Could Trump Back the Legalization of Marijuana?
In North America, the legal weed industry is growing by leaps and bounds. According to cannabis research firm ArcView, legal marijuana sales in North America grew by 33% in 2017 to $9.7 billion, and they're expected to eventually hit $47 billion a decade from now.
Last June, Mexico legalized medical marijuana, and to our north, Canada is on the verge of officially giving the green light to adult-use cannabis. Even the U.S. has seen rapid expansion, going from zero states with broad-based medical cannabis laws on their books in 1995 to 29 states as of today. Organic demand and sales growth within legal states/countries, along with ongoing state-level approvals, is expected to drive the industry forward in the years to come.
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The U.S. cannabis industry is stuck in neutral
Yet, the marijuana industry is treated markedly different in the United States relative to Canada and Mexico. Within the U.S., cannabis remains a Schedule I drug at the federal level. This means it's entirely illegal, is considered to be highly prone to abuse, and has no recognized medical benefits.
This classification for marijuana also has ramifications for businesses operating in this space. For instance, pot-based businesses are unable to take normal corporate income-tax deductions, dooming profitable weed companies to an effective tax rate of as much as 90%. Also, U.S. weed companies have little or no access to basic banking services, primarily because banks fear the possibility of criminal and/or financial penalties if they assist marijuana companies.
The headscratcher here is that the American public overwhelmingly supports legalizing marijuana. Gallup's national poll from October found that an all-time record 64% of respondents favor legalizing weed, which is up from just 25% in 1995. But in spite of this support, lawmakers in Congress have stood pat on keeping cannabis as a Schedule I drug.
Image source: U.S. Department of Homeland Security via Flickr.
Could Trump actually support legalizing marijuana?
However, according to new comments from President Trump, the outlook for cannabis in the U.S. may not be as grim as you'd think. While addressing the media before departing last Friday for the G-7 summit being held in Canada, Trump implied that he's willing to support the legalization of marijuana, or at the very least the ability of states to regulate their own cannabis industries.
In particular, the president was asked about a proposal from Senators Cory Gardner (R-Colo.) and Elizabeth Warren (D-Mass.) that would amend the federal Controlled Substances Act to allow states and tribes to write their own laws regarding marijuana production, distribution, and possession. "I support Sen. Gardner. I know exactly what he's doing; we're looking at it. But I probably will end up supporting that, yes," said Trump. Senate Majority Leader Mitch McConnell (R-Kentucky) has also (reportedly) suggested that he would allow cannabis legislation to come to vote, according to cannabis reform organization NORML.
Legalizing marijuana would come with a number of potential economic benefits that would likely make Trump very happy. It could generate excise tax revenue for the federal government, helping to reduce the federal budget deficit in some small way, and it'd likely add hundreds of thousands of jobs over the next decade.
It would also be a boon for a handful of U.S. marijuana stocks that have otherwise been left out in the cold. MedMen Enterprises (NASDAQOTH: MTTPF), which operates a dozen high-end cannabis retail locations in the U.S. and recently listed in Canada via a reverse merger, could see cannabis acceptance, and therefore consumer demand, explode higher. Since U.S.-based marijuana stocks aren't allowed to list on reputable exchanges like the NYSE or Nasdaq, MedMen had to turn to Canada to list its shares. Legalizing cannabis in the U.S. could allow MedMen, and a few other comparable weed companies, to more freely raise capital and allow investors to participate in their growth within the United States.
Image source: Getty Images.
Legalizing marijuana in the U.S. would be a challenge
Of course, there are a number of challenges that need to be noted here. To begin with, Trump has flip-flopped on cannabis before. During his campaign he was "100 percent" behind the idea of legalizing medical marijuana, but wound up choosing Jeff Sessions, a noted opponent of marijuana's expansion, as his attorney general. Furthermore, according to Sessions while speaking with Colorado Public Radio, and via NPR, Trump hasn't specifically told Sessions to back off on enforcing federal cannabis laws.
Another challenge to legalization is the aforementioned Jeff Sessions. Last year, he unsuccessfully tried to repeal the Rohrabacher-Farr Amendment, which is what protects medical marijuana businesses from federal prosecution in legal states.
Sessions was, however, successful in rescinding the Cole memo, which was written under former President Barack Obama. The Cole memo provided a loose set of regulations that states were required to follow in order to keep the federal government off their backs. This included keeping adolescents away from pot, as well as keeping marijuana grown within a state from leaving its borders. Without this memo in place, state prosecutors are now able to use their discretion in bringing marijuana charges against businesses and/or individuals.
Image source: Getty Images.
It's also worth pointing out that there's a sizable gap in favorability toward cannabis between Democrats and Republicans. An April survey from the independent Quinnipiac University found that 63% of respondents favored the idea of legalizing pot, compared to 33% who were opposed. Among self-identified Democrats, 75% supported legalization, compared to 21% opposed. As for Republicans, just 41% support legalization, while 55% were opposed. Most national surveys show a mixed or negative view of cannabis from the GOP, which would make passing any bipartisan bill a challenge.
Though the public appears to be behind the idea of legalization, call this investor highly skeptical that there will be any change in marijuana's scheduling anytime soon.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
