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In Case You Missed It, Lawmakers Just Introduced 3 New Marijuana Reform Bills in Congress

By Sean Williams - Apr 9, 2017 at 9:12AM

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This could be the most comprehensive set of cannabis reforms ever presented on Capitol Hill.

In many ways the marijuana industry has been practically unstoppable this decade. By the end of 2016, more than half the country had legalized medical cannabis (28 states in total), and the number of states that legalized recreational weed had doubled from four to eight. Had residents in Arizona not narrowly voted down a recreational marijuana initiative in November, it would have been a clean sweep for the pot industry in the November elections.

Behind this rapid expansion is a considerably more favorable public opinion toward pot. In 1995, the year before California became the first state to legalize medical cannabis for compassionate use, Gallup found that only 25% of respondents to its survey wanted to see marijuana legalized nationwide. By 2016, this figure had jumped to 60%. An even more recent poll from the independent Quinnipiac University found support for legalizing medical marijuana at 93%. This compared to a meager 6% of respondents who favored that it remain illegal.

A hemp farmer pruning his plants.

Image source: Getty Images.

These rapidly changing public perceptions are what have encouraged marijuana businesses to press forward, as well as coerced some states to pass cannabis legislation that legalizes the drug. In Colorado, for example, legal weed sales totaled more than $1.3 billion in 2016, leading to nearly $200 million in tax and license fees collected by the state. This money is used to fund public schools, the police department, and drug abuse programs within the state.

The federal government clouds pot's growth

Yet, there remains a very visible ceiling to marijuana's growth prospects, and the federal government is holding that ceiling firmly in place. Neither Congress nor the U.S. Drug Enforcement Agency has chosen to move marijuana from its current Schedule 1 designation, implying that it's illegal, highly addictive, and has no medical benefits. This designation has made it veritably impossible to run clinical studies on cannabis to determine what medical benefits and risks it possesses, and it's made operating a business very difficult for pot-based companies.

To begin with, most financial institutions answer to the Federal Deposit Insurance Corporation, which is an agency created by the federal government. Since the federal government still lists marijuana as illegal, banks that offer checking accounts or lines of credit to marijuana businesses may be construed as laundering money, putting themselves at jeopardy of hefty fines and legal action.

A cannabis bud sitting atop a pile of cash.

Image source: Getty Images.

U.S. tax code 280E is also a big nuisance for pot companies. According to IRS tax code 280E, businesses that sell a federally illegal substance are disallowed from taking normal business deductions, effectively rendering weed businesses to pay tax on their gross profits as opposed to net profits. That leaves less money left over to reinvest and hire new workers.

Even more recently, White House press secretary Sean Spicer commented that the Trump administration would be tougher with the enforcement of federal regulations on the recreational marijuana industry. While it's somewhat encouraging that Trump supports the right of states to choose whether to legalize medical cannabis, this is a worrisome development for the aforementioned eight states that have passed recreational marijuana laws.

No matter what the weed industry does, it's met by federal dead-ends.

This could be the most comprehensive cannabis bill ever

However, a new and comprehensive set of bills introduced in Congress last week hopes to end a number of disadvantages facing the marijuana industry.

A judge's gavel next to paperwork discussing the difference between federal and state marijuana laws.

Image source: Getty Images.

"The Path to Marijuana Reform," which was introduced by Sen. Ron Wyden (D-Ore.) and Rep. Earl Blumenauer (D-Ore.), is a packaged plan that actually contains three bills with separate purposes.

  • Small Business Tax Equity Act: This bill would create an exception for U.S. tax code 280E and allow cannabis-based businesses to take normal business tax deductions. Paying tax on net profits would allow cannabis firms to retain more of their profits, which may allow for quicker growth and reinvestment. The Small Business Tax Equity Act has drawn bipartisan support from co-sponsors Sen. Rand Paul (R-Ky.) and Rep. Carlos Curbelo (R-Fl.).
  • Marijuana Policy Gap Act: This bill would help bridge the current bifurcations between federal marijuana laws and state laws. In particular, it would remove federal criminal penalties and civil asset forfeitures for businesses that are in compliance with their state's cannabis laws but not federal law. It would also grant access to basic banking services for pot businesses and ensure that veterans have access to state-legal medical marijuana.
  • Marijuana Revenue and Regulation Act: Finally, this measure would deschedule, tax, and regulate cannabis. This bill reintroduces the idea of taxing and regulating marijuana like alcohol, with escalating annual excise tax rates that could top out at 25% of the sales price of the product. Wholesalers, producers, and importers would be required to obtain permits from the Department of the Treasury, albeit the sale or distribution of marijuana would remain illegal in states that choose to keep it illegal under state law.

The "Path to Marijuana Reform" appears to be the most comprehensive cannabis reform presented in Congress. It would remove a number of key disadvantages the industry faces daily, and eliminate many, if not all, of the gray areas between federal law and state's rights.

Reform probably isn't in the cards

Unfortunately, the chances of a serious reform package or bill making its way through Congress seems pretty bleak at the moment.

A judge's gavel sitting next to a pile of marijuana buds.

Image source: Getty Images.

To begin with, both houses of Congress are controlled by Republicans. According to Gallup's surveys, just two groups of people still have a negative view on marijuana, and Republicans are one of them (seniors were the other, if you were curious). Republicans tend to take a wait-and-see view of pot, which makes them less likely to consider pushing marijuana reform legislation through Congress.

Another key factor is there's just too much on the plate of congressional Republicans and the Trump administration to even consider a comprehensive marijuana reform bill. Trump is planning to continue to tackle healthcare reform, as well as a comprehensive individual and corporate income tax reform. There's just not enough room on the docket for politicians in Washington to give a marijuana reform bill the proper time of day.

And, as noted earlier, the Trump administration has announced an imminent departure from the Obama administration's hands-off approach to state-level regulation when it comes to recreational marijuana. It wouldn't make much sense to back off that statement after just a bit over a month.

Despite plenty of public support, reform simply isn't in the cards for the cannabis industry for the time being. This means businesses and investors would probably be better off avoiding the industry and marijuana stocks until we have more clarity.

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