The marijuana industry enters 2017 with high hopes. Last year was arguably the best year ever for cannabis, and pro-legalization enthusiasts are counting on that trend to continue.
Entering 2016, 23 states had legalized medical cannabis while residents in another four states had legalized the sale of recreational pot. By year's end, five new states have legalized medical cannabis, two of which did so entirely through the legislative process (Ohio and Pennsylvania). What's more, the number of recreation-legal weed states doubled to eight, with Nevada, Maine, Massachusetts, and the crown jewel, California, all voting in favor of their respective state's pot initiative.
The expansion of marijuana at the state level is being fueled by two catalysts. First, public opinion toward marijuana has drastically shifted since California became the first state to legalize medical cannabis back in 1996. At the time, roughly a quarter of the public wanted to see pot legalized nationally, according to Gallup. As of 2016, 60% of respondents wanted to see marijuana legalized nationally, an all-time high.
The second factor pushing the state-level expansion of weed is the "green" behind the green. Cannabis research firm ArcView believes the legal cannabis industry can grow by roughly 30% per year through the end of the decade, while investment firm Cowen & Co. pegs the legal marijuana market as being worth $50 billion by 2026. This would represent a compound annual growth rate of more than 23%. Industry participants want their hands on that growing slice of pie and so do state-level government officials who see marijuana taxes as a way of adding a new revenue source to their respective state.
Keeping kids away from pot remains paramount
But with marijuana's expansion comes one key danger -- a danger, mind you, that has long kept the federal government from considering the legalization of cannabis at the federal level. This danger is the belief that legalization will allow pot to more easily fall into the hands of adolescents.
There are certainly no shortage of studies suggesting that marijuana use in adolescents is bad news. For example, a 2015 study from Northwestern University found that adolescent cannabis use can have an adverse impact on users' long-term memory. Researchers examined the hippocampus (the area of the brain responsible for long-term memory retention) via MRI in subjects who had used marijuana for a period of three years and those who'd never used marijuana. What they found was a long-term memory test score that was 18% lower for the marijuana users, as well as an oddly shaped hippocampus.
In 2014, an abstract published in the Proceedings of the National Academy of Sciences also appeared to demonstrate the adverse effects of pot use on adolescent brains. When comparing the MRIs of 48 users (some of which were adolescents) against 62 nonusers, researchers observed less gray matter in the orbitofrontal cortex, a region responsible for decision-making and motivation, for pot users compared to nonusers. What's more, marijuana users had lower average IQ scores.
This new study is worrisome
However, a new study from the UC Davis Violence Prevention Research Program is especially worrisome.
The study found that Washington state teens (Washington legalized recreational weed in 2012) saw an uptick in pot use following the 2012 vote, and a significantly higher-than-average drop in the "perception of harmfulness," which is a measure of how teens view the dangers of marijuana use. Teens in states where pot is illegal have seen their perception of harm from marijuana drop by about 5% to 7%. By comparison, eighth-graders and 10th-graders in Washington state saw their perception of harmfulness fall by 14% and 16%, respectively. More so, cannabis use increased by 2% for eighth-graders and 4% for 10th-graders in Washington compared to a 1% decline in non-legal states.
Researchers also examined Colorado, which legalized recreational pot at the same time as Washington in 2012. Despite no significant change in teen perceptions or use, researchers have hypothesized that Colorado was more lenient regarding weed prior to its recreational legalization, therefore teens were far more inclined to use cannabis before it was legalized. This would explain the relatively unchanged use habits among teens since 2012.
What's also notable about this study is that its lead researcher was Magdalena Cerda. Cerda, along with assistance from Duke University, put out a study last March that found marijuana to be, in many ways, more dangerous than alcohol. After following a group of children born in Dunedin, New Zealand in 1972-1973 through age 38, researchers discovered that persistent marijuana use has negative social and economic repercussions. The report notes that even after accounting for a number of common factors, regular pot users were more antisocial at work, experienced more relationship problems, and had troubles controlling their debt and cash flow, relative to people who don't use marijuana.
Long story short, there's a clear-cut concern that state-level legalizations are going to make it easier for teens to access marijuana, and that could work against the pro-legalization movement.
Colorado is setting an example
Even though Cerda and her research partners suggest that Colorado's stance toward pot may have been more lax than Washington state from the start, Colorado does have one thing working in its favor: a model policy on marijuana edibles.
Beginning on Oct. 1, 2016, Colorado instituted tougher edible standards that now require the industry to label all edible products with a diamond-shaped stamp bearing the letters T-H-C, which is symbolic of tetrahydrocannabinol, the psychoactive ingredient found in marijuana. This should make it easy to identify edibles with marijuana versus non-pot products. Additionally, beginning this year Colorado will ban edibles in the shape of a fruit, animal, or human. Colroado's marijuana edibles approach could be exactly what California and other states need to calm fears that legalizing pot will increase teen use.
California, the state at the heart of Cerda's concern, will be setting aside $10 million annually for drug abuse education programs as outlined by Prop 64, but this $10 million doesn't begin until pot shops open their doors in 2018. Between now and then, there remains the concern that marijuana could be easier for California teens to access.
Also, according to the Los Angeles Times, Assemblyman Rob Bonta (D-Alameda) has introduced a bill that would ban marijuana billboard advertising on all state highways. Right now, it's only banned on interstate highways. Reducing pot impressions could allay fears that the ads would attract adolescents.
Clearly, the marijuana industry is a work in progress. Even with its rapid growth prospects, there are still a mountain of finer details that need to be hashed out before the industry is on solid footing. It's these "finer details" and the need to smooth out some of the bumps in marijuana's path to prosperity that should give potential investors reason to pause.
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. The Motley Fool has a disclosure policy.