In case you haven't noticed, election season is upon us. We're a little more than a week away from Super Tuesday, which is when the greatest number of states hold their primary elections or caucuses for president of the United States. In other words, things are about to shake out on the political front, and a few front-runners are emerging.
Among the highly contentious Democratic ticket, Sen. Bernie Sanders (I-Vt.) has emerged as the current front-runner after strong showings in Iowa and New Hampshire. This means Sanders' policies are being pushed to the forefront for examination and debate.
Among the many issues the presidential candidates will be tasked with tackling in 2020 is marijuana. Although it remains an illicit drug at the federal level, it's been medically legalized by 33 states, with 11 of those states also allowing for adult-use consumption. It's also a substance that two-thirds of Americans would like to see legalized, according to Gallup.
If president, Bernie Sanders has pledged to end this bifurcation by legalizing marijuana. How would he do that and what challenges might he face? Let's take a closer look at the ins and outs of Sanders' marijuana legalization plan.
Sanders has a four-pronged approach to legalize cannabis
Unveiled this past October, Sanders laid out a plan to quickly legalize marijuana at the federal level. His plan has four key components.
First, Sanders would utilize his power as president to legalize cannabis via executive order. This would appear to be a popular path to take, given that 66% of Americans favor legalization, and more than 90% support the idea of physicians being able to prescribe medical cannabis to a patient, according to an April 2018 poll from the independent Quinnipiac University.
Second, Sanders has touted that social injustices regarding cannabis convictions would be righted. This would be done by reviewing all current marijuana convictions at the federal and state level for expungement or resentencing, as well as expunging all previous convictions. Sanders' plan notes that "federal funding will be provided to states and cities to partner with organizations that can help develop and operate the expungement determination process."
Third, Sanders wants to take $50 billion in tax revenue generated from the sale of legal marijuana and reinvest it into the communities hit hardest by the War on Drugs. When broken down, $20 billion would be used to "provide grants to entrepreneurs of color who continue to face discrimination in access to capital." Three additional $10 billion sums would be apportioned to funds or grants that aid businesses or communities disproportionately impacted by the War on Drugs.
Fourth and finally, Sanders laid out plans to keep Big Tobacco out of the pot industry. He plans to give cannabis businesses incentive to be structured like nonprofits, with tobacco companies and businesses that are accused of creating cancer-causing products being banned from participating.
The biggest challenge Sanders' legalization plan will face
Now that you have a better understanding of how Bernie Sanders would legalize marijuana, the question has to be asked: Would it work?
I think it's pretty safe to say that Sanders' executive order would face opposition in the Senate. As you may already know, Democrats and independents have a much more positive viewpoint on legalizing weed than Republicans. Right now, the Senate is controlled by the GOP, which is a big reason cannabis reforms fail to reach the Senate floor for vote. The November 2020 elections could certainly swing the pendulum in favor of Democrats or Independents in the Senate, but this isn't guaranteed. If Republicans maintain their majority in the Upper House, they may use whatever legal means necessary to challenge this executive order.
However, this isn't the biggest threat to Sanders' plan to legalize marijuana in the United States. The real issue is the idea that an efficient marketplace can be developed with a federal tax added on top.
To right the wrongs of the War on Drugs, Sanders wants to put $50 billion to work in communities around the country. But in order to divvy out this $50 billion, tax revenue needs to be collected on legal weed. The problem is that legal marijuana is already being taxed to the hilt in some states, and it's adversely impacting the amount of legal-channel product that consumers are buying.
In California, the largest marijuana market in the world by annual sales, recreational consumers are already contending with a high state and local sales tax, a 15% excise tax on cannabis, and a wholesale tax. When adult-use sales began in 2018, total weed sales statewide actually fell by $500 million to $2.5 billion from 2017, when only medical marijuana was legal. California's exorbitant tax rate on pot led consumers to buy from illicit sources.
Now, imagine if a federal tax is also applied to legal marijuana transactions. It would create an even larger price gap between legal and black market product. In other words, it would make it extremely difficult for legally operating cannabis businesses to succeed.
The corporate response would be mixed
As for the corporate response to Bernie's marijuana legalization proposal, it would likely be mixed.
On one hand, U.S. pot stocks and most Canadian cannabis companies would probably stand behind Sanders' proposal. Right now, vertically integrated multistate operators like Curaleaf Holdings (OTC:CURLF) are required to set up redundant operations in every state they service. That's because federal law disallows the interstate transport of pot products. Curaleaf, which will soon have a presence in 19 states once its acquisition of Grassroots closes, is being forced to set up cultivation and processing sites in every state where it also sells marijuana to control the seed-to-sale process. If marijuana were no longer a scheduled substance, Curaleaf would be free to transport cannabis across state lines, thereby making its business considerably more cost-efficient.
Canadian marijuana giant Canopy Growth (NASDAQ:CGC) would probably also be pleased. Canopy has pledged to stay out of the U.S. weed industry until it's been legalized at the federal level. However, this hasn't stopped the company from developing a hemp-processing facility in New York State. A legalization of marijuana in the U.S. would trigger Canopy's contingent-rights acquisition of multistate operator Acreage Holdings and immediately give the company a presence in 20 states. Of course, it should be noted that Sanders' plan calls for market share and franchise caps, so it's unclear if North American giants like Canopy Growth would be affected.
Comparatively, Cronos Group (NASDAQ:CRON) and Altria Group (NYSE:MO) wouldn't be happy with Sanders' legalization plan. That's because tobacco giant Altria invested $1.8 billion into Cronos last March with the intent of aiding Cronos will the rollout of new product, as well as expanding its future revenue streams beyond tobacco in the United States. If marijuana were legalized in the U.S. under Sanders' plan, Altria would not be able to participate, which would cost Cronos Group its much-needed partner.
There's, obviously, still a long way to go before we reach the election season finish line in November. But with Bernie Sanders jumping to the forefront on the Democratic ticket, it pays to know how his policies could impact one of the fastest-growing industries in the world.