Despite being an illegal drug at the federal level, marijuana's momentum seemingly can't be corralled. Just last year alone, five new states legalized medical cannabis, bringing the total number of states to have done so to 28, while the number of recreational weed states doubled to eight from four. In fact, Arizona was the only state to have a pot proposition lose in the polls, otherwise it would have been a "green sweep" for cannabis in the November elections.
Why marijuana has been unstoppable
In many respects the momentum behind marijuana stems from the rapidly improving public opinion of the substance, as well as the growing dollar figures swirling around the legal side of the industry.
In 1995, the year before California became the first state to pass a compassionate use medical cannabis law, just 25% of respondents in Gallup's national poll wanted to see marijuana legalized across the country. In 2016, favorability toward the idea of legalizing weed hit an all-time high of 60% in Gallup's poll. An even more recent survey from the independent Quinnipiac University found that nationwide support for legalizing medical cannabis stood at a blistering 93%!
The dollar figures have been phenomenal, too. ArcView Market Research found that North American legal weed sales grew by 34% to $6.9 billion in 2016, and investment firm Cowen & Co. sees legal sales ballooning to $50 billion by 2026. This type of growth is pretty difficult to find, which is why investors have been looking for ways to get in on the action.
However, before investors consider taking the plunge, they may want to come to terms with the idea that there's still a lot to be learned about marijuana within the scientific community.
Cannabis may not be as safe as proponents suggest
According to a press release last week from the American College of Cardiology (ACC), marijuana use can increase the risk of stroke and heart attack, even after accounting for certain demographic factors, health conditions, and lifestyle risk factors, such as smoking and alcohol use.
Lead author of the study, Aditi Kalla, MD, Cardiology Fellow at the Einstein Medical Center in Philadelphia, and his team examined more than 20 million health records between 2009 and 2010 from more than 1,000 hospitals across the country. Their findings showed that 316,000 people, or 1.5%, were admitted marijuana users. Researchers found that independent marijuana use was associated with a 26% increase in the risk for stroke compared to non-users, and a 10% increase in the risk of developing heart failure. Researchers also found an association to an increased risk for coronary artery disease, sudden cardiac death, obesity, high blood pressure, smoking, and drinking.
Now, it's important to note that researchers were unable to prove that marijuana is the cause of the increase in stroke and heart attack risk. At this point their findings are merely correlative and worthy of additional research. For instance, researchers aren't able to determine the frequency of use for these 316,000 patients, the amount of use, or the delivery mechanism (smoking or ingestion). What's more, discharged patients may not be representative of the population.
Nonetheless, this study on the cardiovascular effects of marijuana raises an intriguing safety issue that may be worth exploring considering the rapid expansion of pot across the United States.
The full findings of the study are being presented today, March 18, at the ACC's 66th annual scientific session.
Marijuana's no-win situation
This study highlights what could be a no-win situation for the marijuana industry. Lawmakers on Capitol Hill have frequently requested more comprehensive safety and risk data on cannabis before they'd even consider rescheduling or decriminalizing the drug at the federal level. However, the restrictive nature of its current schedule 1 status makes it veritably impossible for researchers to run clinical studies on cannabis. This Catch-22 limits any real chance for progress at the federal level.
What's more, pot businesses face a number of inherent disadvantages at the state level, even with the ability to expand given Washington's hands-off approach to regulation during the Obama administration.
To begin with, marijuana businesses have little to no access to basic banking services. Banks would probably love the opportunity to create a new channel of revenue from credit lines and loans to the pot industry. But, financial institutions ultimately answer to the federal government, meaning nearly all of them avoid dealing with pot companies for fear of facing a financial penalty down the road. This leaves cannabis businesses to deal with cash, which is both a security concern and a growth inhibitor.
Weed businesses are also constrained by U.S. tax code 280E. In plain English, the federal government disallows businesses from taking corporate income tax deductions if they're selling a substance deemed illegal by the federal government. This means marijuana companies are paying a considerably higher tax rate than normal businesses would, placing them at quite the financial disadvantage.
This is the crux: despite the rapid growth rate of legal marijuana, marijuana stocks and the underlying business may still struggle given their lack of access to basic banking services and these aforementioned tax disadvantages.
Of course, we also can't forget about the Trump administration's vow in February to get tougher on federal pot enforcement. No one is exactly sure of how involved the federal government will be on the recreational marijuana side of the equation, but it's yet another worry for a rapidly growing industry that can't seem to catch a break on Capitol Hill.
For the time being, investors would be wise to overlook the industry's rapid legal growth prospects and remain on the sidelines until the long-term outlook for cannabis improves in Washington.