In many ways, the cannabis industry has been practically unstoppable in recent years. This past June, Mexico legalized medicinal marijuana, and in just a few weeks, Canada stands ready to legalize bill C-45, which is better known as the Cannabis Act. In doing so, Canada is set to become the first developed country in the world to legalize recreational cannabis.
Even the United States has demonstrated incredible advancement at the state level spanning more than two decades. Back in 1995, not a single state had approved using cannabis in any capacity, and Gallup's survey that year found that only 25% of respondents favored the idea of legalizing the drug nationally. By comparison, 29 states have legalized cannabis in some capacity as of today, including nine that have recreational weed laws on their books. Also, nearly 2 out of 3 people in Gallup's October 2017 survey favored legalizing pot.
Lawmakers dig in their heels
But considering how many things have changed in the U.S. since 1995, one important detail has remained the same: marijuana's Schedule I classification at the federal level. As a Schedule I drug, cannabis remains entirely illegal, is considered to be highly prone to abuse, and has no recognized medical benefits.
In addition to being illegal, this federal scheduling is a major headache for U.S.-based pot businesses operating within the confines of state law. For instance, profitable weed companies aren't able to take normal corporate income tax deductions as a result of Section 280E in the U.S. tax code. This leaves cannabis companies to pay effective tax rates of as much as 90%!
Just as damning is the fact that marijuana companies often are unable to access basic banking services, such as lines of credit, loans, or even checking accounts. The reason is because financial institutions report to the Federal Deposit Insurance Corporation, which is a federally created entity. Aiding pot businesses with financial services, under a strict interpretation of federal law, could lead to banks being fined and/or charged criminally for their actions.
Republicans stymie efforts to legalize cannabis
Why hasn't marijuana been rescheduled or descheduled at the federal level, you ask? Part of the reason is that lawmakers are waiting for additional clinical data on the benefits and risks of cannabis before taking a position.
Perhaps the bigger thesis here is that Republicans are in control of the legislative branch of Congress for the time being and they have a markedly less favorable view of cannabis than Democrats and Independents. With the exception of senior citizens, Republicans are the only other group to have opposed the legalization of marijuana in various surveys.
In the latest survey from the independent Quinnipiac University, 63% of respondents favored legalizing marijuana compared to 33% who opposed the idea. Among self-identified Republicans, 55% opposed legalization compared to 41% who approved. Though polling numbers for folks who identify with the GOP have been mixed, the general consensus is that Republicans would prefer to keep things as they are now. That thesis may gain even more weight after commentary this past week from one of the most powerful Republicans on Capitol Hill.
This top GOP lawmaker won't support efforts to legalize weed
This past Tuesday, May 8, Senate Majority Leader Mitch McConnell (R-KY) told reporters that he has no intention of supporting efforts to legalize marijuana, according to The Hill. What's interesting about this position is that McConnell is the primary proponent of the Hemp Farming Act of 2018.
Hemp is used in the making of rope, clothes, paper, and food, to name a few things. Ultimately, this proposal aims to legalize industrial hemp as an agricultural commodity, which would expand the domestic hemp industry and give hemp researchers the opportunity to apply for competitive grants from the U.S. Department of Agriculture.
As McConnell noted on Tuesday, "I do not have any plans to endorse the legalization of marijuana." He went on to proclaim that "It [hemp] is a different plant. It has an illicit cousin which I choose not to embrace." For those unaware, dry hemp often contains very small amounts of tetrahydrocannabinol (THC), the psychoactive component of the cannabis plant that gets you "high." Meanwhile, the cannabis plant can contain up to 30% THC -- a level that's up to 100 times higher than that of dry hemp.
Since McConnell tends to play a critical role in shaping Senate policy, at least for as long as he remains Senate Majority Leader, it would appear that any efforts to reform cannabis are dead on arrival. What's more, the above-noted Quinnipiac poll from April 2018 found that 82% of respondents still could vote for a political candidate even if that candidate shared an opposing view on cannabis.
In other words, this survey pretty decisively shows that marijuana isn't a big enough political game changer to cause politicians to lose their seats in Washington, even if they don't follow the will of the public. This would seem to suggest that a federal rescheduling or descheduling is highly unlikely anytime soon.
U.S. marijuana stocks are facing an uphill battle
For the time being, it would appear that state-level legalizations can continue without the interference of the federal government. What those legalizations won't do is benefit investors looking to take advantage of rapid U.S. legal cannabis sales growth.
According to analysts, the U.S. cannabis market could be the most lucrative in the world. In fact, recently published data from Marijuana Business Daily in its "Marijuana Business Factbook 2018" called for almost 50% legal sales growth in the U.S. this year. However, the Schedule I classification for marijuana ensures that U.S. pot businesses face an almost impossible uphill climb.
Until this scheduling changes, investing in U.S. pot businesses, no matter how robust the growth might appear, is far too risky.
The Motley Fool has a disclosure policy.