7 Reasons Marijuana Has Virtually No Chance of Being Legalized in the U.S. Before 2021 – Yahoo Finance

If investors were to look around, they’d probably find a number of fast-growing trends, such as blockchain, cloud computing, and gene therapy in the healthcare sector. But there’s perhaps no industry with a more impressive growth rate at the moment than marijuana.

$200 billion in yearly sales in a decade. Such a scenario has one key cog if it’s to be successful: the United States has to legalize marijuana at the federal level.” data-reactid=”12″>It would appear that sales for the cannabis industry are only limited by our imagination. Whereas I personally thought that Cowen Group’s estimate of $75 billion in global sales by 2030 was fairly aggressive, I was blown out of the water by Stifel analyst Andrew Carter’s recent report calling for $200 billion in yearly sales in a decade. Such a scenario has one key cog if it’s to be successful: the United States has to legalize marijuana at the federal level.

A person holding cannabis leaves in their cupped hands.

Image source: Getty Images.

two-thirds of respondents to Gallup’s annual poll favor legalizing marijuana, with 33 states having approved medical cannabis in some capacity. Of these 33 states, a third (11) also allow recreational consumption, with Illinois being the latest to legalize marijuana last month. Retail sales in the Land of Lincoln will commence on Jan. 1, 2020.” data-reactid=”25″>Make no mistake about it: We’ve come an incredibly long way in the U.S. since 1995, when no states had legalized medical or recreational pot, and support for legalization stood at roughly 25%. Today, two-thirds of respondents to Gallup’s annual poll favor legalizing marijuana, with 33 states having approved medical cannabis in some capacity. Of these 33 states, a third (11) also allow recreational consumption, with Illinois being the latest to legalize marijuana last month. Retail sales in the Land of Lincoln will commence on Jan. 1, 2020.

$166 billion in utopian annual sales, with the U.S. generating more than $56 billion a year in legal revenue.” data-reactid=”26″>According to Carter, the U.S. represents a $100 billion annual opportunity, or roughly half of all sales in a decade. This somewhat jibes with Bank of America’s Christopher Carey, who has called for $166 billion in utopian annual sales, with the U.S. generating more than $56 billion a year in legal revenue.

But there’s one pretty substantive problem with a majority of these pie-in-the-sky sales estimates: They generally all assume that the U.S. will legalize marijuana at the federal level, which is far from a guarantee. In fact, there are seven good reason to believe that, despite cannabis reform discussions ongoing at the Congressional level, there’s virtually no chance of federal marijuana reform before 2021.

As many of you may already know, Republicans have historically had a more negative view of cannabis than folks who identify as Democrats or Independents. In Gallup’s October 2018 poll, 75% of Democrats and 71% of Independents favored broad-based legalization, which compares to „just” 53% of Republicans.

It is worth noting that favorability toward legalization has improved significantly within the Republican Party over the past 15 years (20% in 2003 versus 53% in 2018), but there’s a clear gap in support for the party that currently controls the Senate and Oval Office. 

A judge’s gavel next a handful of cannabis buds.

Image source: Getty Images.

has blocked riders or specific bills tied to cannabis reform from heading to the Senate floor for vote. Even if there was the possibility of passage in the Senate, which isn’t guaranteed given the slight GOP majority in the upper House of Congress, McConnell appears unlikely to allow marijuana-focused bills to make it to vote.” data-reactid=”48″>Another reason marijuana reform efforts won’t go anywhere in the U.S. prior to 2021 is Senate Majority Leader Mitch McConnell (R-Ky.). On more than one occasion, McConnell has blocked riders or specific bills tied to cannabis reform from heading to the Senate floor for vote. Even if there was the possibility of passage in the Senate, which isn’t guaranteed given the slight GOP majority in the upper House of Congress, McConnell appears unlikely to allow marijuana-focused bills to make it to vote.

far more pressing issues on the docket for lawmakers in Congress. Yes, legalizing marijuana could help to create jobs and fuel economic growth via tax revenue collection, but broader economic topics, such as the trade war with China, or resolving healthcare reform, are going to take precedence over the idea of cannabis reform on Capitol Hill.” data-reactid=”50″>As much as I enjoy covering, and investing in, the pot industry, it’s important to recognize that there are far more pressing issues on the docket for lawmakers in Congress. Yes, legalizing marijuana could help to create jobs and fuel economic growth via tax revenue collection, but broader economic topics, such as the trade war with China, or resolving healthcare reform, are going to take precedence over the idea of cannabis reform on Capitol Hill.

A fourth problem is that favorability alone isn’t enough to coerce lawmakers to take up marijuana reform in Washington, D.C.

cannabis isn’t a single-voter issue, which means elected officials have little fear of losing their elected seats by taking an opposing view from the majority.” data-reactid=”53″>Last year, the independent Quinnipiac University asked adult respondents whether or not they could still vote for a political candidate whom they shared a lot in common with, but who had a different view on cannabis from their own. A mere 13% of the respondents said they could not vote for that candidate, with 82% noting that they still would vote for a candidate with an opposing view on marijuana. What this shows us is that cannabis isn’t a single-voter issue, which means elected officials have little fear of losing their elected seats by taking an opposing view from the majority.

having two medical benefits – the treatment of two rare forms of childhood-onset epilepsy. Aside from approving a single cannabis-derived drug, the FDA doesn’t view marijuana as having medical benefits. In the regulatory agency’s view, considerable study needs to be undertaken to understand its benefit and risk profile, which is something select lawmakers have been harping on for years.” data-reactid=”55″>Lawmakers are also taking their cues from the U.S. Food and Drug Administration (FDA), which currently views cannabis and its cannabinoids as having two medical benefits — the treatment of two rare forms of childhood-onset epilepsy. Aside from approving a single cannabis-derived drug, the FDA doesn’t view marijuana as having medical benefits. In the regulatory agency’s view, considerable study needs to be undertaken to understand its benefit and risk profile, which is something select lawmakers have been harping on for years.

A car key fob that’s surrounded by dried cannabis flower.

Image source: Getty Images.

Yet another dilemma for lawmakers to consider is that there aren’t defined impairment parameters for drivers behind the wheel who’ve used marijuana. When it comes to alcohol impairment, there’s a pretty well-defined line in the sand of 0.08% blood alcohol content. If you’re above this limit, you’re legally considered impaired. But there aren’t uniform impairment limits for cannabis consumption, which makes some lawmakers hesitant to even bring up the idea of modifying federal cannabis laws.

reform creates a bit of a money issue.” data-reactid=”71″>The seventh and final reason you shouldn’t expect marijuana legalization in the U.S. at any point before 2021 (and 2021 could even be pushing it) is that reform creates a bit of a money issue.

U.S. businesses that sell marijuana are constrained by U.S. tax code 280E. In short, this tax code disallows pot companies from taking normal corporate deductions, save for cost of goods sold, which is often only a small portion of total sales. This can lead to profitable marijuana companies paying an effective tax rate of more than 70% — and that can mean slower expansion and hiring capacity. Nonetheless, despite being illegal at the federal level, the IRS has no qualms about collecting income tax on profitable cannabis companies.

However, if marijuana were legalized at the federal level, these businesses would no longer be subject to Section 280E. Or, to put this in another context, the federal government would lose its ability to levy a really high effective tax rate on profitable pot businesses. Estimates suggest this would cost the federal government about $5 billion over a 10-year period.

A black silhouette of the United States that’s partially filled in with baggies of cannabis, rolled joints, and a scale.

Image source: Getty Images.

So, what does this all mean for marijuana stock investors? As you might imagine, it suggests that established Canadian licensed producers that are itching to get in on the much larger U.S. cannabis movement are going to have to be patient. Of course, this doesn’t mean these licensed producers won’t still find a way to make their mark in the United States.

no fewer than six major Canadian cannabis producers announce their entrance into the hemp and hemp-derived cannabidiol (CBD) market. Two of the more recent entrants include HEXO (NYSEMKT: HEXO) and CannTrust Holdings (NYSE: CTST).” data-reactid=”88″>Since President Trump signed the farm bill into law in December, we’ve seen no fewer than six major Canadian cannabis producers announce their entrance into the hemp and hemp-derived cannabidiol (CBD) market. Two of the more recent entrants include HEXO (NYSEMKT: HEXO) and CannTrust Holdings (NYSE: CTST).

recently created a U.S. subsidiary (HEXO USA) and announced plans in its latest operating results to enter up to eight U.S. states in 2020 with its CBD products. Meanwhile, CannTrust is forming a 50-50 joint venture with Elk Grove Farming Company in California. The duo will initially plant 300 acres of hemp in 2020, but joint venture will have access to as much as 3,000 acres of farmland for future hemp-harvesting purposes.” data-reactid=”89″>HEXO recently created a U.S. subsidiary (HEXO USA) and announced plans in its latest operating results to enter up to eight U.S. states in 2020 with its CBD products. Meanwhile, CannTrust is forming a 50-50 joint venture with Elk Grove Farming Company in California. The duo will initially plant 300 acres of hemp in 2020, but joint venture will have access to as much as 3,000 acres of farmland for future hemp-harvesting purposes.

Like many of their peers, HEXO and CannTrust are using this opportunity to establish infrastructure and business relationships that could prove fruitful if and when the U.S. federal government ever legalizes marijuana. But for the time being, the sales ceiling remains relatively low in the U.S. for at least a half dozen licensed Canadian growers.

Sean Williams owns shares of Bank of America and CannTrust Holdings. The Motley Fool recommends CannTrust Holdings Inc and HEXO. The Motley Fool has a disclosure policy.” data-reactid=”96″>Sean Williams owns shares of Bank of America and CannTrust Holdings. The Motley Fool recommends CannTrust Holdings Inc and HEXO. The Motley Fool has a disclosure policy.

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