The marijuana industry appears to be on the precipice of its most robust expansion yet in 2016.
Beginning with the legalization of medical marijuana in California in 1996, another two dozen states have since followed suit, bringing the medical legalization total to 25. These include Ohio and Pennsylvania, the most recent two to legalize medicinal marijuana, and two states that did so entirely through the legislative process (i.e., without putting it to vote on a ballot).
Beyond medical marijuana, four states, along with Washington, D.C., have legalized recreational marijuana for adults. Colorado has been the poster child for success among recreational-legal states, with legal sales (recreational + medical) of more than $1 billion on a trailing 12-month basis, and the state generating $135 million in tax and licensing fees in 2015.
This year, residents in up to a dozen states could wind up voting on a marijuana initiative or amendment to legalize the drug in their state -- which is why it could be the biggest year ever for cannabis.
One of the few things that could sour the cannabis industry's current high is poor safety data. If you recall, long-term safety data has been one of the prime obstacles that has kept marijuana from being rescheduled at the federal level by lawmakers. Unfortunately, disappointing data is precisely what the American public received last week, courtesy of a publication in the Journal of the American Heart Association.
Secondhand marijuana smoke worse than tobacco smoke?
In a new study, researchers examined the effects of secondhand marijuana smoke in relation to secondhand tobacco smoke on the arteries of rats. The arteries of rats have a response to tobacco smoke similar to that of human arteries, so they're presumably a good indicator of what might be happening to our arteries when inhaling secondhand marijuana smoke.
Based on the findings of the study, inhaled secondhand tobacco smoke impaired the blood vessels of rats for 30 minutes. Comparatively, inhaled secondhand marijuana smoke impaired the blood vessels of rats for three times longer, or 90 minutes. Researchers observed that it was not the chemicals, such as nicotine or THC, causing the blood vessel impairment, but the actual burning of the plant material leading to the adverse effect on blood vessels.
According to senior study author and professor of medicine at the University of California, San Francisco's Division of Cardiology, Matthew Springer, Ph.D.:
"While the effect is temporary for both cigarette and marijuana smoke, these temporary problems can turn into long-term problems if exposures occur often enough and may increase the chances of developing hardened and clogged arteries."
"Arteries of rats and humans are similar in how they respond to secondhand tobacco smoke, so the response of rat arteries to secondhand marijuana smoke is likely to reflect how human arties might respond... There is widespread belief that, unlike tobacco smoke, marijuana smoke is benign. We in public health have been telling the public to avoid secondhand tobacco smoke for years. But we don't tell them to avoid secondhand marijuana smoke, because until now we haven't had evidence that it can be harmful."
Bad timing for disappointing data
Making matters more complicated for the cannabis industry is that this study comes at a time when the U.S. Drug Enforcement Agency is conducting an eight-point review that could lead to the reclassification of marijuana away from a schedule 1 drug. The DEA has already received its recommendation from the Food and Drug Administration, but has been unsurprisingly tight-lipped as to what that recommendation happens to be.
Reclassification of marijuana to anything other than schedule 1 would admit that cannabis has medically beneficial properties, and it would allow physicians the ability to prescribe cannabis for certain medical ailments (i.e., epilepsy, glaucoma, and some forms of terminal cancer). Of course, for this to happen the DEA and FDA have to believe that the benefits of marijuana outweigh its risks. Studies, such as the one above, hurt the case for reclassification.
Mind you, the marijuana industry has the potential to continue its expansion without a rescheduling. ArcView Market Research estimates that $5.4 billion in legal cannabis sales occurred in 2015, which is a testament to this fact. However, rescheduling would more than likely remove the two biggest financial disadvantages facing the industry: namely no ability to take normal tax deductions, and minimal-to-no access to basic banking services, such as checking accounts and bank loans.
Success is not guaranteed
Regardless of the path marijuana takes following the DEA's upcoming decision and the November elections, success seems to be far from a guarantee for the industry and investors.
Although it's pretty evident that legal marijuana sales are growing, investors have yet to harness a safe avenue to take advantage of that growth. Most marijuana businesses are losing money, and far too many trade as penny stocks on the over-the-counter exchanges, where getting accurate financial statements can sometimes be a challenge.
Perhaps an even bigger worry for potential investors is what might happen if the marijuana industry "wins" and the DEA reschedules marijuana as a schedule 2 substance. Doing so would signify it has medical benefits, but also that it's highly addictive. More importantly, it would allow the FDA to get up close and personal with the medical marijuana industry. This could mean strictly overseeing the manufacturing process and ensuring THC content remains consistent. It would also likely mean regulating the packaging and labeling of marijuana-based products. But worst of all for the cannabis industry, it could require clinical studies be run to verify the medically beneficial qualities of marijuana for certain ailments. This is an expense that could put small marijuana shops out of business.
You could certainly say that marijuana is on the precipice of a transformative year. But whether that transformation is good or bad for cannabis and investors remains to be seen.