Over the course of just one generation we've witnessed the acceptance of marijuana jump by leaps and bounds. Based on polls conducted by Gallup, only around a quarter of respondents shared a "favorable" view of marijuana in the mid-1990s. There wasn't a single state at the time that allowed the drug to be prescribed by physicians for medicinal use, and the sheer thought of selling marijuana in legal stores would have probably drawn laughs instead of a serious discussion.
Today, just shy of two-dozen states allow physicians to prescribe, and licensed shops to sell, medical marijuana. Furthermore, four states (Washington, Colorado, Oregon, and Alaska) along with Washington, D.C., allow adults ages 21 and up to purchase marijuana for recreational use. This shift has been made possible not only by the need of states to generate additional sources of revenue (legal marijuana sales often carry a hefty tax), but also by a majority of respondents in national surveys (Gallup, Pew Research, and General Social Survey) now sharing a favorable view of the drug.
Congress doesn't share the public's optimism
Congress, on the other hand, doesn't share the public's optimistic view of marijuana. Lawmakers on Capitol Hill have numerous concerns when it comes to the idea of legalizing or decriminalizing marijuana, and number one on that list just might be the overall safety profile of the drug.
There are potential positives to marijuana that supporters of the drug can point to. Overdosing on marijuana is practically impossible, which is not the case with opioid-based drugs, and marijuana, or cannabinoids from the cannabis plant, have produced positive benefits for patients in select clinical trials. If marijuana can show that it helps treat certain ailments, such as epilepsy, type 2 diabetes, or cancer, then it could very possibly swing the pendulum among members of Congress toward legalization or decriminalization, at least as it relates to medical marijuana.
But establishing a balanced safety profile on marijuana is still a long ways off. Up to the last couple of years it was common for more than nine out of 10 studies of the drug to be focused on its risks instead of its potential medical benefits. In order for researchers to get a clearer and unbiased long-term view of marijuana's safety for the body and mind, time is needed. Until Congress has this data it's unlikely to change its stance on marijuana.
Is marijuana responsible for growing crime rates?
The only way for Congress to get this broader picture is for it to gather as much useful data as possible. Two such data points recently emerged from Washington state and Colorado that could further help formulate the safety profile for marijuana. Unfortunately for supporters, this evidence was not positive.
Based on data from the Seattle Police Department, property crime rates within Seattle (e.g., burglary, motor vehicle theft, and larceny) have been rising at a precipitous pace since possessing an ounce or less of marijuana became legal on Dec. 6, 2012. In 2012, the number of property crimes documented by the Seattle Police Department was a little over 32,000. By 2013 the number of property crime reports rose to 36,815. Last year property crimes in Seattle jumped once more to 40,666 incidents. All told, property crimes have jumped by more than a quarter in the two years following the legalization of marijuana, with motor vehicle theft witnessing the biggest increase, up more than 50% in two years.
However, Seattle isn't alone. According to findings from the Metropolitan State University of Denver, total crimes within Denver County have seen quite the jump since voters legalized recreational marijuana in November 2012. In 2012, 56,522 total crimes were documented in Denver Country. The following year witnessed a 29% increase in total crimes to 72,644 reported incidents. Finally, last year saw another 15% increase in total crime incidents to 83,730.
Is marijuana responsible for the rising crime rates in both major cities? It's plausible for sure, but correlation does not equal causation.
There are so many variables that the aforementioned data doesn't account for that it's probably best to treat this correlation as nothing more than an interesting coincidence at the moment. Things like weather patterns, the economy, the strength of a law enforcement agency, citizens' attitude toward crime, population density and stability, crime reporting activity of citizens, and cultural factors are just some factors that could influence crime rates within a city. In fact, Denver County's crime rate was moving higher on a regular basis (with the exception of 2012) before recreational marijuana was legalized. For all we know we could merely be seeing a continuation of that pattern in Denver County without any effect from marijuana's legalization.
For the time being I don't think it would be wise to imply that marijuana is increasing crime rates in Seattle or Denver.
One takeaway to consider
However, as an investor one assumption that you can make based on the aforementioned crime statistics is that there are still far more questions than answers when it comes to the long-term outlook for the marijuana industry.
Over the short-term, the industry has seen moderate success. Expanding to new states offers the industry opportunities to establish a footprint, create jobs, and generate tax revenue for select states. It also gives chronic or terminally ill patients in these states access to a new form of therapy that may be able to alleviate their symptoms.
But as a whole the marijuana industry is not guaranteed to thrive, or even necessarily survive. Changes in the White House or Congress in the upcoming election could stymie marijuana's momentum. Further, Congress seems unwilling to waver on its stance until a clearer safety profile of marijuana is available. This profile is many years off, meaning marijuana-based businesses are still likely going to face unfavorable federal tax treatment that prevents normal business deductions, and minimal access to basic banking services and lines of credit.
There's little denying that legal marijuana's market potential is huge, but until the barriers to long-term success are removed, your smartest bet as an investor is likely going to be to remain on the sidelines.
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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