Pardon the pun, but the marijuana industry has been growing like a weed for years -- and it has rapidly changing perceptions about the drug among the public to thank for it.
According to a CBS News poll conducted in July 1979, just 27% of those surveyed believed marijuana should be legal. Comparatively, 69% thought it shouldn't be legal. Fast-forward to April 2017, and CBS News' latest survey finds that an all-time record of 61% believe pot should be legal nationally, while just 33% now oppose the idea. This growing acceptance and favorability of marijuana has some pro-legalization enthusiasts and investors thinking that lawmakers on Capitol Hill may be coerced to change the drug's scheduling sooner rather than later.
The result of this shift in opinion on pot has dramatically boosted sales of the drug in the United States. A Marijuana Business Daily report released this year estimates that legal-cannabis sales could grow by around 30% in 2018, and by an aggregate of 300% between 2016 and 2021 to approximately $17 billion. It's this shifting opinion and rapid growth rate that have marijuana stock investors so excited about the industry's prospects.
Marijuana's huge speed bump in the road
But there's one catch, and it's a pretty big one: Marijuana is still illegal at the federal level. As a Schedule I substance, it has no recognized medical benefits and is considered to be on par with heroin and LSD.
During the Obama administration, the Cole memo, named for President Obama's deputy attorney general, James Cole, acted as a guide for how the federal government and legalizing states would coexist. According to the memo, states would be allowed to legalize and expand cannabis programs as long as they held to strict regulations, including ensuring that no minors got their hands on cannabis, and that states set strict regulations for driving under the influence. It also meant states had to take extra precautions to ensure that marijuana wasn't trafficked interstate.
During the Obama presidency, federal regulators were generally hands-off when it came to the practices of individual states. Under the Trump administration, that may soon change.
In February, now-former White House press secretary Sean Spicer suggested that the Trump administration would take a more hands-on approach to regulating pot relative to the previous administration, though he failed to elaborate exactly what that might entail.
Attorney General Jeff Sessions, on the other hand, leaves nothing to hide when it comes to his feelings about marijuana.
Attorney General Jeff Sessions strikes fear in the marijuana industry
For example, in May, Sessions sent a letter to congressional leaders asking them to repeal the Rohrabacher-Farr Amendment, which protects marijuana businesses in legal states from federal prosecution. In other words, Sessions has been looking for the OK from his peers from the get-go to go after medical-marijuana businesses. This action would build on previous comments he's made suggesting crime follows drug use, and that cannabis is anything but medicine.
Sessions recently doubled down on his anti-marijuana view by candidly responding to a reporter's question during a press conference in San Diego following a record-breaking narcotics seizure. According to Reuters, Sessions reminded everyone in the room that the federal law banning the sale of marijuana "remains in effect," and that "I've never felt that we should legalize marijuana." These 11 words are everything you need to know about the head of the Justice Department in regard to how he feels about weed.
The silver lining for pot businesses and marijuana stocks to this point has been the adherence to the Cole memo, as well as the Rohrabacher-Farr Amendment, which hasn't allowed federal funding to be used to prosecute cannabis companies. But the tide may be shifting, which could give Sessions the ammo he needs to shut down legal-weed operations.
For instance, the House Rules Committee last month blocked a vote on the Rohrabacher-Blumenauer Amendment, which would provide the exact same exemptions for pot businesses in legal states as in previous years. This is an amendment that has to be voted on and added to the budget each and every year. The blockage of this vote by the House may keep the amendment out of the 2018 budget, paving the way for Sessions to wreak havoc by using federal dollars to prosecute medical-cannabis businesses.
Marijuana isn't a priority for Congress
Even if marijuana stocks and pro-legalization enthusiasts manage to catch a break by having the Rohrabacher-Blumenauer Amendment included thanks to its passage in the Senate, there's still not a whole lot to cheer about. When push comes to shove, marijuana remains a very low priority for lawmakers in Washington, despite the shifting sentiment among the public.
Over the past couple of months, lawmakers have been devoting nearly their entire dockets to healthcare reform and tax reform. On top of these potentially major legislative changes, there's the federal budget, the debt-ceiling debate, and Trump's desire for an infrastructure bill. There's next to no incentive, or time, for lawmakers in Washington to focus on legalizing cannabis.
Even if there were time, this Congress seems highly unlikely to pass any favorable weed laws. Aside from Jeff Sessions' being dead set against seeing marijuana expand any further, Republicans remain in control of both houses of Congress. According to a Gallup October 2016 poll, Republicans are just one of two groups still opposed to the expansion of weed, along with senior citizens.
With the deck still stacked against marijuana stocks, and expected to remain that way for years to come, investors should do their best to temper their expectations.