Last year was truly memorable for the cannabis movement. After decades of operating in the shadows, Canada became the first industrialized country in the world to legalize recreational marijuana and only the second overall behind Uruguay.
We also witnessed history made in other aspects of the marijuana movement more than a dozen times. The U.S. Food and Drug Administration legalized its first-ever cannabis-derived drug, support for legalization hit an all-time high, and more states than ever have waved the green flag on weed from a medical and/or adult-use perspective, with 33 medical marijuana-legal states, 10 of which also allow adult consumption.
And this figure is about to change, once again.
Illinois is set to become the 11th state to legalize recreational weed
A little more than a week ago, the Illinois Legislature overwhelmingly voted in favor of House Bill 1438, which is a measure that will legalize recreational marijuana throughout the Land of Lincoln by Jan. 1, 2020. The bill allows adults aged 21 and over to purchase and possess up to 30 grams of cannabis, with nonresidents allowed to possess up to half the amount of state residents.
As with the other 10 states (and Washington, D.C.) to have given the green light to adult-use marijuana, an excise tax will be imposed on sales. According to the bill, an excise tax of 10% will be imposed on products containing less than 35% tetrahydrocannabinol (THC), the psychoactive cannabinoid that gets a user high, with a considerably higher tax of 25% on products with higher doses of THC, such as concentrates. Mind you, this doesn't include state and local/municipality taxes that are added onto retail sales in the state. Illinois Gov. J.B. Pritzker, a Democrat, expects that this tax will generate $170 million in 2020, which will partially help the state meet its numerous underfunded obligations.
In addition, HB 1438 contains a provision to help expunge marijuana offenses for persons convicted of possessing a small amount of the drug that were not associated with violence. ABC News notes that this could lead to 770,000 Illinois residents having their convictions expunged.
Although no timeline was laid out as to when Gov. Pritzker would sign the bill into law as of midweek, he has expressed support for the legislation and does intend to sign it. This means it's a mere formality that Illinois is set to become the 11th recreationally legal state.
In terms of multistate dispensaries, this is a potentially solid win for MedMen Enterprises (NASDAQOTCBB:MMNFF). MedMen, which is in the process of acquiring privately held PharmaCann for $682 million in an all-stock deal, would inherit the six medical marijuana licenses that PharmaCann was awarded in Illinois, which includes four dispensaries and two production facilities. Although it's unclear what MedMen will need to do with its medical pot licenses in order to sell recreational weed, it does place the upscale vertically integrated operator on solid ground in the Land of Lincoln.
These states may be next to legalize adult-use pot
With Illinois set for launch in a little under seven months, the big question now becomes: What states are next to say yes to recreational cannabis?
New Jersey and New York? Maybe in 2020
The two most logical choices would be New Jersey and New York, both of which have advanced legislation to legalize adult-use marijuana. Unfortunately, both states may have to wait until 2020 before they get their chance at redemption.
In March, New Jersey looked like a near-sure thing to legalize, with Democratic Gov. Phil Murphy and state lawmakers seemingly coming to an agreement on excise tax rates after protracted debates. However, talks abruptly fell apart after Republican lawmakers in the state failed to support the legislation, and in-party squabbling among Democrats over social aspects of the bill removed the majority support needed for it to pass.
It was a similar story in New York, where social issues held up inclusion of recreational cannabis legislation in the state's budget, which was due at the beginning of April. Both states are good candidates to advance legislation in 2020 that could lead to recreational legalization.
Ohio ballot initiative in 2019, pending an official review
In 2019, the best chance to legalize recreational marijuana may come from Ohio. The Buckeye State aims to put the Ohio Marijuana Legalization Initiative on the November 2019 ballot, pending review by state officials. As with other legalizations, this would allow adults aged 21 and over to purchase cannabis, with an excise tax to be attached to each sale.
The reason I'd suggest that Ohio has the best path to legalization is simply because the American public has demonstrated broader support for legalizing marijuana than lawmakers (either at the state or federal level). If a ballot initiative does make its way to the public in Ohio, I'd surmise there's a better than 50-50 shot at approval.
But I'd also caution that nothing is guaranteed, even if two out of three Americans favor legalizing pot. In 2015, Ohioans voted on Issue 3, which was the first and only all-in-one legalization measure in the country that would have approved medical and recreational weed at the same time. Despite growing support for cannabis, state residents voted 2-to-1 against the measure, primarily because it would have granted 10 grow farms a veritable oligopoly in the state. In short, the context of the bill will matter a lot when it comes to whether or not Ohioans will vote for it.
Ohio would be another feather in the cap for MedMen, which will gain exposure to the Buckeye State as well once its PharmaCann purchase has closed.
Arizona and Florida: Ballot initiatives expected in 2020
If no other states winding up legalizing recreational weed in 2019, then all eyes in 2020 will likely turn to Arizona and/or Florida -- and not for vacation purposes.
Arizona unsuccessfully voted to legalize adult-use weed back in 2016, with the measure narrowly failing by about 2 percentage points. However, favorability toward the drug has improved nationwide over the past couple of years, and the second time has been the charm in a number of states, including California and Oregon, where initial legalization efforts failed. The Arizona Marijuana Legalization Initiative, which will require close to 238,000 signatures of residents to get on the 2020 ballot, looks like it has a reasonably good chance of passing in November 2020, assuming everything goes to plan.
The Florida medical marijuana industry has been such an overwhelming success that it seems only logical to see a recreational pot measure make its way to the ballot by November 2020. This is a bit more of a longshot than Arizona, but cannabis support groups have noted their intent to focus in 2020 on legalizing adult-use weed in Florida, one of the largest projected revenue-producing states.
No matter which state follows in the footsteps of Illinois, the fact remains that marijuana is a budding industry that rightly has the attention of opportunistic investors.