U.S. of 45% in 2018, and an aggregate of 300% between 2016 and 2021, ultimately reaching about $17 billion. With pro-legalization groups rallying around multiple states for the 2018 elections (e.g., Arizona and Michigan), the chances of pot’s expansion are decent if things stay as they are.
Capitol Hill is choking the marijuana industry’s potential
However, the cannabis industry has one major obstacle: the federal government. Marijuana is a schedule I drug on Capitol Hill, making it entirely illegal, just like heroin and LSD. Cannabis also has no recognized medical benefits on Capitol Hill despite a handful of studies that have appeared to suggest otherwise. For example, GW Pharmaceuticals (NASDAQ:GWPH), a U.K.-based drug developer that utilizes cannabinoids to effect positive biologic change, has demonstrated in multiple phase 3 studies that its cannabidiol-based oral drug Epidiolex can significantly reduce seizure frequency in patients with two rare forms of childhood-onset epilepsy, Dravet syndrome and Lennox-Gastaut syndrome.
Along with this brick wall in Washington comes a number of inherent disadvantages for marijuana-based businesses. They have little to no access to basic banking services, such as a checking account, and they’re almost always required to pay tax on their gross profit — as opposed to their net profits — if they’re profitable. This is because U.S. tax code 280E disallows businesses that sell a federally illegal substance from taking normal corporate income tax deductions.
Yet here’s the interesting aspect of this bifurcation between the states and the federal government: The people side with the states. A newly released Gallup poll finds that 64% of Americans want cannabis to be legal across the United States. A separately conducted survey from the independent Quinnipiac University, which was released in April, found even stronger support for the idea of legalizing medical cannabis. Some 94% of respondents were in favor compared to only 5% opposed.
True or false: Republicans want to legalize cannabis?
What’s the holdup on Capitol Hill? Finger-pointing would dictate that it’s Republicans holding up marijuana’s expansion. Republicans and senior citizens have historically been the two groups who’ve opposed the expansion of pot. However, Gallup’s survey shows something different in 2017.
When the national pollster questioned folks about their opinion on legalizing marijuana and asked for their political party affiliation, 51% of Republicans favored legalization. That’s the first time ever that a majority of Republicans were in favor of legalizing marijuana for recreational use. It should be noted that, at 51% support, the margin of error of this poll is still within range to push this figure below 50%, but it’s nonetheless an impressive milestone.
GOP support for weed rose very slowly, from 20% in 2003 to 37% in 2015, but it’s exploded higher over the past two years. Perhaps this surge in support is a result of a shift in perception from their constituents. After all, if lawmakers don’t abide by the desires of their constituents, they risk being voted out of office.
Of course, not all Republicans support weed, or are in favor of its expansion, even if they have no moral objection to cannabis. An example is Gov. Phil Scott (R-Vt.), who earlier this year vetoed a recreational marijuana bill in Vermont that overwhelmingly passed in the state’s Senate and House. Scott cited concerns about weak penalties for driving under the influence as the reason for vetoing the legislation, but left the door open for future legislation once his concerns were addressed.
But there’s one key Republican who really stands in the way of Washington even considering a change in stance on weed — and it’s not President Trump. The true barrier to progress lies squarely with Attorney General Jeff Sessions.
Sessions has, on numerous occasions, not minced words about his views on cannabis. Sessions is quick to remind folks that federal law still holds true in all 50 states and has implied that the Justice Department is reviewing the possibility of coming down more harshly on the marijuana industry in states that have legalized.
What’s more, Sessions sent a letter to some of his congressional colleagues in May that requested they repeal the Rohrabacher-Farr Amendment, which disallows the Justice Department from using federal funds to prosecute marijuana businesses that are operating in legal states. Sessions’ insistence that this be repealed is a pretty clear indication that he’s possibly preparing to wage war on the marijuana industry.
Even with the tide shifting among the public and within the Republican Party, it’s difficult to see how any real progress will be made at the federal level with Sessions as attorney general. That’ll likely cap the potential of the marijuana industry, and may put a serious crimp in the returns for marijuana stock investors.
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