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Marijuana Reform Takes a Step Back in an Unlikely State

By Sean Williams - Jan 30, 2016 at 11:41AM

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Bad news for supporters of legal marijuana: One state's highest court recently announced it was voiding a decriminalization ordinance that passed last April.

Image source: Flickr user Digital Aesthetica. 

Ready or not, here comes marijuana!

The past two decades have featured a fairly steady expansion in the legal uses of marijuana across the United States. Since 1996, when California passed Proposition 215, which allowed marijuana to be medically prescribed to treat select ailments, a total of 23 states, along with Washington D.C., have legalized the use of marijuana for specific approved conditions.

Image source: Flickr user Cannabis Culture.

But legal marijuana isn't just for the sick anymore. Voters in Colorado and Washington state in 2012, and Oregon and Alaska in 2014, approved initiatives legalizing recreational marijuana for those 21 and older. Serving as guinea pigs for the rest of the country, Colorado's and Washington's legislatures have relished the extra revenue being generated by retail marijuana sales. This tax revenue isn't going to close huge budget gaps, but it is providing much needed extra capital for schools and law enforcement.

In 2016, we could see in the neighborhood of a dozen states sporting marijuana initiatives or amendments on their ballots. Nevada has already collected the required number of signatures to get a recreational marijuana initiative on its ballot, and strong campaigning in California and Ohio could very well join it. (Ohio advocates will likely try to get both recreational and medical marijuana use on the ballot in the upcoming election.) In Vermont, legislators are considering bypassing residents altogether and simply passing a law allowing for the legal purchase of recreational marijuana, with a few exceptions.

However, legal marijuana use could be expanding even faster if not for a long list of barriers it has yet to overcome. The biggest of those, of course, has been the inaction of Congress on the issue of rescheduling or decriminalizing marijuana. The majority of lawmakers say they are waiting for additional long-term data on marijuana that will allow them an encompassing look at its potential benefits and well-documented risks. Only when this data is fully at their disposal is Congress expected to make a determination on marijuana's future at the federal level. For now, it remains very much illegal despite the federal governments' hands-off approach at the state level.

Image source: Flickr user Phil Roeder.

A new marijuana barrier emerges
Yet a new barrier may have reared its head last week in an unlikely state: Kansas.

Kansas isn't one of the 23 states that have legalized medical marijuana, nor is it one of the 19  that have decriminalized marijuana, according to the National Organization for the Reform of Marijuana Laws (NORML). Decriminalizing marijuana doesn't make it legal, but it's often viewed as one step toward eventual legalization, as it reduces the penalties for possessing small quantities of the drug, and often removes the possibility of possessors facing jail time.

Nonetheless, residents in Kansas' largest city, Wichita, passed their own ordinance in April 2015 that eased the penalties associated with first-time marijuana possession and paraphernalia offenses. The proposal essentially made a first-time offense of possessing less than 32 grams of marijuana punishable by a $50 fine. Current state law in Kansas allows for fines of up to $2,500 and up to one year in jail for a first-time offense of the same nature. Overall, there were 20,075 "yes" votes (54%) in favor of the decriminalization of marijuana within Wichita.

But it appears that vote won't matter. Last week, the Kansas Supreme Court voted 7-0 to overrule the Wichita ordinance on account of filing and disclosure rules that were never met. The Kansas Supreme Court advised Wichita that it was required to follow certain protocols to ensure that residents of Wichita fully understood what they were voting for in April. Because that criteria wasn't met, the highest court in Kansas is voiding the ordinance.

Image source: Office of Public Affairs via Flickr.

This isn't the first time
Of course, this isn't the first time we've witnessed the law standing in the way of marijuana's expansion at the state level. Oklahoma and Nebraska have filed a lawsuit against Colorado that seeks to overturn Colorado's recreational marijuana law. The reasoning? Both states suggest that drug crimes have increased in their state due to the inability of Colorado to properly regulate the flow of legally grown marijuana into retail channels. Should Nebraska and Oklahoma be victorious, it could open a Pandora's Box, as it would essentially be allowing federal law to trump state law.

We're even seeing challenges within states. For instance, Colorado's recreational marijuana bill passed in 2012; yet years later only around a quarter of all Colorado jurisdictions recognize the state law as valid. The remaining three-quarters still either outlaw marijuana entirely, or allow only valid medical uses of the drug. This makes regulating and policing marijuana virtually impossible, because its legality is being determined, in some instances, on a city-by-city basis.

Image source: National Drug and Alcohol Research Centre.

Marijuana: Promising, but still dangerous
On the whole, legal marijuana appears to have a bright future. Public opinion polls suggest that a slim majority of Americans want to see it legalized, or at least decriminalized, on a national level. Furthermore, the tax revenues that can be generated from marijuana could give a significant boost to ailing state budgets. These two factors alone would imply long-term growth potential for an industry that ArcView Market Research has predicted could be worth as much as $35 billion by 2020 (ambitiously assuming nationwide legalization).

But, challenges and an unpredictable timeframe remain. With congressional lawmakers insisting they'll stand pat on marijuana until they have more data to comb through, marijuana businesses continue to work through major disadvantages. These businesses often have very limited access to basic banking services -- because banks simply don't want to run the risk of federal prosecution for abetting a criminal enterprise -- and they can't take any normal business deductions on their taxes. As a result, they're making less profit than they otherwise would be, and their ability to expand is constrained. In short, it's actually not a great time to be a marijuana investor, as tempting as it might be.

It's always possible that Congress will change its tune -- and if that happens, marijuana stocks may actually deserve some consideration. However, as long as marijuana remains a schedule 1 drug at the federal level, I don't believe it merits a spot in your portfolio.

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.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy

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