It has been a largely positive but wild ride for marijuana supporters, who last year saw voters double the number of states in which marijuana is legal for recreational purposes (Oregon and Alaska joining Colorado and Washington). Perhaps the one monkey wrench in an otherwise great year for supporters was the failure of Florida to reach the required votes to legalize medical marijuana. Only 58% of voters supported the necessary change to the state's Constitution, just shy of the required 60%.
The motives behind the legalization movement
The movement to legalize marijuana across the country is primarily based on two key factors.
First, marijuana sales offer a new way for states, and potentially the federal government if the drug were legalized nationwide, to gain revenue through taxation and licensing fees. Instead of passing along tax increases throughout a state to all individuals, only those who purchase marijuana would incur the extra tax. Based on what we're witnessing in current recreation-legal states Washington and Colorado, taxes on the product will generally be quite high, generating reasonable income for a relatively small dollar amount of sales.
The other selling point to marijuana legalization is in the medical aspect and what it might do for those with dealing with terminal disease or perhaps even curable diseases. Of the 23 states that to date have legalized marijuana for medical purposes, treatment for cancer pain and glaucoma is common. But biotech companies such as GW Pharmaceuticals (NASDAQ:GWPH) also plan to use cannabinoids found in the cannabis plant to treat a myriad of diseases, including type 2 diabetes and various types of epilepsy.
Of course, marijuana's transformation isn't going to happen overnight. The federal government still classifies marijuana as a schedule 1 drug, meaning it has, in the government's view, no medically beneficial qualities and thus seems unlikely to gain national approval anytime soon.
One major factor that could incite reform
However, one catalyst could spark marijuana reform: consumer sentiment.
Let's not forget that consumers ultimately elect the members of the House of Representatives and Senate, and if the public is largely in favor of something, it behooves Congress to listen -- especially if lawmakers would like to keep their jobs beyond their current term.
This is why a survey released earlier this month is so relevant. According to the General Social Survey, or GSS, a well-respected research agency that polls Americans in person every two years on various issues, for the first time ever more Americans favor legalizing marijuana than support keeping it illegal.
Out of the 1,687 people polled on whether marijuana should "be made legal or not," 52% supported legalization, 42% opposed it, and the remaining 7% were undecided. The figures don't add up to 100% because of rounding.
This is an incredible turn of opinion for marijuana -- just 16% of respondents in 1990 wanted it legalized, and that support had grown only to 33% a decade ago. With the exception of the 2006 and 2012 surveys, support for legalization has grown in every successive survey since 1990.
It's not just the GSS survey that demonstrates Americans are growing more open to legal marijuana. A number of somewhat recent studies have shown support for marijuana is beginning to handily outweigh dissenting opinions.
A 2013 Gallup poll found that 58% of respondents favored legalization, up from about 25% a decade prior. A late February poll from the Pew Research Center noted that both Republican and Democrat millennials (those born between 1981 and 1996) favored marijuana's legalization by respective percentages of 63% and 77%. Additionally, a Quinnipiac University poll conducted within Colorado found 58% of respondents favored the drug's current legal status, up from the 54.8% "yes" votes the legalization amendment garnered in 2012.
What this all means
This shift in sentiment could pressure lawmakers to make changes in coming years regarding marijuana legalization. While there's no guarantee this will happen on a federal level, it likely means more states will put recreational legalization to the vote, and some of those votes could certainly favor the drug.
This shift in opinion on the drug has helped buoy marijuana stocks such as GW Pharmaceuticals, Insys Therapeutics (NASDAQ:INSY), which makes a single cannabinoid-based agent, dronabinol, for the treatment of chemotherapy-induced nausea and vomiting, and even the pink sheet marijuana stocks.
However, rising positive sentiment toward marijuana could also come with a price to investors of heightened emotional trading that has little to do with real-world fundamentals.
Because Colorado and Washington are our only real test examples, we don't have a good bead yet of how successfully the commercial marijuana market will operate. We did note some very impressive sales figures in Colorado during the first year of legalization, with combined recreational and medical marijuana sales surpassing the state General Assembly's early year expectations by 21%.But a number of regions in Colorado still prohibit the drug. Additionally, in Washington some licensed growers have expressed frustration at an oversupply of the drug that is hurting sales. The result is that these early trials and tribulations haven't resulted in any real bottom-line benefits for marijuana investors.
It also doesn't help that most marijuana stocks trade on the pink sheets. Given their listing on the "bulletin board" exchanges they're not required to report earnings results on a quarterly basis or update their financial status, leaving investors guessing as to whether a marijuana business is nothing more than a concept or an actual money-making machine.
With the exception of Insys, all other marijuana stocks are losing money -- and even Insys comes with an asterisk as its non-marijuana drug Subsys is responsible for 99% of company revenue. In other words, even with rising sentiment favoring marijuana, the drug itself remains a poor investment choice for those looking to cash in. This could obviously change if national marijuana policy is reformed, but I wouldn't suggest holding your breath.