Few industries have been able to put up growth numbers like the legal marijuana industry over the past couple of years. Though estimates vary, most analysts estimate the legal weed industry can grow by 25% to 35% annually between 2016 and 2021. GreenWave Advisors is calling for perhaps the highest growth rate, with $30 billion in U.S. sales and all 50 states legal to some degree (medical or recreational) by 2021.
The prospects of this consistent growth are what's fueled a ferocious rally in marijuana stocks over the past year. A number of cannabis producers and retailers have seen their share prices surge by 100% or more. It also hasn't hurt that more than half of all U.S. states have legalized to some degree, Mexico legalized medical cannabis in June, and Canada is considering legalizing recreational pot by next summer.
Two big reasons Congress hasn't changed its stance on weed
However, in spite of these clear positives for marijuana proponents and investors, the industry faces an almost insurmountable hurdle: the federal government. At the federal level, cannabis still holds a Schedule I designation, meaning it's on par with heroin and LSD, is entirely illegal, and has no perceived medical benefits.
Lawmakers' worries can essentially be boiled down to two primary concerns. First, they often claim that there isn't enough reliable clinical data on the benefits and risks of medical cannabis to consider altering its scheduling. Though you'll note that there are seemingly hundreds of university-sponsored research studies involving cannabis, there are very few Food and Drug Administration-approved studies involving cannabis and cannabinoids. It's the latter that Congress will want before deciding pot's fate on Capitol Hill. Perhaps the greatest irony here is that lawmakers want more clinical data, but the current scheduling of marijuana makes it extremely difficult to get the OK for researchers to run clinical studies.
The second issue many lawmakers have with the legal weed thesis is that it'll make it easier for adolescents to get their hands on pot. Some university studies have shown that adolescent minds can be adversely impacted by marijuana use while their brains are still developing, which makes lawmakers fear home-grow options that often accompany legalization efforts, as well as access to medical cannabis in a household, could ease access for teens.
But there may be good news on this latter objection.
Teen marijuana use rates hit a 15-year low
Recently, the Substance Abuse and Mental Health Services Administration (SAMHSA) released findings from its 2016 survey on drug use and health. The results showed that just 6.5% of teens aged 12 to 17 had used marijuana over the past month, which was down 0.5% from 2015, 1.7% from 2002, and is the lowest reading over the past 15 years. Mind you, eight states have voted to legalize adult-use weed since 2012, yet teen use rates have fallen by more than 1% between 2011 and 2016.
And this isn't the only data point that suggests teens aren't being lured by marijuana. Pro-legalization reform group Marijuana Policy Project (MPP) pointed out following the release of the SAMHSA report that teen pot use rates in both Colorado and Washington haven't materially changed since they began to sell adult-use weed in 2014.
Why the drop despite purportedly easier access to weed? MPP suggests that a tightly regulated industry, coupled with the clear notion that there's a line-in-the-sand legal age requirement for marijuana, has sunk in with adolescents. "Regulating marijuana for adults reinforces that message and creates effective mechanisms for making it more difficult for teens to obtain marijuana," said Morgan Fox, senior communications manager for Marijuana Policy Project.
Moving forward will be next to impossible under the Trump administration
For those who want to see medical cannabis, or even recreational weed, legalized across the United States, the data from the national SAMHSA report is great news. It wouldn't be surprising if the Canadian parliament looked to this data as well, as it's in the process of debating the legalization of adult-use weed throughout Canada in 2018. One of the biggest objections in Canada has been the home-grow option and the likelihood of adolescent getting their hands on marijuana.
Nevertheless, the excitement from this report can only extend so far. When all is said and done, it remains highly unlikely that marijuana has a path to rescheduling under the Trump administration. For starters, Congress is far too busy with healthcare and tax reform at present to consider marijuana legislation. Even if these two issues get tackled, President Trump will likely want to move onto passing an infrastructure bill next. There's next to no room on the docket for cannabis on Capitol Hill.
But this is far from the only issue. Attorney General Jeff Sessions will seemingly stop at nothing to ensure that marijuana's expansion is slowed or stopped completely. Sessions hasn't minced words in his views of marijuana, and in May, the attorney general sent a letter to congressional leaders asking them to repeal an amendment that protects medical cannabis businesses from federal prosecution. Sessions seems unwilling to let off the gas in his pursuit to prosecute pot businesses.
The Drug Enforcement Agency (DEA) is unlikely to be of help, either. It had an opportunity to review two petitions to reschedule marijuana last summer and chose to stand pat on its scheduling. The DEA determined that there wasn't enough clinical benefit-versus-risk data available to alter its scheduling, and noted concerns about abuse and oversight if its scheduling were to be changed. It can take a long time for petitions to work their way up to the DEA, so don't look for any chance of rescheduling anytime soon.
Despite industrywide momentum, the ceiling on the industry and marijuana stocks remains very much in place.
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