We're less than three weeks away from the calendar ticking over to a new year -- a year that very well could be the most important for the marijuana industry to date.
We can certainly look back on some of the milestone events within the marijuana industry over the past two decades and argue that they've been pivotal moments in the advancement of the currently illicit drug. California becoming the first state to legalize medical marijuana in 1996, and both Washington and Colorado legalizing recreational marijuana in 2012 are two events that come to mind. However, the 2016 elections could feature in the neighborhood of a dozen ballot referendums or amendments to legalize recreational marijuana in states where the drug is currently legal for medical use.
For example, California, the most populous state in the country and the one that could arguably have the biggest impact on an eventual legalization of the drug, is expected to offer a referendum for residents to vote on the legalization of the drug for recreational purposes. President Obama has previously suggested that the best way to get the attention of federal lawmakers who believe marijuana legalization is an issue of low importance is to continue to pass recreational and/or medical laws on a state-by-state basis. If the numbers are clearly in favor of legalization, and states demonstrate that they can safely and effectively regulate the drug, Congress may be more likely to act.
You'll never guess what marijuana is being blamed for now
But the marijuana industry has a host of problems it'll need to overcome. We've analyzed the unfavorable tax situation that marijuana businesses face, and their lack of access to basic banking services, as well as the concerns researchers and lawmakers have regarding its use over the long term. Yet, it's this new round of finger-pointing at the marijuana industry that may really surprise you.
As reported last week by online publication Quartz, the marijuana industry within the United States is growing rapidly, and so are its electricity needs. Since most marijuana is grown in indoor greenhouses where climates can be intricately controlled, the Columbia Journal of Environmental Law points out that the marijuana industry is using $6 billion worth of electricity each year, or about 1% of all electricity consumed within the United States. Each square foot of a marijuana-growing facility uses around 200 watts of electricity, which, for comparative purposes, is about the same wattage-per-square foot as a typical data center. Each lamp is also about 500 times as powerful as the bulb found in an average reading lamp.
On one hand, this sounds like great news for electric utilities, assuming they have the capacity to withstand increasing energy demands. Quartz referred to an article on website High Country News that calculated that if marijuana were legalized nationwide, it could lead to an added $11 billion in electricity usage per year. In Colorado alone, Xcel Energy sells 300 gigawatt hours of electricity to marijuana farmers on an annual basis.
But, what if the transmission capacity wasn't there? Based on a recent blog from the Portland Business Journal, Pacific Power, a subsidiary of PacifiCorp, has had seven instances since July 1, 2015, in which power outages have been traced back to excessive energy pull from homegrown marijuana, or local marijuana farms. Pacific Power notes that it's billed farmers an average of $5,000 each for overloading local transmission equipment. Pacific Power's director of safety, Roger Blank, equated growing four plants to using enough power to run 29 refrigerators continuously.
Furthermore, in Colorado, marijuana is being blamed for throwing a monkey wrench in the state's plan to cap energy use at 2012 levels. The solution for some counties has been to punish marijuana growers for boosting electricity usage by tacking on an additional per-kilowatt charge to help offset greenhouse gas emissions.
Another proposed solution to the problem is for the marijuana industry to turn to alternative energy such as solar power to help save on long-term energy costs. Of course, with minimal access to financing and no ability to take deductions on their taxes, marijuana businesses aren't exactly being incentivized to make this move.
The barriers to approval are growing
Ultimately, the barriers to legalization continue to grow for the marijuana industry. What was once merely an issue of safety and efficacy in the medical sense has now turned into an economical and environmental issue.
If you recall, we looked at the environmental concerns being raised over indoor and outdoor marijuana farms this summer. Outdoor farms can disrupt ecosystems through their use of pesticides to keep unwanted critters away as well as deforestation, which removes animal habitats, while the use of fans and high-powered lights indoors can weigh on local electrical systems.
Additionally, marijuana plants require a lot of water, which is bad news for states like California which are in the midst of an epic drought. Dr. Anne Short Gianotti of Boston University, co-author of a commentary that was published in the journal BioScience, suggests that $120 million would need to be earmarked in each of the next five years in California in order to tighten regulations for the marijuana industry and restore damaged landscape. Currently, about $3.3 million is earmarked for such activities in California each year.
And, of course, we have those aforementioned concerns about the long-term safety of marijuana and whether or not states can effectively regulate it. Not having all states on board, or all jurisdictions within a state, can make regulation tricky, and may discourage lawmakers from pushing for legalization, even though polls suggests that a majority of the public has a favorable view on legalizing the drug.
The statistics seem to imply that legal marijuana has huge potential. Greenwave Advisors has previously suggested that an across-the-board legalization would yield a market of up to $35 billion. However, this number is looking more and more unrealistic considering the challenges the industry is being exposed to on a regular basis. While marijuana may be tempting as an investment because of its national potential, I'd continue to suggest resisting the urge and keeping your money safely away from the industry and its respective stocks. If we see the federal government change its tune, or if we observe concrete data over a few years that state-level regulation is working without a hitch, then it may be time to consider the investable aspects of marijuana.
For now, though, it appears the finger-pointing and questions will continue.
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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