If you said a decade ago that marijuana would be one of the key issues that would decide our next president, I'd probably have chuckled. However, the reality is that marijuana is very much entrenched as a hot-button issue in the 2016 elections.
Believe it: marijuana is a hot-button issue
With the rare exception, marijuana's momentum has been positive. Since 1996, 23 states have decided to allow physicians to prescribe marijuana for medicinal purposes, while four states -- Oregon, Washington, Colorado, and Alaska -- along with Washington, D.C., have approved recreational marijuana sales for adults ages 21 and up.
Growing acceptance of marijuana has led to hope for terminally ill persons and patients with chronic diseases. There has been strong clinical evidence, for instance, that cannabinoids from the cannabis plant may be responsible for a marked reduction in seizures associated with certain types of childhood-onset epilepsy. GW Pharmaceuticals' Epidiolex, which features tetrahydrocannabivarin (THCV), reduced seizure frequency by more than 50% in patients with Dravet syndrome and Lennox-Gastaut Syndrome. Needless to say, countless studies are under way examining the possible medical benefits of marijuana.
States are thrilled for a far different reason: marijuana is generating extra cash flow. Retail marijuana sales in Colorado generated in the neighborhood of $65 million in the first year of legalization, while in Washington state retail marijuana sales yielded close to $70 million in tax revenue. These new taxes are specific only to those purchasing the product, allowing lawmakers to avoid boosting taxes on all state residents. Marijuana provides critical capital to help fund education in these states.
Of course, the road to legalization of marijuana isn't perfectly paved. As we saw earlier this month, Issue 3 in Ohio, which would have legalized marijuana for medical and recreational purposes failed by a nearly two-to-one margin. Despite this setback in Ohio, national polls suggest that support for national marijuana reform remains strong.
This presidential candidate wants to legalize marijuana
However, marijuana has never previously crept into the national presidential spotlight. In fact, the idea of discussing marijuana is still somewhat taboo among politicians. Just listening to the way presidential candidates have responded to moderators in early debates when posed questions about marijuana suggests that they're uncomfortable taking a firm position on the currently illicit drug.
A majority of the candidates would much prefer to let states regulate their own industry while keeping federal law unchanged. Most lawmakers, would prefer to wait and see what sort of long-term safety profile is established before making a call on whether or not to reform the federal stance on marijuana. The downside of the wait-and-see approach is that a safety profile of marijuana could takes many years to establish.
For one presidential candidate, the wait is over.
Last week, Democratic Party candidate and Vermont Senator Bernie Sanders removed any clouds of uncertainty regarding his opinion of marijuana by introducing the Ending Federal Marijuana Prohibition Act in the Senate. In its simplest form, the bill would remove marijuana from the list of schedule 1 drugs. Schedule 1 drugs are deemed by the federal government to be highly addictive and offer no medical benefits.
Sanders has preached reforming the justice system as it relates to marijuana offenses and believes that legalizing the drug on a federal level would take care of his concerns.
What Sanders' proposed bill would really do
To be clear, a rescheduling of marijuana would indeed remove the chance of federal prosecution, but it wouldn't necessarily mean that marijuana would be legalized nationwide. States would still be free to set their own laws deeming whether or not marijuana would be legal. Even within currently legal states, select jurisdictions continue to outlaw the substance. In Colorado, for example, around three-quarters of all jurisdictions still ban marijuana.
However, if Sanders' proposal gains traction it could have very broad implications on the health and longevity of the marijuana industry.
Access to banking services has been a primary obstacle for the past 20 years for marijuana businesses. Only a select few banks in the U.S. will currently offer basic banking services and credit lines to marijuana shops because the legal workarounds of doing so are extensive. Furthermore, providing any services to marijuana businesses is construed as risky by banks since the federal government still recognizes the plant as illegal. It could mean being charged with money laundering or having to write-off any outstanding loans/credit lines if the federal government chose to remove its current hands-off approach to marijuana.
Sanders' proposal would make it perfectly OK for banks to take part in the marijuana business. This would give marijuana businesses access to seed capital (pun fully intended) that could be used to expand and hire more workers.
At the same time, Sanders' proposal would instantly put extra cash back into the pockets of marijuana-based businesses. The way the U.S. federal tax code is currently written doesn't allow businesses that generate revenue from the sale of federally illegal substances to take normal business deductions. The result is marijuana businesses are paying a lot more in taxes than a normal business would. Sanders' bill changes that. Removing the schedule 1 label would allow marijuana businesses to take normal business deductions and allow them to keep more of their profits.
Passage seems unlikely
Despite Bernie Sanders being the first presidential candidate to publicly support the federal legalization of marijuana, the chances of his proposal becoming law seem slim -- at least for the time being.
As noted earlier, Congress has more or less adopted a wait-and-see approach to marijuana. States like Oregon, Washington, Colorado, and Alaska are viewed as pioneers that'll act as guinea pigs for the rest of the nation to follow. But just as lawmakers have to wait for a clearer picture of marijuana's safety profile in clinical studies, the success or failure of state-level expansion isn't going to be determined overnight. Even though we've witnessed numerous lawmakers calling for justice reform related to marijuana offenses, the chances of marijuana being legalized or decriminalized at the federal level still seem very slim.
For investors hoping to take advantage of the sudden boom in legal marijuana sales, Congress' wait-and-see approach continues to be a hindrance. It's possible that the acceptance of recreational marijuana in a number of states in 2016 could get calls for reform at the Congressional level moving at a quicker pace, but until there are actual winds of change at the federal level marijuana will remain an extremely risky and unadvisable investment opportunity.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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