The upcoming national elections in 2016 are going to feature a plethora of keynote issues. National security, job and wage growth, and immigration are all hot button issues set to take center stage. But, a few years from now, we may be discussing 2016 as the year marijuana dominated national- and state-level debates.
The marijuana legalization movement has been gaining steam at an unprecedented pace. What was once a concept that commanded just a 25% favorable rating in Gallup's nationwide polls in the mid-1990s is now one viewed favorably by a slim majority in pretty much all national polls. If we look strictly at legalizing marijuana for medical use, the favorable rating is unequivocally higher, according to various independent state-level studies.
How marijuana has evolved
What's changed in the past two decades? First, we're beginning to see some of the potential benefits of medical marijuana. Clinical studies have demonstrated that marijuana and the cannabinoids that are its active ingredients may have symptom-lessening or curative effects on epilepsy, certain types of cancer, Alzheimer's disease, and even type 2 diabetes, just to mention a few ailments.
From the perspective of states where it has been made legal for recreational use, we're also seeing big sales numbers generated by retail shops, translating into a healthy boost in tax revenue. Colorado recently surpassed $100 million per month in marijuana sales. Most states where marijuana has been legalized are using a good chunk of the tax revenue generated from sales to bolster their education systems.
Yet skepticism still exists as to what the legalization of marijuana might actually do to the economy on a state level. Some lawmakers remain worried about the societal impacts of the drug, the safety and health effects of marijuana on its users, and even what sort of adverse effect the currently illicit drug might have on economic growth. At least in terms of the last issue, economic growth, skeptics may be worried about nothing.
Marijuana's positive economic impact
According to a report from The Denver Post, a study commissioned by the Colorado Tourism Office showed that nearly half of all people who recently visited Colorado were influenced in some way by recreational marijuana.
The tourism board of Colorado spent a little more than $5.3 million on its "Come to Life" ad campaign this summer to draw visitors to the state -- although no mention of marijuana was made in its print, television, billboard, and digital ads. The ad campaign is estimated to have generated 2.1 million leisure trips, with a positive economic impact of $2.6 billion for the state. The more telling statistic is that for each dollar spent on leisure vacation promotion in 2015, $490 was generated, compared to just $344 per dollar in 2014.
Are all these extra tourism dollars being generated just from marijuana sales? According to the survey, that's unlikely, as only 8% of respondents said they actually visited a legal marijuana shop in Colorado during their vacation. Last year's survey showed an identical 8% visiting marijuana shops. What's notable is that in last year's survey, just 29% of the aforementioned 8% who visited a marijuana shop cited marijuana as their primary reason for heading to Colorado. In 2015, 85% of the 8% who visited a dispensary cited legal marijuana as the driving force behind their vacation. This implies that at least some of the improved economic impact being witnessed in Colorado is the result of legal marijuana.
In all fairness, the researchers who conducted the study noted a mix of positive and negative impacts, and also saw faults where they could improve their 33-question process in future years. But, the end finding is that marijuana does appear to be generating some degree of tourism boost for Colorado, and perhaps other recreation-legal states as well.
Nationwide legalization is still a pipe dream
Even if marijuana can boost tax revenue within legal states, and could be a boon to tourism and local economies, the chance of the federal government changing its stance on the drug anytime soon appears slim.
We've already glossed over one of the biggest roadblocks above: the safety profile of marijuana. There's no shortage of longtime users and researchers who will chime in that marijuana is a perfectly safe drug. Clinical studies have shown that it's practically impossible to overdose on marijuana, meaning it could hold value in replacing opioid-based therapies where overdoses are costly to the healthcare system and can potentially be deadly for the patient.
However, Congress views marijuana as a gigantic puzzle that needs to be put together. Each study is one piece, and it can take years, perhaps decades, to put enough pieces together to allow lawmakers to shift their views on marijuana's benefit-versus-risk profile. With researchers only recently focusing substantial attention on the beneficial aspects of the drug, it could be years before we have balanced data for lawmakers to peruse.
We also should take into consideration that marijuana is a somewhat taboo topic for today's presidential candidates. With the elections around the corner, no candidate wants to take too radical a position on marijuana in one direction or another for fear of alienating voters. Taking a wait-and-see approach is a common tactic, and it's one we may see displayed for years to come.
An extremely risky investment
As investors, we're always on the lookout for the next great idea, and marijuana undeniably has massive market potential. Greenwave Advisors has opined that, if legalized across the U.S., marijuana could be a $35 billion industry by the end of the decade. But these figures continue to look woefully out of reach, given the noncommittal stance of Congress.
What does that mean for marijuana businesses? For the time being, it means they'll be getting little in the way of financial help. Even in states where residents have voted to legalize the recreational use of marijuana, banks have mostly shunned marijuana businesses. Because the federal government views the drug as illegal, providing a loan or a credit line to a marijuana-based business, or even providing something as simple as basic checking services, could be grounds for prosecution by federal regulators.
It also means marijuana businesses are going to continue getting the short end of the stick when it comes to corporate taxes. The U.S. tax code disallows businesses that sell federally illegal drugs from taking normal business deductions, which means the legal marijuana sector is paying more than its fair share of taxes. Lack of access to banking services combined with higher taxation means less room for profits or growth.
Until we see changes at the federal level, marijuana will likely remain an extremely risky investment, and one that's best avoided.