At the state level, marijuana has been practically unstoppable for the past two decades.
Since California legalized medical marijuana in 1996 for certain ailments, 22 additional states, as well as Washington, D.C., have taken similar steps. Furthermore, we've witnessed residents in four states -- Washington, Colorado, Oregon, and Alaska -- approve initiatives designed to legalize recreational marijuana since 2012.
The impetus for legalization seems to be everywhere you look. From the perspective of medical patients, marijuana has demonstrated potential clinical benefits when tested as a treatment for epilepsy, Alzheimer's disease, Parkinson's disease, type 2 diabetes, and even certain types of cancer, such as glioma. In a lot of these indications more conclusive testing is needed, but they offer hope to millions of chronically or terminally ill people.
Consumers as a whole also seem to be behind the push toward legalization. Three national polls -- Gallup, General Social Survey, and Pew Research -- all show that a slim majority of respondents have "favorable" opinions of marijuana. An even more recent poll from CBS News found that a whopping 84% of respondents are in favor of legalizing marijuana for medicinal use.
When it comes to the states, legislators are seeing dollar signs. Colorado, while still waiting for full-year sales data, could easily see legal marijuana sales eclipse $900 million in 2015, producing more than $80 million in tax revenue. We're not talking about groundbreaking tax revenue figures here, but it's certainly enough to make a difference when it comes to providing state education and law enforcement with additional funds.
Marijuana at a standstill on Capitol Hill
On the surface it would appear that everything is working in marijuana's favor. However, if we peer out a little further and look at things from the federal level, marijuana's 2016 forecast looks abysmal.
According to a report last week from The Washington Post, President Obama "signaled his position" at the House Democratic retreat in Baltimore that marijuana reform is not on his agenda in his last year in the oval office, according to Rep. Steve Cohen (D-Tenn.). A briefing the following day with White House press secretary John Earnest signaled that any reforms on marijuana would have to come from Congress.
Congress has choices...
As it stands now, marijuana is a schedule 1 drug, meaning it possesses no medical benefits and is considered to be illicit and highly addictive. Congress would have a couple of ways to tackle a potential legalization of marijuana.
First, it could attempt to decriminalize the drug by eliminating jail time and reducing fines for first-time offenses, or persons in possession of small amounts of marijuana or smoking paraphernalia. Decriminalization is often viewed as the step prior to legalization, and we've seen it implemented in a number of states prior to legalization. Decriminalization would allow the federal government to get a good look at whether or not societal values such as crime rates or DWIs/DUIs are affected. This move wouldn't make the drug legal, but it would eliminate most jailable offenses associated with marijuana possession.
The other option for Congress is to reschedule marijuana. Moving marijuana to schedule 2 would admit that there are medical benefits to marijuana, but more importantly it would mean the drug is no longer illegal. Schedule 2 drugs are still considered addictive and require some degree of supervision, but the legality of marijuana would no longer be in question if it were rescheduled.
...But Congress won't make these changes in 2016
However, there are two big problems that are likely to keep marijuana from getting anywhere at the congressional level in 2016.
For starters, Congress simply has no incentive to rush a decision in 2016 with the critical November elections around the corner. Marijuana can be a polarizing issue, as the polls have shown, and the Republican-dominated Congress doesn't appear willing to risk alienating its voter base by upsetting the established scheduling of marijuana at the federal level.
Secondly, and more importantly, lawmakers are still uncertain about the long-term safety profile of marijuana. There is no magic number that determines how many clinical studies is enough to make an educated call about marijuana's safety, but there is a clear lopsidedness about the data that lawmakers have at their disposal. Researchers have been analyzing the risks of marijuana for a far longer period of time than the benefits, so it's going to take time before a commensurate amount of conclusive benefits data is available. Until regulators have this data, it could be next to impossible to change marijuana's scheduling at the federal level.
Taking the good with the bad
This indecisiveness means Americans as a whole, and investors, need to take the good with the bad.
For the time being, we might see expansive growth of marijuana at the state level. Nevada already has enough signatures to get a recreational marijuana initiative on its ballot this November, and grassroots campaigns in California and Ohio are looking to do the same. All told, we could be looking at around a dozen states this November that are looking to legalize recreational or medical marijuana -- and based on the latest polling numbers, the chances of these laws passing seems to be better than 50-50. That's pretty exciting if you support the legalization of marijuana.
The bad news is that even with marijuana expanding at the state level, it's still looking like a terrible investment. Federal inaction means marijuana-based businesses are getting absolutely no help. They're still paying taxes on their gross profits instead of net profits because they're unable to take any tax deductions since they're selling a "federally illegal drug." Marijuana businesses also have very limited access to lines of credit and checking accounts because only a small fraction of banks are willing to work with marijuana businesses. Both of these points seriously constrain marijuana business's growth prospects over the near-term.
For now marijuana looks to remain the underdog issue that around half of America is rooting for. Its expansion is certainly intriguing, and if it were ever decriminalized or legalized at the federal level it would potentially change the game for investors. However, until such time as Congress considers taking up marijuana legislation, it's worth keeping your distance from marijuana investments.