The marijuana industry is the fastest growing market in America, with a compound annual growth rate of 26 percent and estimates of market worth varying between $17 billion and $22 billion by 2021. The tax revenue from this is significant, with Colorado bringing in more than $500 million between 2014 and mid-2017, with the majority of those funds directly benefiting education in the state. Washington state’s tax income equaled $315 million from cannabis taxes in fiscal year 2017 alone and some estimates place New Jersey’s potential income increase to $1 billion if the state legalizes cannabis. This is a significant swing in the opposite direction from the costs of enforcing marijuana laws. The state of Texas, for example, spends an average of $748 million per year to engage in cannabis prohibition.
The market is moving overwhelmingly towards recreational marijuana use. One year ago, the entirety of Oregon’s cannabis industry was made up of medical marijuana; now, medical use accounts for only 10 percent of total cannabis purchases. Five states have legalization efforts working their way through state legislatures this year. While historically states would approve medical cannabis use before even considering recreational legalization, two of the five states are considering recreational use legalization outright – a significant shift in social and political climate. Currently 28 states allow medical marijuana and 8 states permit recreational use with two more states (in addition to the five mentioned previously) on the verge of full recreational legalization.
The news isn’t all buds and flowers, however. There are several complicating factors which continue to inhibit industry growth, the foremost of which is currently Attorney General Jeff Session’s stance on marijuana, as he stated to the National Association of Attorneys General in February of 2017:
“I, as you know, am dubious about marijuana. States can pass whatever laws they choose, but I’m not sure we’re going to be a better, healthier nation if we have marijuana being sold at every corner grocery store.”
Attorney General Sessions immediately acted upon this statement, rescinding the memorandum former AG James Cole wrote during the Obama administration which gave states significant leeway in deciding how to prosecute marijuana-related crimes. With bipartisan support in Congress for the Rohrbacher-Farr Amendment, however, it is unlikely that Sessions will gain much traction, especially considering current American attitudes towards the legalization of cannabis.
According to Gallup’s poll last October, 64 percent of Americans now want to see cannabis legalized nationally. That’s a significant historical increase, from 60 percent in 2016, 36 percent in 2006, and just 25 percent in 1995, the year prior to California becoming the first state to approve medical marijuana. What is even more interesting about these statistics is that this is the first Gallup poll in history where the majority of Republicans (51 percent) favored legalization efforts, a significant and rapid increase from previous levels (42 percent in 2016 and 37 percent in 2015).
Other federal regulations continue to hamper what is unprecedented growth in the industry. One of these is IRS code 280E, which prohibits companies that sell federally-illegal products from taking advantage of traditional business deductions. This noticeably increases costs, and in some cases, can be prohibitive for small businesses attempting to get off the ground in a fledgling market. Limited access to banking services is a major problem for the emerging industry as well. The financial sector is often reticent to allow full access to players in the cannabis market out of fear of potential federal prosecution.
Another issue that states face is not knowing exactly how to structure legalization efforts. Even with the most affirmative intentions, restrictive measures for testing and licensing can be cost-prohibitive and can force many producers to remain in the medical market rather than moving into the much more potentially lucrative recreational field.
Despite these negative forces, however, positive pressure towards legalization efforts continues to increase in a variety of ways. Cross-border sales are one significant factor: Vermont, for example, failed in its initial effort to legalize cannabis. It quickly realized that, as other states in New England moved in that direction, it faced a significant potential loss of tax revenue and rapidly moved to pass subsequent legislation in January of 2018. It is no small coincidence that California, Washington, and Oregon continue to decrease regulation, each time building upon prior efforts by the other West Coast states.
This border pressure is not limited to states, though. Mexico legalized medical cannabis in 2017 and Canada is expected to decriminalize even recreational marijuana in 2018. Israel, arguably the United States’ most conservative ally, is moving to legalize the export of marijuana – this could be worth up to $1 billion annually. Since the most restrictive forces on legalization efforts revolve around the federal government’s prohibition efforts, these international pressures could be what eventually turns United States legislation in the opposite direction.
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