At the moment, the expansion of marijuana throughout the United States looks almost unstoppable.
Marijuana's rapid expansion
Since 1996, 23 states have approved the use of marijuana for medicinal purposes, opening up new pathways of treatment options for patients with chronic illnesses like glaucoma or terminal types of cancers. We've also witnessed residents in four states (along with Washington, D.C.) approve the legalization of recreational marijuana, which a decade ago would have seemed unfathomable.
How was this made possible? It's been a mixture of the will of the people and states' desire to raise additional revenue.
An October poll conducted by Gallup showed that a whopping 58% of respondents were now in favor of marijuana's legalization. This tied the highest favorability response rate since Gallup began its survey decades prior, and it demonstrates just how far public opinion has come in such a relatively short time frame. If we solely examine medical marijuana, respondents' favorability jumps even more. A CBS News poll from last year pegged favorability of medicinal marijuana at 84%.
We're also seeing a push by legislators in certain states to legalize medical and recreational marijuana. The purpose of legalization is to collect tax revenue from retailers, as well as gather licensing fees associated with selling, growing, and processing the drug. Colorado, which netted almost $1 billion in total sales in 2015, wound up clearing around $135 million in tax and license revenue from cannabis last year. That's a big deal, and this money can go a long way toward funding schools, drug abuse programs, and law enforcement within the state.
Will these two marijuana studies burn supporters?
But, the marijuana industry continues to have one large cloud hanging overhead: the inaction of the federal government. On Capitol Hill, the marijuana plant is still illegal, and as such, marijuana industries face some inherent disadvantages (which we'll get to a bit later). Congress seems unwilling to budge on its stance until a more encompassing safety profile of marijuana is established. This profile essentially entails putting together a massive puzzle of all marijuana studies and reaching a conclusion on its benefits versus risks, as well as long-term use safety.
Last week, marijuana's safety profile appeared to take a hit with two new studies released by Columbia University.
The first study, which was a joint effort by researchers at Columbia University's Mailman School of Public Health and the City University of New York and was published in the journal Drug and Alcohol Dependence, analyzed data from 27,461 adults with the intent of deciphering if a link existed between marijuana use and alcohol use disorder, or AUD. AUD is a diagnosed condition where the user abuses or becomes dependent upon alcohol.
While analyzing data on these adults from the National Epidemiologic Survey on Alcohol and Related Conditions, researchers assessed each patient at two separate points in time. At the initial assessment both marijuana and non-marijuana users had no history of AUDs. However, by the second follow-up three years later researchers noted that users who had used marijuana at the first assessment and were still using the drug during the follow-up were five times more likely to develop an alcohol use problem compared to adults that had not used marijuana.
Researchers also noted that marijuana users were less likely to be in recovery three years later than individuals who didn't use marijuana.
Researchers concluded that marijuana use appears to correlate to a higher risk of developing an AUD, and increase the likelihood that an existing AUD will continue over time. Ultimately, researchers suggested that more studies be conducted to confirm what is currently an intriguing clinical correlation.
The second study, conducted by Columbia University and published in JAMA Psychiatry, examined 34,653 adults three years apart for the National Epidemiologic Survey on Alcohol and Related Conditions. The purpose of this study was determine if a link existed between cannabis use and the risk of mental health and substance abuse disorders.
Of the 1,279 respondents who were marijuana users, study results showed a higher propensity for AUDs, cannabis abuse disorder, nicotine dependence, and any other drug abuse disorder compared to the non-using cohort. It should be noted that researchers observed no correlation relating to mood disorders or anxiety disorders between marijuana users and the non-marijuana cohort.
Expect the stalemate to continue
If there is good news here for marijuana supporters, it's that neither study concretely links marijuana as the culprit. Columbia's researchers were clear to point out that further studies would need to be conducted to make that determination.
Additionally, we've witnessed clinical studies that have shown marijuana or its cannabinoids to have a markedly positive effect. From regulating blood sugar to improving the effectiveness of radiotherapy on gliomas, marijuana's medical benefits profile has been intriguing.
The problem, though, is this: The data continues to be conflicting. It seems as if for every positive marijuana study there's a negative one (or as we saw last week, two), which is not making it easy for Congress to decide whether to consider reviewing marijuana's scheduling status at the federal level. While there is no timetable as to when Congress could take marijuana's federal scheduling up for review, the facts that President Obama doesn't have marijuana on his 2016 agenda and that it's an election year likely make 2016 a stalemate.
Although marijuana has an opportunity to expand at the state level in November, restrictive federal laws are making it very difficult for marijuana businesses to thrive (which in turn makes the idea of investing in marijuana stocks not look attractive).
The biggest issue for marijuana businesses is the unfair tax advantage they're facing. Even though the marijuana plant is illegal at the federal level, marijuana businesses are still required to pay federal income tax. Worse yet, because they're selling a product that's illegal under federal law, they're disallowed from taking tax deductions that normal businesses can take. In short, marijuana businesses are paying far more in taxes than they should due to congressional inaction.
The second issue is that marijuana businesses have very limited access to banks and financial institutions. Even with some states putting in workarounds for financial institutions that want to deal with marijuana businesses, most simply avoid the legal maze. Additionally, it's always possible the federal government could clamp down on banks catering to marijuana businesses. Without access to lines of credit, or even checking accounts in many instances, it's made expansion difficult for businesses, and it's also made security a major concern.
Even though marijuana is undergoing a major expansion at the moment, there are no guarantees that the industry has long-term staying power as long as these inherent disadvantages remain in place. Until these are removed, your best bet as an investor continues to be "avoid, avoid, avoid."
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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