By James Garrett Baldwin
Marijuana prohibition has lasted 78 years in the United States, although public opinion has changed dramatically over the last few decades in favor of legalization.
In 1969, just 12% of Americans supported legalization. Today, that figure is significantly higher, as evidenced by state ballots around the country that have embraced marijuana for recreational and medicinal purposes. Should public sentiment continue to rise and states be left to their discretion, the marijuana industry is poised for immense growth.
Private equity, angel investors, and hedge funds have taken significant positions on this sector. For ambitious investors, now is the time to take a long position in marijuana. The cannabis industry had a market capitalization of more than $3 billion in April 2015, according to Bloomberg. Moreover, marijuana market research firm New Frontier Financials projects the marijuana industry will quintuple to $15.2 billion by 2020. Arc View Market Research projects that the industry could reach $35 billion in the same period.
With more than 50 publicly traded companies that are tied to the marijuana industry, the markets are creating liquidity for this burgeoning industry (for more, read: 2015 Marijuana Stock Analysis). Investors living in any state can own stocks sold on public markets, although nearly all are sold over-the-counter. Penny stocks provide another option for investors looking to bet big on marijuana (For more, read: Marijuana Penny Stocks: Where Risk Meets Sin.) However, direct investment in private companies tied to the sector would typically benefit investors in smaller companies with direct access to the states that have legalized the drug. Investors can take part in crowd-funding projects for startups that will capture profits from states where the drug is legal, even if they do not live in these jurisdictions (Read more, here: Funding Platforms Emerging for Marijuana Startups.)
To date, four states and the District of Columbia have legalized the drug for recreational use, while 23 additional states have legalized medicinal marijuana. At least eleven states are expected to have marijuana legalization initiatives in 2015 and 2016. The following article outlines the current policies of the U.S. government, and the locations where recreational marijuana is currently legal and garnering investor interest.
Decentralizing Marijuana Enforcement.
Currently, marijuana is still classified as a Schedule I drug, meaning that the drug remains illegal according to federal law. However, federal lawmakers have mostly allowed states to act at their discretion. That could change following the 2016 election when President Barack Obama leaves office.
The current positions of the Obama administration reflect a permissive approach to state discretion on marijuana laws. The most significant form of guidance from the Department of Justice was called the “Cole Memo.” This guidance provided eight separate priorities for marijuana enforcement. These include the sales of the drug to minors, tracking the sales of drugs by cartels and gangs, and the prevention of distribution of drugs outside of any state’s regulated system. This marked a very significant shift from previous administrations that provided states with greater regulatory oversight and voters with greater control of marijuana legalization. (Read more about marijuana policy, here: The Future Of Marijuana Policy: The South.)
States Where Recreational Marijuana is Legal
Here are the four states that have legalized marijuana for recreational use, and the positive results that the process has provided for their annual budgets.
Colorado represents the largest state market for legalized marijuana. In 2014, the state generated more than $700 million in sales for recreational and medicinal pot. The amount of recreational marijuana comprised 44% of this total. Analysts anticipate the entire market will surpass $1 billion in 2016.
The state of Colorado legalized marijuana for recreational use in November 2012, under Amendment 64. In the last year, Colorado generated at least $70 million in marijuana taxes. That figure easily surpasses the $42 million it made in alcohol taxes during the same period. Investors should recognize that in Colorado it is tough to obtain a marijuana business within the state, according to legal professional Ryan Hurley, partner of Rose Law Group in Scottsdale, Arizona.
Voters in Washington legalized marijuana under Initiative 502 (I-502) during the November 2012 election. The law passed by a vote of 56% to 44%. Since then, money has poured into the state. The state represents the second largest legal market in the United States. Last year, the state generated more than $250 million in sales. Tax revenue surpassed $70 million. This figure is much higher than the state’s original excise tax forecast of $36 million.
Alaskan voters legalized marijuana through Measure 2 during the November 2014 election. Under its recreational laws, Americans may carry up to one ounce and cultivate up to 24 different plants as an individual or with a commercial license. According Marijuana Business News, the state plans to generate between $5 million to $19 million in tax revenue.
Oregon voters legalized cannabis for recreational purposes through Measure 91 during the November 2014 election. The law regulated the amount that one person can carry (one ounce) and the amount of plants that an individual may grow without a license. Investors may wish to seek Oregon as a possible destination, despite its smaller market. This year, Ryan Hurley said that this state and Alaska were the most liberal when it came to providing licenses for growing facilities.
The Bottom Line
The Cole Memo changed Federal priorities of how the Federal government criminalizes marijuana in the United States. Over the last few years, voters in four states and the District of Columbia have authorized the legalization of marijuana for recreational purposes. As a result, these states have seen a massive inflow of investor capital to profit off the “green rush.”