For as crazy as 2020 has been, it was another banner year for the cannabis industry and U.S. marijuana stocks. That's because the November election yielded a green sweep. As of today, 36 states have waved the green flag on medical cannabis, with 15 also allowing for the adult-use consumption and/or retail sale of marijuana.
However, this story isn't finished. With national pollster Gallup finding that favorability toward U.S. legalization hit a new all-time high in 2020 of 68%, it's only logical to expect new states to push for medical or adult-use legalization in the upcoming year. Although 2021 isn't a big year for elections, the following three states are, in my view, the most likely to go green.
This might finally be the year that New York, a potential multi-billion dollar market for cannabis, legalizes recreational marijuana.
Back in 2019, lawmakers in the Empire State came very close to rolling out the red carpet for adult-use weed. Discussions regarding recreational legalization hit a snag when some members of New York's Legislature disagreed on certain social equity factors, such as the expungement of previous convictions for possessing marijuana. This disagreement ultimately caused talks to stall out.
In 2020, New York was again pegged as having a very good chance to legalize adult-use weed at the legislative level. Unfortunately, it was again derailed, albeit this time by the coronavirus disease 2019 (COVID-19). New York was hit especially hard during the first wave of COVID-19 in spring, which made dealmaking difficult, if not impossible. With little time to discuss logistics, New York Gov. Andrew Cuomo (D) punted the issue down the road.
In 2021, Cuomo and the New York Legislature are almost certain to push hard for recreational legalization. The neighboring state of New Jersey just voted to legalize adult-use cannabis, so the pressure is on to keep New Yorkers from driving into the Garden State to get their green.
Furthermore, New York has been financially battered by the coronavirus. Legalizing adult-use pot and assigning an excise tax to retail sales (above and beyond state and local taxes) would allow the state to generate extra revenue.
Suffice it to say, New York has a very good chance to green-light recreational weed in 2021.
Sticking with the theme of legalization in the Northeast, look for Connecticut to give the thumbs-up to adult-use marijuana sometime in 2021.
Probably the biggest factor working in the Constitution State's favor is the political makeup of its legislature. Since 2011, Connecticut's governorship and both houses of its legislature have been majority-controlled by Democrats. In November, when Gallup released its national poll, it found that support for adult-use legalization among Democrats was an astounding 83%! That compares to just 48% for self-identified Republicans.
Following the November elections, Democrats' control in Connecticut widened. Prior to the election, Democrats controlled 91 of 151 House seats and 22 of 36 Senate seats. In 2021, they'll have 98 House seats and 24 Senate seats. This roughly 2-to-1 margin gives Connecticut Democrats more than enough firepower to enact change at the legislative level.
What's more, Connecticut's neighbors, New Jersey and Massachusetts, have already legalized recreational marijuana. Similar to New York (also a Connecticut neighbor), Connecticut's lawmakers will want to act sooner than later to keep revenue from leaving the state.
It's my belief that whichever state, New York or Connecticut, acts first to legalize recreational pot will put immense pressure on its neighbor to follow suit shortly thereafter.
Though it might sound like an off-the-wall possibility, Virginia looks to have a real shot to become the first Southern state to give adult-use weed the green light in 2021.
In April, Gov. Ralph Northam (D) signed legislation that decriminalized cannabis and legalized medical marijuana. But for Northam, this was just a stepping stone to full-fledged legalization. Virginia's governor has publicly stated his desire to legalize recreational pot, and even released a road map to do so in late November. According to the Virginia Marijuana Legalization Work Group, fully legalizing pot in the Old Dominion state could generate up to $1 billion in sales each year.
Similar to New York and Connecticut, politics could help yield results. This year has marked only the third time since 1992 that Virginia's governorship and legislature were controlled by Democrats. With both legislative houses and the governor seemingly on the same page, Virginia looks to have a real opportunity to make history in 2021.
Legalization would be especially interesting for unique small-cap pot stock Jushi Holdings (JUSHF 0.06%). Virginia is a limited license state that's apportioned dispensary licenses by territory. While it's unclear if Virginia would retain the same model if adult-use sales were approved, the existing model with medical cannabis legalized should give Jushi a head start on effectively building up its brand in a potential billion-dollar market, all while facing minimal competition.
Ongoing legalizations and organic growth opportunities are what could catapult small-cap pot stocks like Jushi into mid-cap or large cap territory over time.