Put plainly, the cannabis industry is budding worldwide. Cannabis research firm ArcView Group has estimated that North American legal marijuana sales could explode from $9.7 billion in 2017 (which represented 33% sales growth from 2016) to more than $47 billion by 2027. Meanwhile, Cowen Group recently raised its global legal cannabis sales forecast from $50 billion by 2026 to $75 billion by 2030.
At the heart of these lofty sales estimates is a major shift in consumer opinion toward pot. What had once been considered a taboo topic is no more. Five national polls over the trailing one-year period -- CBS News, Gallup, Fox News, Pew Research Center, and the independent Quinnipiac University -- found support ranging from 59% to 64% for nationwide legalization. Furthermore, support for medical marijuana in the aforementioned Quinnipiac University poll from August hit an overwhelming 94%.
Despite changing opinions on cannabis, the U.S. is stuck in the mud
Yet in the United States, the cannabis industry remains stuck in neutral. Despite the fact that 29 states have broad medical marijuana laws and nine states have OK'd the use of recreational weed, the federal government has entrenched its stance on cannabis being a Schedule I drug. This places weed on par with drugs like LSD and heroin, suggests it's highly prone to abuse, and means it has no recognized medical benefits.
In addition to being wholly illegal at the federal level, marijuana's Schedule I status can wreak havoc on businesses operating in the pot industry, as well as patients hoping to receive medical cannabis or cannabis-derived medicines.
For instance, marijuana companies often have little to no access to basic banking services, which constrains their ability to expand and hire. Also, the three-decade-old tax rule known as 280E disallows businesses that sell a federally illegal substance from taking normal corporate income-tax deductions. This means that profitable pot companies could pay an effective tax rate of as high as 90%! And, as noted, patients can suffer given the lengthy amount of red tape surrounding medical cannabis trials and research.
The industry is also challenged by Attorney General Jeff Sessions leading the Justice Department. Sessions is perhaps the most ardent opponent of cannabis in Washington, and he's tried on more than one occasion to upend state-level expansion. In May 2017, Sessions (unsuccessfully) requested that a few of his congressional colleagues repeal the Rohrabacher-Farr Amendment, which is responsible for protecting medical marijuana businesses from federal prosecution.
However, Sessions was successful in rescinding the Cole memo in January. The Cole memo provided a loose set of guidelines that states would follow in order to keep the federal government at bay. These guidelines included keeping grown cannabis within legal states and ensuring that adolescents didn't have access to marijuana. Its rescinding opened the door for state-level prosecutors to use their discretion in bringing charges against individuals or businesses that violate the Controlled Substances Act.
This influential congressional leader is set to introduce a decriminalization bill
But big changes could be on the way. Senate Minority Leader Chuck Schumer (D-NY) announced a little over a week ago his intention to introduce a bill to decriminalize marijuana at the federal level -- i.e., remove it from the controlled substances list.
In an interview with Vice News Tonight, Schumer had this to say:
The time has come to decriminalize marijuana. My thinking -- as well as the general population's views -- on the issue has evolved, and so I believe there's no better time than the present to get this done. It's simply the right thing to do.
If this sounds somewhat familiar, it's because former House Speaker John Boehner, who once described himself as "unalterably opposed" to the idea of decriminalizing marijuana, announced his change of heart just days before Schumer made his own announcement about proposing a decriminalization bill. Said Boehner in a statement to CNBC on why he was joining a cannabis company's board of advisors:
Like that of millions of other Americans, [my thinking on cannabis] has evolved as I've learned more about the issue. I decided to get involved because of the struggles of our country's veterans and the opioid epidemic, after learning how descheduling the drug can potentially help with both crises. Descheduling will reduce the conflict between federal policy and state programs.
However, Schumer's proposal wouldn't completely wipe out the ability of the federal government to enforce certain controls. Federal regulators would still be able to penalize instances of drug trafficking between legalized states and states that have not chosen to OK the use of legal weed. In addition, the federal government would retain authority over marijuana advertising so as to ensure that children aren't targeted. Ultimately, though, states would have the final say on whether or not cannabis is legal and how it's regulated.
Is decriminalization a real possibility?
Of course, the $64,000 question is this: Does Schumer's decriminalization bill have a chance of passage in the Senate and/or House?
Based on the current make-up of Congress, I'd suggest it wouldn't pass. In Gallup's October 2017 survey, 51% of respondents who identified as Republican favored legalization, albeit this "majority" was still within the margin of error for the poll. Though this represented the first time in history a majority of the GOP was in support of legalization, Republicans still have a decidedly more negative view of weed relative to Democrats and Independents. With numerous big-ticket issues expected to be on the table in Congress this year, including healthcare reform and an infrastructure bill, the chance of a decriminalization bill gaining majority support seems unlikely.
But things could change after the midterm elections in November. If Republicans lose their majority in the House and/or Senate, it may be possible to garner enough support to reschedule or decriminalize marijuana at the federal level.
Should the U.S. alter its stance on cannabis through decriminalization, it's probable that Canadian growers would rush in to stake their claims. For example, Aphria (NASDAQOTH: APHQF), which is expected to be a top-three grower by annual production in Canada (approximately 230,000 kilograms a year), announced its intention to sell off its passive U.S. assets in the wake of Sessions' repeal of the Cole memo. Aphria made good on this promise in February when it announced a divestiture of more than 26.7 million shares of medical cannabis company Liberty Health Sciences. If the U.S. reverses its anti-cannabis stance, Aphria would likely reenter the U.S. market, along with most of its peers.
More importantly, decriminalizing marijuana in what could arguably be described as the most lucrative weed market in the world would likely remove any concerns about a marijuana glut in Canada. With some estimates suggesting that supply in Canada could outweigh domestic demand by over 1 million kilograms of dried cannabis, the ability to export to legalized countries will be paramount to supporting the margins of Canadian growers.
Personally, I don't believe this is an issue that'll be resolved anytime soon. Chances are that we're going to need to wait until a few months after the midterm elections before we get any clarity on whether a decriminalization bill has any chance of passage in the U.S.