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Legalizing Marijuana Has Had No Ill Effects on Society, New Study Shows

By Sean Williams – Oct 22, 2016 at 9:12AM

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Despite opponents' concerns over legalizing recreational cannabis in four states, this new report suggests none of their fears have been realized.

Image source: Getty Images.

It's truly incredible what an about-face the marijuana industry has made in just 20 years. Two decades ago, marijuana was completely illegal on all levels, and only a quarter of the public wanted to see it legalized nationally. Today, half of the country has legalized medical cannabis, and the number of recreational marijuana-legal states could more than double from four to nine depending on the results of the upcoming November election.

Industry growth has also been phenomenal. Investment firm Cowen & Co. is forecasting that organic growth and state-level expansion could push the cannabis industry from $6 billion in legal sales today to $50 billion by 2026. You'd struggle to find an industry with a faster growth rate over the coming decade.

Despite this, marijuana continues to have staunch opponents. Aside from remaining illegal at the federal level, opponents of marijuana have long argued that the drug could have a number of negative consequences on society. These opponents have worried about children gaining access to pot, people driving under the influence of marijuana, and crime rates rising as a result of legalizing the substance. Many of these cries were heard following Colorado's and Washington state's recreational marijuana laws passed in Nov. 2012.

However, with a few years of data available since these laws were passed, a new report from the Drug Policy Alliance (which supports drug policy reform and opposes the war on drugs) finds that the worries of opponents have mostly been for naught.

Image source: Getty Images.

Legalizing recreational marijuana hasn't been a society-killer after all

According to the Drug Policy Alliance, legalizing recreational marijuana has not led to an increase in traffic fatalities in Colorado or Washington, with total arrests for impaired driving declining in both states since marijuana was legalized.

Since passage, the Colorado State Patrol noted a decline in DUIs of 18% from 2013 to 2014, while the Washington State Patrol tallied 8% fewer DUI arrests. Fatality rates have also remained statistically unchanged. The report does note that while tetrahydrocannabinol, more commonly known as THC, the psychoactive component of marijuana, was detected in more drivers in Washington fatalities, no evidence to date suggests a correlation between THC and traffic accident fatalities.

Perhaps more importantly, Drug Policy Alliance's report found that youth marijuana use rates remained stable after passage. For example, the Oregon Healthy Teens Survey observed that marijuana use rates over the past 30 days were 9% for eighth-graders and 19.1% for 11th-graders in 2015. Comparatively, they were higher for these same grades, 9.7% for eighth-graders, and 20.9% for 11th-graders, in 2013. Similar statistics were seen in Washington, where use among 12th-graders between 2012 and 2014 was unchanged, but use rates among 10th- and eighth-graders fell.

States that passed recreational marijuana laws also generated far more in tax revenue than expected, and saved substantially in the expense department due to fewer low-level cannabis-based court cases. According to the Drug Policy Alliance, Colorado and Washington generated $129 million and $220 million, respectively, in cannabis tax revenue in 2015, which was well ahead of regulators' projections. In the process, Washington state has witnessed a 98% reduction in low-level marijuana court filings between 2011 and 2013, Colorado's police have made 46% fewer marijuana arrests between 2012 and 2014, and marijuana arrests in our nation's capital, Washington, D.C., plunged 85% from 2014 to 2015.

Since marijuana was legalized recreationally in these states, it would appear that opponents' concerns have gone up in smoke.

Image source: Getty Images.

Before you get too excited...

However, before you get too excited and anoint the marijuana industry the greatest investment since sliced bread, keep a few things in mind.

To begin with, expansion opportunities are probably going to be constrained moving forward. Yes, there are plenty of states that have legalized medical cannabis that could eventually legalize recreational cannabis, too. But there are more than a dozen states that also lack initiatives and referendum laws that also have highly contested or Republican-leaning legislatures. It's a reasonable inference that more than a dozen states may never legalize marijuana.

Additionally, the federal government seems unlikely to change its stance on marijuana anytime soon. Earlier this year, the U.S. Drug Enforcement Agency along with the Department of Health and Human Services reviewed petitions that called for the rescheduling or de-scheduling of cannabis at the federal level. The DEA opted to keep the current schedule 1 status on marijuana, essentially finding that it has no proven medical benefits and should be kept an illicit substance. Petitions can take years to gather steam and be reviewed, so it's unlikely the DEA is going to reconsider anytime soon.

Because cannabis is expected to remain illegal at the federal level, the obstacles the industry is facing should continue for the foreseeable future, too. These obstacles include a very limited number of basic banking options and steep income tax rates.

Because banks are backed by the FDIC, they fear that lending money to marijuana-based companies, or even offering these companies checking accounts, could be construed as money laundering at a future date by the federal government. This leaves most cannabis businesses to deal only in cash, which is a security concern and an expansionary headache.

Likewise, U.S. tax code 280E disallows businesses that sell federally illegal substances, such as marijuana, from taking normal tax deductions. Without the ability to write normal deductions off, cannabis-based businesses get stuck paying tax on their gross profits instead of net profits, constraining their expansion.

Though marijuana may not be bad for society after all, it's still far from a slam-dunk investment opportunity.

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.

The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy

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