This has proven to be a monumental year for the cannabis industry. We've watched the first cannabis-derived drug be approved by the Food and Drug Administration, witnessed Vermont OK adult-use weed entirely through the legislative process, and stood in awe as Canada became the first industrialized country in the world to legalize recreational marijuana.
That's a pretty good year -- and it just got even better.
More Americans wants to see pot legal than ever before
Less than two weeks ago, national pollster Gallup released its latest annual poll on Americans' perception of marijuana and, not surprisingly, support for legalization bolted to another all-time high.
According to Gallup's findings, two-thirds of all polled American adults (66%) want to see marijuana legalized nationally. That's 2 percentage points higher than the 2017 results, 6 percentage points above the 2016 findings, and nearly double the support registered back in the mid-2000s. In other words, support for legalizing cannabis has come an incredibly long way in a very short amount of time in the States.
Beyond just American support for weed budding to a record high, two subcategories of support were notable.
First, for a second consecutive year, a majority of Republicans in Gallup's poll (53%) favored legalization. To be clear, self-identified members of the GOP shared considerably less favorability for legalization than those folks identifying as a Democrat (75%) or Independent (71%), but it was nevertheless encouraging to see support among Republicans, who currently control Congress, ticking higher.
Secondly, and perhaps most surprising, a majority of older Americans support legalization for the first time ever. Nearly three out five persons aged 55 and older were in favor of legalization in 2018, with the younger generation (aged 18 to 34) demonstrating the strongest support at 78%.
It would appear that, at least based on how the data has trended in Gallup's annual poll, marijuana has a real chance at rescheduling or descheduling in the United States.
As support grows, so does the viability of these marijuana stocks
While it's still quite the leap to assume that U.S. marijuana stocks will thrive just because polling has improved in recent years, it nonetheless raises interest in a number of uniquely positioned pot stocks.
For example, Origin House (ORHOF)(formerly CannaRoyalty), is looking to cement its position in California as one of the state's largest distributors. Whereas more than 1,000 cannabis brands are expected to compete for shelf space in hundreds of licensed dispensaries, there are only a small handful of distributors that are licensed to move pot from Point A to B. This creates a very lucrative opportunity for Origin House, which would only be magnified if the federal government changed its tune. Even so, California is the fifth-largest economy in the world, giving Origin House a big opportunity whether or not the federal government changes its mind.
Another potential standout is Liberty Health Sciences (LHSIF), which holds one of just over a dozen medical cannabis permits in Florida. Liberty Health's capacity expansion project is expected to put the company in the driver's seat in terms of peak production within the state, which is probably good news given Florida's generally older population, relative to most U.S. states. What's more, management believes consistent market share expansion should allow Liberty Health Sciences to push to between 20% and 25% market share within Florida.
Even KushCo Holdings (KSHB) could see benefits from continued support for cannabis in the U.S., even with its focus on the global market. KushCo is best known for its packaging and branding solutions for the cannabis industry. Namely, it provides tamper- and child-resistant packaging that helps growers stay compliant with local and national laws, yet still helps them stand out in a very crowded field.
KushCo's somewhat recent acquisition of Summit Innovations should also be a boon given that Summit produced hydrocarbon gases and solvents. The former is used in the production of cannabis oils, with the latter an important cog for the production of concentrates. Should these alternative consumption options thrive in the U.S., KushoCo Holdings could be sitting pretty.
Don't leap too far just yet
Then again, it's important for Americans, and especially investors, to recognize that legalization has two very large hurdles to overcome in the United States.
First, even though Gallup's survey showed Republican support for legalization, it's far from a sure thing in Congress. As long as Republicans control Capitol Hill, the chance of legalization, or even rescheduling, is slim. The upcoming midterm elections could certainly move the needle a bit if Democrats regain one or both houses of Congress, but it's still unlikely to matter much with Trump still wavering on the idea of recreational weed being legal.
The other issue here is money. As things stand now, marijuana businesses are subject to Section 280E of the U.S. tax code. In layman's terms, it means any business that sells a federally illicit substance isn't allowed to take normal corporate income tax deductions, beyond cost of goods sold. This leads to very high effective income tax rates. If cannabis were suddenly removed from the controlled substances list, pot businesses would be free to take deductions and actually cost the federal government tax revenue on an annual basis. This could very well be the toughest hurdle of all to overcome.
In short, consider Gallup's latest poll another step in the right direction toward legalization, but don't get too carried away.