Source: Flickr user Gennadiy Rudenko.
The 2016 presidential election is going to be shaped by a cornucopia of issues -- jobs, immigration, environmental policy, foreign relations, and of course the U.S. economy. But creeping its way up the list of important topics that the American public wants addressed is the issue of marijuana legalization.
As it stands now, marijuana remains a Schedule 1 drug, according to the U.S. Drug Enforcement Agency. That means that it's not considered to have any medically beneficial qualities, and that the plant itself remains illegal. Despite the superseding federal laws, beginning in 1996 and through today some 23 states (and Washington D.C.) have legalized marijuana for medicinal purposes, while voters in four states and D.C. have given the green light for adult consumers to buy recreational marijuana.
It's truly a unique time, and we're witnessing rapid changes. But have you ever stopped to wonder why these changes matter to so many people all of a sudden? A recent survey released from research firm Gallup helps answer that question.
The most powerful marijuana statistic
As a general rule, the more an issue directly affects someone, the more spirited that person is about it. In 1969, when a vast majority of Americans were opposed to the legalization of marijuana, only one out of 25 Americans had tried it. By the mid-1990s, when around a quarter of Americans favored its legalization, the number of Americans having tried marijuana jumped to around a third. In recent years, though, as state laws have relaxed and the federal government has taken a hands-off approach, the number of Americans trying marijuana at least once has jumped quickly, from 38% in 2013 to 44% as of the latest results, released last month.
Source: Flickr user Cannabis Culture.
Gallup postulates that the rapid rise in Americans admitting to trying marijuana relates to either a relaxing of the negative labels associated with the drug and more people willing to now admit they'd previously tried it, or just a simple increase in Americans who have tried it because of its proliferation in select legal states.
Furthermore, there were no statistical differences in those who admitted to trying marijuana based on income, education level, or race. Gallup did note that 12% more men than women had previously tried marijuana; those who identify as being agnostic/atheist or not having a religion often tried marijuana with more frequency than major religions; and those aged 30 to 64 had a higher propensity for trying marijuana than those 29 and under, or aged 65 and up.
But that's not all.
In addition to asking whether Americans had ever previously tried marijuana, Gallup asked the same respondents whether they were current marijuana users (specifically if they smoked it). In July 2013, when Gallup posed this question, just 7% admitted to being regular marijuana users. By July 2015 this figure had jumped to 11% of respondents -- although to be fair, this jump is still within the margin of error for Gallup's study.
Long story short, the reason marijuana has grasped the nation's attention is that more and more Americans are being directly affected by it.
Big hurdles remain
However, the changing tide of a nation may not be enough to push marijuana toward legalization (at least medically) or to decriminalize the drug. Instead, there are a mountain of obstacles currently standing in the way of marijuana and a nationwide legalization.
Source: Chris Christie.
For starters, the upcoming presidential election probably isn't going to do marijuana supporters any favors. Some candidates, such as Republicans Chris Christie, have laid out their case strongly against marijuana's legalization and would prefer to see the federal government reinforce its stringent laws. If you're hoping President Obama will make a move before he leaves office, that also seems unlikely. Obama has suggested that America's youth worry about more pressing issues, and it seems unwise for Obama to tackle such a highly polarizing issue right before election time.
Another hurdle is one that's remained in effect for decades: the absence of mature benefits data on marijuana. Until the past couple of years, the majority of clinical studies (more than 90%) focused on the adverse effects of marijuana. This has left regulators who could ultimately decide whether to decriminalize or legalize marijuana with a stack of negative data a mile high and only snippets of positive data here and there. Until lawmakers have a copious amount of safety data on marijuana, a change in federal policy seems unlikely.
Source: National Institute on Drug Abuse.
The industry itself is also facing a very steep learning curve in currently legal states. In Washington, growers produced a surplus of 3.5 tons of marijuana in its first trailing year, demonstrating that growers, distributors, and retailers have little idea of what actual recreational demand for the drug looks like.
But this steep learning curve is especially apparent when it comes to tax policy, where marijuana businesses currently look like a deer in the headlights. A recent ruling from the Ninth Circuit Court of Appeals in San Francisco (Olive v. Commissioner) upheld U.S. tax code section 280E, which disallows the ability of marijuana businesses to take tax deductions when it involves the sale of an illegal drug. In simple terms, it means marijuana businesses are paying taxes on their gross profit rather than their net profit after deductions. This law, among other factors, could make it difficult for marijuana businesses to thrive or survive over the long term.
The move you should avoid
Marijuana clearly has a lot of potential -- based on estimates from GreenWave Advisors it could be a $35 billion market if legalized nationwide -- but the move investors should avoid here is getting caught up in this potential without there being any guarantees of long-term survival for the marijuana industry.
Even with increasing support for marijuana, and an apparent increase in the number of Americans who've tried the drug or use it regularly, your investable options are very limited at the moment. Most marijuana stocks trade on the over-the-counter exchanges, where accurate and up-to-date information can be difficult to come by. Additionally, a vast majority of marijuana stocks are losing money and have little prospect of being profitable anytime soon. Although a change in federal policy could put some pep in the step of these stocks, they could burn through a lot of cash until that happens (if it ever happens).
Marijuana will probably remain a hot-button issue for the foreseeable future. But put bluntly, investing in these stocks could cause your money to go up in smoke.
