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Marijuana Logs a Major Supreme Court Victory

By Sean Williams - Mar 27, 2016 at 10:41AM

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A gray cloud that had been hanging over the marijuana industry for the past year has been removed with one simple Supreme Court decision.

Image source: Flickr user Gennadiy Rudenko. 

Marijuana could be on track for its best year ever, and as you'll see below, its story got even better this past week.

Marijuana's expansion accelerates
Since 1996, when marijuana gained its first approved for medicinal purposes in California, the drug has been expanding by leaps and bounds. There are currently 23 states that have legalized medical marijuana, with a number of additional states possibly right around the corner. Additionally, four states have legalized its recreational use.

If there is such a thing as a "banner marijuana state" it would arguably be Colorado, one of the first two states to approve recreational marijuana in 2012 along with Washington. In 2015, based on data from Colorado's Department of Revenue, the state generated $996.2 million in cumulative sales, including nearly $588 million in recreational sales. Comparatively, cumulative marijuana sales totaled just $699 million in 2014, meaning sales jumped 42% on a year-over-year basis.

Colorado's tax revenue and licensing fees have also been impressive, growing from around $80 million in 2014 to $135 million in 2015. Tax and license revenue generated by marijuana is being used by the state to provide funds for schools, law enforcement, and drug abuse programs.

Marijuana's gray cloud is resolved
Yet a gray cloud has been hanging over Colorado for nearly a full year. In April 2015, Colorado's neighboring states, Oklahoma and Nebraska, filed a lawsuit against Colorado that requested the U.S. Supreme Court invalidate the state's recreational marijuana law passed in 2012. The reasoning behind Oklahoma's and Nebraska's request stems from allegations that Colorado's commercial businesses were leading to "a tide of illegal drugs flowing into Oklahoma, Nebraska, and other states."

Image source: Flickr user Peter Stevens.

But there was a lot at stake in this case that went well beyond whether Colorado could properly regulate its recreational marijuana industry. If the Supreme Court wound up ruling in favor of Colorado's neighbors, it would also have needed to enforce the federal ban on recreational marijuana. Doing so would likely have included medical marijuana as well, since explaining why one is OK and the other is not based on federal law would have been veritably impossible.

In short, Oklahoma's and Nebraska's lawsuit had the potential to completely unravel 20 years' worth of legal marijuana expansion.

Thankfully, marijuana supporters were dealt a major victory of sorts this past week.

On Monday, March 21, the Supreme Court threw out the lawsuit filed by both states, with only two justices suggesting that they would be willing to hear the case.

What was really odd about the case was that both Oklahoma and Nebraska had filed it as an "original jurisdiction," which allowed lower courts to be bypassed, in effect bringing the case directly to the Supreme Court. It's possible there's still litigation of sorts that could work its way through a lower court system between these states, but the clear implication of the Supreme Court's inaction in this case is that state-level marijuana is free and clear to operate despite an ongoing federal ban on the plant. This ultimately bodes well for recreation- and medicinal-legal states, and it certainly puts a kibosh on attempts to coerce the Supreme Court to slow marijuana's expansion.

One problem resolved, but many to go
Although this is great news for the marijuana industry as a whole, it represents a resolution to just one of a host of concerns currently plaguing the industry. We can see three other concerns continuing to play out in Colorado.

Image source: Office of Public Affairs via Flickr.

For starters, regulating marijuana is a veritable nightmare for law enforcement in Colorado. Even though Colorado decriminalized marijuana, approval throughout the state looks something like Swiss cheese. Just a quarter of all Colorado jurisdictions allow for the sale of marijuana, meaning a full three-quarters of jurisdictions still outlaw the substance. Trying to enforce any law with such a bifurcation in approval is incredibly difficult.

Secondly, regulating the marijuana edibles industry is presenting a plethora of challenges, including keeping the product out of the hands of adolescents. It's fairly easy for regulators to control and track marijuana when it's in the plant or flower form, but when it looks like a rice crispy treat it's a lot tougher to regulate. Also, ensuring that edibles contain a consistent amount of THC, the psychoactive component of marijuana, from one batch to the next is a concern.

Image source: Pixabay.

Lastly, there remain safety concerns, which to be fair extend far beyond just Colorado. On top of worrying about what marijuana could do to a person's body and mind over time, data from the Seattle Police Department and Denver County show an uptick in property crime (Seattle) and total crime instances (Denver), respectively, since marijuana was voted to be fully legalized in November 2012. Marijuana can't be solely pinpointed as the problem, but it's a correlation that certainly bears further research.

Even beyond Colorado other more serious worries exist. For example, inaction on the part of the federal government to legalize or decriminalize marijuana, despite public support, means marijuana business have little to no access to basic banking services, and that they're being brutally overtaxed. Businesses that sell federally illegal substances, such as marijuana, can't take normal business deductions. Ultimately this could stymie the marijuana industry's ability to expand.

Thus, even with marijuana's probable expansion at the state level in the 2016 elections, and a victory at the Supreme Court, investing in marijuana appears as risky as ever. Until such time as the federal government alters its stance on marijuana, I believe it's in your best interests to watch this industry evolve from the sidelines.

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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