Until Congress acts, individual states are taking it upon themselves to legalize marijuana nationwide. So far, 33 U.S. states have passed pro-pot laws, including 10 states that have passed laws establishing recreational, adult-use marketplaces. And marijuana legalization doesn't appear to be losing momentum. This week, New Jersey's governor reached an agreement with top state legislators on a bill that could usher in recreational use in the Garden State soon.
A pot primer
Cannabis has been used culturally, industrially, and as medicine for thousands of years, but it's been illegal in the U.S. since Congress passed the Marijuana Tax Act in 1937. And prohibition has been strictly enforced since cannabis was classified as a schedule 1 drug following the passage of the U.S. Controlled Substances Act in 1970.
Despite its illegal status federally, states have been seeking to end prohibition since California became the first state to legalize medical marijuana in 1996. Today, nearly three dozen states allow marijuana's use medically, 10 states allow recreational use, and all but three states allow the use of cannabidiol, or CBD, a chemical that can be extracted from the cannabis plant that's associated with wellness benefits.
Americans spend an estimated $50 billion on marijuana every year, but legal sales totaled only $8.4 billion in the U.S. in 2018, according to GreenWave Advisors' Matt Karnes. As newly approved markets mature and more states OK the use of pot, legal sales are expected to grow significantly. If marijuana prohibition ends nationwide, Cowen & Company thinks the U.S. market could grow to $80 billion by 2030.
New Jersey could be the next pro-pot state
Governor Phil Murphy has been vocal about his interest in legalizing recreational marijuana use in New Jersey. Following negotiations with his state's Senate president and the Assembly speaker, a bill allowing the over-21 crowd to purchase, possess, and use pot could get a yes or no vote as soon as March 25.
If New Jersey's legislature gives the bill an OK, Murphy is expected to sign it shortly thereafter, paving the way for regulators to iron out the details on exactly how the state's market will operate. Putting in place the necessary rules and requirements could take six months or more, though, so it's possible that recreational dispensary sales won't begin until 2020.
If everything goes off without a hitch, it could be a boon for marijuana businesses and the state's tax coffers. The proposed bill includes a $42-per-ounce tax on marijuana, and it allows towns to collect a 3% tax from cannabis retailers, a 2% tax from cultivators, and a 1% tax from wholesalers. GreenWave's Karnes estimates New Jersey's medical marijuana sales were just $66 million in 2018, but legalization of recreational use could grow regulated marijuana sales to $750 million next year and to over $930 million in 2022. If he's on target, the potential growth could benefit dispensaries and greenhouse operators in the state, including Curaleaf, which has a 40% share of New Jersey's medical marijuana market already.
Peak sales in New Jersey could be much higher than that, though. Colorado, the 21st-largest state by population, was one of the first states to legalize adult-use marijuana, and its marijuana market hauled in $1.5 billion in 2018. New Jersey -- the 11th most populous state -- has a population that's 58% larger than that Colorado, suggesting $2 billion dollars or more in future annual revenue isn't out of the question.