The momentum behind marijuana is simply undeniable.
Over the past decade, consumer opinions on whether the drug should be legalized for recreational or medical purposes has dramatically shifted to the point where a majority of Americans are now in favor of its legalization -- although support for using marijuana for medical purposes often outweighs support for legalizing it from a recreational perspective.
A 2013 Gallup poll showed that 58% of respondents were in favor of legalizing the drug, while millennials from both the Republican and Democratic parties are widely in favor of legalizing marijuana based on recent Pew Research Center poll.
The economics behind marijuana
Aside from supporters simply wanting marijuana use to be free of federal or state prosecution, the legalization of marijuana has two key purposes.
First, recreational and medical marijuana are subject to state, local, and excise taxes. If the federal government ever changed its stance on marijuana, it could probably implement marijuana taxes as well. This tax revenue, as well as license fee revenue collected by individual states, can help close budget gaps, ensuring some government employees keep their jobs, and other social programs within a state stay funded.
Also, legalizing medical marijuana could open new possibilities in terms of clinical research for pharmaceutical companies and give terminally ill and sick individuals access to marijuana for diseases and disorders where it may demonstrate a clinical benefit.
The major roadblock for the movement is the long-standing Controlled Substances Act, which lists marijuana as a schedule 1, or illicit, drug. While the federal government has allowed states to formulate their own marijuana policies, the drug is still considered illegal on the federal level, and those in possession of marijuana could be subject to federal prosecution.
However, this could all be about to change.
Historic change could be right around the corner
Earlier this week, three U.S. Senators -- Rand Paul (R-Ky.), Cory Booker (D-N.J.), and Kirsten Gillibrand (D-N.Y.) -- introduced a bill into the Senate that would put an end to the federal ban on medical marijuana.
Known as the Compassionate Access, Research Expansion and Respect States Act, or CARERS Act, it would "allow patients, doctors, and businesses in states that have already passed medical marijuana laws to participate in those programs without fear of federal prosecution." The proposed bill is also designed to ensure that veterans receive access to medical marijuana in states where medical marijuana is currently legalized.
It's important to note, however, that proposing a bill to legalize medical marijuana on the federal level doesn't mean marijuana would become available in all 50 states in the blink of an eye. This bill would need sufficient votes in the Senate, then House of Representatives, and would need the signature of President Obama in order to be enacted into law.
Furthermore, while it decriminalizes the use of marijuana for medical purposes, it doesn't require states to legalize the substance. The law merely entails the federal government stepping back and allowing states to regulate their own medical marijuana businesses on a state-by-state basis. This means governing bodies who are against its legalization wouldn't have to participate.
In other words, even if medical marijuana were legalized nationwide, there would be plenty of states (and even jurisdictions within states) where it could remain illegal.
3 major changes proposed by the CARERS Act
Humor me for a moment and just pretend that the protection of medical marijuana from federal prosecution isn't among the three biggest changes proposed by this act. In a way, this is sort of true since the federal government has taken a hands-off approach to state regulation anyway. Currently there are 23 states, plus Washington D.C., that have legalized the use of medical marijuana.
Instead, there are three other major doorways that could be opened by the passage of the CARERS Act.
First, nationwide legalization of medical marijuana would require the Controlled Substances Act to be modified. Specifically, it would entail the federal government removing marijuana as a schedule 1 drug and reclassifying it as a schedule 2 drug.
Schedule 1 drugs are considered illicit and have no medical use. A schedule 2 drug has a high potential for abuse, but is recognized as having accepted medical use in treating certain diseases and/or disorders, but with imposed restrictions. The acceptance of marijuana by the federal government as having medically beneficial qualities would be a major boost to marijuana supporters, and it could encourage physicians in states where the drug is legal for medical purposes to prescribe it more frequently.
Secondly, and perhaps most importantly, the CARERS Act could open the door for marijuana to be researched as a treatment for various diseases and disorders. The bill would allow for other licensed cannabis-growing gardens to be put in place around the country to supply marijuana for medical research -- currently there's only one marijuana garden legally sanctioned by the federal government in the United States. It would also likely remove the Public Health Survey review that's been in place for the past 16 years that all studies involving marijuana must go through prior to starting their research.
This is particularly important for biotech companies such as GW Pharmaceuticals (NASDAQ:GWPH) which have had to jump through hoops with the Food and Drug Administration to get their cannabinoid-based products approved for testing. GW Pharmaceuticals is currently looking at a number of ways of utilizing its knowledge of cannabinoids and the cannabinoid receptor system in our bodies to effect positive biological change in order to treat type 2 diabetes, schizophrenia, ulcerative colitis, glioma, and various forms of epilepsy.
Furthermore, softening the research hurdles could be the impetus that gets Big Pharma to give marijuana research a good look. Big pharma companies have struggled to replace blockbuster drugs that have lost their exclusivity, so the CARERS Act could give high cash-flow companies like Pfizer, AstraZeneca, or Eli Lilly the impetus to dabble in marijuana-based medical research.
Lastly, the proposed bill would expand access for medical marijuana businesses to loans, allowing banks to treat them as traditional businesses without the fear of prosecution from the federal government. It's still possible many banks will pass on the idea since only medical marijuana would be legalized in this bill (thus leaving the marijuana plant as a whole still illegal), but it nonetheless would offer medical marijuana businesses more choice than they have now when it comes to banking solutions.
Don't count your chickens yet
Despite public sentiment behind marijuana being in favor of its legalization, it's wise as an investor to temper your excitement. Remember, this is merely a bill proposal, and it likely has many hurdles to jump in the Senate, the House, and eventually the White House before any changes are going to be made to the federal laws governing medical marijuana.
While the passage of the CARERS Act as it stands now could open the door for partnerships with the likes of GW Pharmaceuticals, the actual research into cannabinoid-based medicines still leaves a lot to be desired. Epidiolex, GW's CBD-based drug designed to treat two rare forms of childhood-onset epilepsy has performed well in trials, but its drug Sativex failed to hit the mark in the first of three cancer pain studies in the United States.
For now, GW Pharmaceuticals remains a "show-me" story stock, even with this latest news, and is likely not worth your investment dollars just yet. That's pretty much the story with any marijuana stock, since most are slated to lose money for years to come.
This is certainly a bill you'll want to watch closely, as it could have major ramifications for the future of the medical marijuana industry, but there's little sense in getting worked up from an investment aspect just yet.