2016 could go down as the year that completely reshapes the marijuana industry.
In November, residents in at least eight states, and perhaps more, will be voting on whether or not to legalize recreational or medical marijuana. Currently, 25 states have legalized medical marijuana, while four, along with Washington, D.C., have legalized the sale of recreational-use marijuana for adults. By the time the elections are over, up to 28 states may have legalized medical marijuana, and the number of recreation-legal states could more than double to nine -- at least based on the certain-to-vote states.
It's not difficult to understand why certain states are eager to pass laws legalizing cannabis. In addition to potential medical benefits, the sale of medical and/or recreational cannabis is a new source of tax and licensing revenue for marijuana-legal states. In Colorado, for example, $135 million was raised in legal marijuana tax and licensing revenue in 2015, with sales hitting $996 million. Sales in 2016 are expected to easily top $1 billion in Colorado, probably leading to a surge in tax and licensing revenue collected by the state.
Furthermore, the U.S. Drug Enforcement Agency (DEA) is currently conducting an eight-point review of marijuana that could lead to its rescheduling. Marijuana's schedule 1 status relegates the cannabis industry to two inherent disadvantages -- the inability of legal marijuana businesses to take normal business deductions on their income taxes since they're selling an illicit substance, and minimal-to-no access to basic banking services, such as checking accounts or lines of credit. A move to schedule II could open new doors for the cannabis industry.
However, an under-the-radar game-changer for the industry could be which candidate -- Hillary Clinton from the Democratic Party, or Donald Trump from the Republican Party -- heads into the Oval Office.
Hillary Clinton on marijuana
Hillary Clinton has more or less followed the same wait-and-see approach/slow progression as current President Barack Obama when it comes to regulating marijuana. On her campaign website, she's laid out a clear three-step game plan to tackle marijuana if she makes it to the Oval Office.
First, Clinton wants to refocus the efforts of law enforcement on violent crimes. Clinton notes that far too many current arrests are because of marijuana, and she believes that changing regulations surrounding marijuana could save money and make America safer.
Secondly, Clinton advocates "allowing states that have enacted marijuana laws to act as laboratories of democracy." In other words, Clinton wants to keep the current administration's hands-off approach intact, essentially allowing states that have legalized marijuana to govern themselves. As long as states demonstrate that they can keep marijuana from winding up in the hands of minors, and they can keep crime rates under control, Clinton believes in allowing the state-level cannabis experiment to continue.
Lastly, and most important for marijuana businesses, Clinton wants to reschedule cannabis from schedule I to schedule II. Her primary reason is to ease the medical restrictions of researching cannabis.
Donald Trump on marijuana
On the other hand, Donald Trump hasn't laid out a concrete path to regulating cannabis, but he has been gung-ho on legalizing medical marijuana since the beginning of his campaign. When pressed for his opinion on medical marijuana by Fox News, Trump said he was "a hundred percent" in favor of seeing it approved.
Recreational marijuana is another story entirely. Donald Trump has wavered on his support for the drug in multiple interviews, but hasn't ruled out the idea that recreational marijuana could be legalized at the federal level at some point in the future. In his same interview with Fox News, Trump noted both positives and negatives from recreational marijuana in Colorado that would require additional research. For now it would appear the most logical assumption to make is that Trump would allow individual states to continue regulating their own recreational cannabis industries.
The surprising candidate the cannabis industry prefers
The real surprise comes when you ask cannabis business professionals which candidate they'd prefer to see in office.
Earlier this week, Marijuana Business Daily released the findings of a poll involving 724 cannabis professionals from across the country on which presidential candidate they preferred. Though Trump has seemingly been more gung-ho about legalizing medical cannabis than Hillary, and he's also been far more open to the eventual idea of recreational legalization than Clinton, it's Hillary Clinton that's the landslide top choice among cannabis professionals and executives.
According to Marijuana Business Daily, 43% of cannabis professionals favor Clinton compared to just 26% for "The Donald." Another 16% prefer Libertarian Party candidate Gary Johnson, while 10% remain undecided. The results were somewhat similar for cannabis industry investors, where 46% favored Clinton and 38% want to see Trump in office.
MBD suggests that the long-standing history of the Democratic Party being more progressive on marijuana legislation probably plays a part in the polling results. However, it's also possible that Clinton's well laid out plan could also be swaying cannabis professionals. Until Trump puts out a tangible marijuana plan and sticks to it, it could be difficult to gain the support of marijuana execs and professionals.
Regardless of who wins, the cannabis industry could face a major hurdle
Although the next president of the United States could be a strong influencer of marijuana policy, change won't come easy for the industry.
An under-the-radar problem for the cannabis industry is that a rescheduling of marijuana from schedule I to schedule II could open Pandora's Box. Though it would signify that marijuana has medically beneficial qualities, and it would open the door for medical research of the drug, it could also make life for marijuana businesses quite complicated.
If marijuana is rescheduled, it would allow for tight regulation from the Food and Drug Administration. The FDA would have a say on cannabis industry packaging and marketing, and it would likely regulate the manufacturing process of marijuana grow farms to ensure that THC content remains consistent. But, most damaging of all, the FDA could require that marijuana companies run clinical trials to confirm the touted medical benefits of the drug. All of these additional regulations could prove very costly to the industry, and they could put smaller cannabis shops out of business.
This cannabis conundrum makes investing in the marijuana space a risky bet. Until the outlook for the marijuana industry becomes more certain, my suggestion remains the same as it's always been: avoid putting your money into marijuana stocks, at least for now.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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