This new House proposal could be a game-changer for cannabis.
The marijuana industry has been practically unstoppable for the better part of four years.
Since 2012, eight states (along with Washington, D.C.) have legalized recreational, adult-use pot, including residents in four states who voted in favor of doing so in the November 2016 election. In fact, if not for Arizona, which had its adult-use proposition fail in the November elections, marijuana would have had a clean sweep.
Just as impressive, since 1996 -- which is when California became the first state to legalize medical cannabis for compassionate use in select ailments -- 28 states have legalized medical marijuana. Two states (Ohio and Pennsylvania) did so in 2016 entirely through the legislative process.
Marijuana's momentum can partially be traced to the rapidly changing
perception of the drug. A recently conducted survey from the independent
Quinnipiac University found that 59% of respondents would like to see
pot legalized nationally compared to just 36% of respondents who oppose
such legalization. A more robust 93% favored the legalization of medical
cannabis compared to just 6% who opposed it.
The other half of the formula is the money behind the marijuana industry. Cannabis research firm ArcView Market Research recently reported that North American legal pot sales totaled $6.9 billion in 2016, up 34% from the previous year. Yet, $46.4 billion in sales last year still came from the black market, implying that the industry has plenty of work -- and opportunity -- ahead.
A more recent cause for concern came directly from White House press
secretary Sean Spicer. Spicer commented last month that the Trump
administration wouldn't be as lax on marijuana enforcement as the Obama
administration, which had a hands-off approach to pot regulation. Though
Trump has strongly supported medical cannabis in the past, and will
likely allow states to continue setting their own medical marijuana
laws, it's becoming more likely that the federal government could crack
down on recreational marijuana at the state level.
This clearly has the industry worried.
On Feb. 7, 2017, Rep. Dana Rohrabacher (D-Ca.) introduced House Bill 975 (link opens PDF), which is more affably known as the "Respect State Marijuana Laws Act of 2017." The bill, which has bipartisan support from seven Democrats and seven Republicans, would seek to protect the rights of states that have chosen to legalize medical and/or recreational pot.
Officially, as written in H.R. 975:
In other words, if H.R. 975 were to pass, the federal government
couldn't enforce federal law on consumers and businesses that are
operating within their legal rights in medical and recreational
marijuana states.
Additionally, H.R. 975 would provide significant clarity when it comes to providing basic banking services to the cannabis industry. Somewhere around half of all pot businesses aren't even receiving banking services, meaning many are forced to deal entirely in cash, which is a major security concern. Because marijuana is illegal, and most banks are regulated by the Federal Deposit Insurance Corporation, offering banking services to the marijuana industry could be construed as money laundering.
The timing of this bill is also intriguing given that Rohrabacher and three of his colleagues -- Rep. Don Young (R-Ak.), Rep. Earl Blumenauer (D-Or.), and Rep. Jared Polis (D-Co.) -- formed the Congressional Cannabis Caucus to attempt to facilitate change in Washington that would bridge the currently wide gap between federal law and state laws on marijuana.
The legislative branch of the U.S. government is entirely
Republican-leaning for the time being, and the polling has demonstrated
that just two groups are opposed to cannabis' expansion: seniors and
Republicans. Though Gallup's polling has shown that both groups have
significantly softened their views toward marijuana over the past
decade, it's still unlikely that the current Congress is going to be
open to the idea of decriminalizing or rescheduling the drug.
So, what does that mean for marijuana stocks and pot businesses as a whole? Likely more of the same.
If Rohrabacher's bill fails to gain momentum, it'll mean that most marijuana companies will be forced to continue dealing in cash. It also means that pot businesses will be unable to get around U.S. tax code 280E, which disallows businesses that are selling an illegal substance from taking normal tax deductions.
In short, the deck will remain stacked against marijuana stocks and the industry in general. Investors would be wise to keep their dollars safely on the sidelines.
Since 2012, eight states (along with Washington, D.C.) have legalized recreational, adult-use pot, including residents in four states who voted in favor of doing so in the November 2016 election. In fact, if not for Arizona, which had its adult-use proposition fail in the November elections, marijuana would have had a clean sweep.
Just as impressive, since 1996 -- which is when California became the first state to legalize medical cannabis for compassionate use in select ailments -- 28 states have legalized medical marijuana. Two states (Ohio and Pennsylvania) did so in 2016 entirely through the legislative process.
Image source: Getty Images.
The other half of the formula is the money behind the marijuana industry. Cannabis research firm ArcView Market Research recently reported that North American legal pot sales totaled $6.9 billion in 2016, up 34% from the previous year. Yet, $46.4 billion in sales last year still came from the black market, implying that the industry has plenty of work -- and opportunity -- ahead.
Capitol Hill is a major impediment
Despite what may have seemed like a near-perfect 2016, the marijuana industry was dealt a blow in August when the U.S. Drug Enforcement Agency (DEA) chose to deny two petitions to reschedule (or de-schedule) cannabis from its current status as Schedule 1. The DEA justified its decision by claiming that there wasn't enough clinical and safety evidence to support a scheduling change, and there wasn't adequate oversight for what's deemed to be a highly addictive and illegal substance with no medical benefits. It'll probably be many years before the DEA considers rescheduling cannabis again.
Image source: U.S. Department of Homeland Security, Flickr.
This clearly has the industry worried.
This new pot bill would protect states' rights
But a recently introduced bill in Congress could help protect existing consumers and businesses in states that have passed marijuana initiatives or amendments.On Feb. 7, 2017, Rep. Dana Rohrabacher (D-Ca.) introduced House Bill 975 (link opens PDF), which is more affably known as the "Respect State Marijuana Laws Act of 2017." The bill, which has bipartisan support from seven Democrats and seven Republicans, would seek to protect the rights of states that have chosen to legalize medical and/or recreational pot.
Officially, as written in H.R. 975:
Notwithstanding any other provision of law, the provisions of this subchapter related to marihuana shall not apply to any person acting in compliance with State laws relating to the production, possession, distribution, dispensation, administration, or delivery of marihuana.
Image source: Getty Images.
Additionally, H.R. 975 would provide significant clarity when it comes to providing basic banking services to the cannabis industry. Somewhere around half of all pot businesses aren't even receiving banking services, meaning many are forced to deal entirely in cash, which is a major security concern. Because marijuana is illegal, and most banks are regulated by the Federal Deposit Insurance Corporation, offering banking services to the marijuana industry could be construed as money laundering.
The timing of this bill is also intriguing given that Rohrabacher and three of his colleagues -- Rep. Don Young (R-Ak.), Rep. Earl Blumenauer (D-Or.), and Rep. Jared Polis (D-Co.) -- formed the Congressional Cannabis Caucus to attempt to facilitate change in Washington that would bridge the currently wide gap between federal law and state laws on marijuana.
Will it work?
The formation of a Cannabis Caucus is a bold move on Capitol Hill that signals just how far the public opinion of marijuana has come in a relatively short period of time. Realistically, though, Rohrabacher's bill is probably dead in the water.
Image source: Getty Images.
So, what does that mean for marijuana stocks and pot businesses as a whole? Likely more of the same.
If Rohrabacher's bill fails to gain momentum, it'll mean that most marijuana companies will be forced to continue dealing in cash. It also means that pot businesses will be unable to get around U.S. tax code 280E, which disallows businesses that are selling an illegal substance from taking normal tax deductions.
In short, the deck will remain stacked against marijuana stocks and the industry in general. Investors would be wise to keep their dollars safely on the sidelines.
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