The marijuana movement is an unstoppable force right now, and some have even speculated it could become a major issue that helps decide who'll become the next president of the United States.
Taking a step back and looking at the broader picture, it's not hard to see why marijuana has become such a hot button issue.
A marijuana benefit for all?
For select consumers with chronic and terminal diseases, a number of recent clinical studies have suggested that marijuana, or cannabinoids found within the cannabis plant, can be beneficial to alleviating certain symptoms. Alzheimer's, type 2 diabetes, aggressive gliomas, and certain types of childhood-onset epilepsies are all examples of ailments where patients given medical marijuana or a cannabinoid-based therapy have demonstrated a noted benefit (albeit further studies are needed to confirm these benefits).
For states, marijuana crops have them seeing green. The sale of medical and/or recreational marijuana gives states an opportunity to raise additional tax revenue, which can be funneled into education, job creation, infrastructure, or just to help close potential budget gaps. Marijuana taxes might seem high, but considering that the taxes only affect the small percentage of a states' population that chooses to buy the product, states can generate extra revenue without pushing a tax increase for everyone through its legislature.
The end result is we've witnessed four states -- Oregon, Washington, Colorado, and Alaska -- and Washington, D.C., push through legislation sometime between 2012 and 2014, which has legalized recreational, adult-use marijuana. In Washington, marijuana tax revenue totaled $70 million through its first trailing-12-month period, while in Colorado recreational marijuana added $53 million in tax revenue to its coffers (which it ironically may not get to keep).
This state could be next to legalize recreational marijuana
With the dollars rolling in, many have tried speculating on which state could be next. Considering that the West Coast has been a breeding ground for marijuana support, California has long been a logical choice. But it appears a ballot initiative isn't in the cards there until 2016.
Instead, the residents of Ohio will be casting their vote this November to decide if they want to become the fifth state to legalize recreational marijuana.
ResponsibleOhio, the legalization group responsible for gathering enough signatures to put a marijuana legalization proposal on the upcoming ballot, collected 320,267 signatures, which was almost 15,000 signatures more than what was required by law to get the amendment to the Ohio Constitution on the ballot.
What Ohio consumers should know is the proposal would allow adults age 21 and over to purchase up to one ounce of marijuana, it would require growers to obtain a license, and would allow those growers to have four plants and eight ounces of marijuana. These stipulations more or less echo what we've seen in other recreation-legal states.
But Ohio has two major twists that it's adding to the equation.
First, Ohio currently is not one of the 23 states that has legalized medical marijuana. This means the vote in this upcoming election is for the legalization of recreation and medical marijuana. Since no state has ever tried to legalize both at the same time, Ohio could run into logistical issues with regard to getting its retail operations off the ground. In the four aforementioned recreation-legal states, all had legalized medical marijuana many years prior, and lawmakers in these states all had some idea of what to expect from a legal retail perspective. Ohio won't have that.
Secondly, Ohio's amendment would include 10 different marijuana farms spread across 10 counties that would supply the crop to licensed businesses. However, some have criticized this move as it restricts new farm entrants for many years, allowing early growers a big advantage and potentially supporting higher prices (and thus higher tax revenue) for the product.
According to the proposal (if it passes) Ohioans can expect a 15% flat tax on farms and manufacturing facilities and a 5% tax on the gross revenue generated at legal marijuana shops.
Marijuana marches on, but it's still a very risky investment
It's very possible that Ohio could become the fifth state to legalize recreational marijuana and the 24th to green-light the use of medical marijuana, but that doesn't in any way insinuate that marijuana has become the breakthrough investment opportunity that some people believe it could be.
For starters, even though President Obama has said himself that "If enough states end up decriminalizing [marijuana], then Congress may then reschedule marijuana," he's also suggested that America's youth consider focusing on more pressing issues at hand. Obama and Congress have a full plate of issues to tackle with a major election now less than 15 months away, and neither the president nor Congress wants to make a hasty move with marijuana that could jeopardize their party's chance of gaining ground in the 2016 elections. Long story short, marijuana just isn't that important to lawmakers right now.
Financing and bottom-line profitability have been two other major issues for marijuana growers, processors, and retailers. Banks either have to jump through a ridiculous number of hoops to provide standard banking services to marijuana-based businesses or they've simply chosen to stay on the sidelines. This has left marijuana businesses with few options to expand.
Along those same lines, taxes are another ongoing dilemma. The U.S. federal tax code, which is enforced by the IRS, supersedes state law. One particular tax code, 280E, disallows businesses that sell illegal drugs (of which marijuana is still considered illegal at the federal level) to write off any expenses as deductions. This means marijuana shops are paying tax on their gross profit rather than their net profits, and it could be leaving owners with minimal profits (if anything). Without tax reform, the marijuana industry may struggle to expand or even survive.
With the bottom line working against the marijuana industry, lawmakers at a standstill, and uncertainty looming over what the next president might do with regard to reinforcing federal law versus states' rights, this looks like a situation for investors to avoid with a 10-foot pole.
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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