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Election Update:  A Clean Sweep for Cannabis

CNN’s November 7th headline announced Legal Weed Wins Big in Election and went on to describe the success of adult recreational cannabis use measures nationwide. Cannabis industry leaders were pleased with the election outcome as fifteen states approved its medical use and eleven more established recreational use guidelines. 

John Hudak is a senior cannabis policy advisor at the Brookings Institute who follows election outcomes on cannabis matters. Adult cannabis use laws passed in Arizona, Montana, New Jersey and South Dakota with substantial margins and he called the election “a resounding win for cannabis which is moving the industry out of the shadows of illegality”.

Mr. Hudak points to the Scotts Company that is acquiring hydroponics equipment businesses, which count cannabis growers among their largest customers. He also noted a public demonstration of cannabis support by Scotts executives which contributed $800,000 in support of New Jersey’s legalization campaign.   

The voters of the Garden State spoke and passed the state constitutional amendment permitting adult cannabis use by a wide 67% margin. New Jersey’s favorable cannabis vote is expected to influence similar legislation under consideration in neighboring New York and Pennsylvania. 

The New Jersey Governor, Philip Murphy, has been a long-time supporter of cannabis and regulatory reform. Speaking to the media shortly after the polls closed, Mr. Murphy commented that “Adult use marijuana passed convincingly tonight, marking a huge step forward in racial and social justice and for our economy.” 

From a financial perspective, cannabis will provide the state with a much-needed tax revenue source. The state is in a strong position to capitalize on cannabis sales because there is little local competition as with the closest cannabis-legal states far to the north in New England. Although New Jersey’s law did not include specific regulatory requirements, those are being developed by a subcommittee and expected to gain legislative approval without delay.

When New Jersey’s cannabis dispensaries are allowed open, over 130 million adults will be within driving distance of a legal retail outlet. The Marijuana Business Journal forecasts that New Jersey could realize $950 million tax dollars on cannabis sales and also provide tens of thousands of new jobs. 

The state’s economy has been seriously damaged by the coronavirus pandemic and their unemployment stands at 16.6 % - the second highest in the nation. New Jersey economists are encouraged by the likely expansion of employment in the cannabis industry and many believe it can put a meaningful number of its citizens back to work. With new jobs projected as an unexpected benefit, the cannabis industry is perceived more favorably as new jobs become available. 

Arizona’s Proposition 207 legalizes possession of up to an ounce of cannabis for adults and establishes a dispensary system for retail sales. The state’s measure also allows people convicted of minor cannabis crimes like possession of small quantities to have court records cleared through the expungement process.

At the national level, legal cannabis is on track to become a nine-billion-dollar business. While this projected revenue may not elevate cannabis to F-500 status, as legalization gains voter approval around the country, the business has gained credibility. New tax revenue is welcomed by state treasuries seeking fresh revenue streams from previously untapped sources such as cannabis cultivation and retail dispensary sales.

Other cannabis legalization victories in Montana, Mississippi and South Dakota are expected to encourage neighboring states to adopt legalization so that they might also share in these new tax sources. 

Cannabis use studies confirm that demand is at record-setting levels. With law enforcement attending to more pressing enforcement matters, in addition, the current legal prohibitions seem to have had little negative effect on consumer purchasing.  The reality at the state budget level is that an untapped tax revenue cannot be ignored, and many are seizing the opportunity, legality notwithstanding. 

For the moment, the question of when the federal government will call for cannabis decriminalization remains open to debate. Historically, President-elect Biden has not supported a taxed and regulated cannabis system. Mr. Biden does understand the reality of cannabis use and he supports penalty reductions for minor offenses such as possession of personal-use quantities. While this federal action would signal modest progress, it’s not likely to bring about meaningful change as those actions would be required at the state and local levels.

The President has said he would support cannabis penalty reforms like expungement of individual court records of minor cannabis convictions. He also favors federal legalization of cannabis for medical purposes and believes that recreational use decisions should remain at the state level. Mr. Biden announced his cannabis views on his campaign’s website making his favorable position known. 

Going forward, the most likely Executive Branch support for favorable federal cannabis policy will be that of the Vice President, Kamala Harris.  Committed to “sharing her views on cannabis” with President Biden, Ms. Harris believes that prior presidential efforts to slow drug trafficking were ineffective and cites the Reagan Administration’s substantial efforts as an example. Mrs. Reagan’s Just Say No program has been evaluated as ineffective in stemming the flow of drugs throughout America’s younger generations. Post program assessments confirmed that just telling young people to refuse drugs without any supportive treatment didn’t work. Accordingly, Ms. Harris supports cannabis decriminalization and regulation at the state level, leaving the federal branch out of the discussion. 

Also of interest is the proposed rescheduling of cannabis to a Class II Drug. Those in favor of this change believe it would allow researchers to study the effects of cannabis use without unwanted attention from federal law enforcement authorities. While Mr. Biden has promised to consider rescheduling, many cannabis supporters prefer to have it treated like alcohol and removed from the Controlled Substance schedule altogether. 

The cannabis rescheduling option is controversial, and the new administration has many important matters pressing for attention. The good news for cannabis is that policy decisions will be formulated by the White House senior staff which is directed by Mark Mulvaney. A longtime advocate for marijuana regulatory reform Mr. Mulvaney will be guiding the conversation with the President’s advisors. Cannabis industry leaders are delighted to have an influential voice in the Oval Office regarding matters of federal cannabis policy. 

From a financial perspective, cannabis equities continued to increase in value in response to the surge of cannabis support by voters nationwide. Canopy Growth equities rose 10% in value and Aurora Cannabis shares increased by 20%. Encouraged by the election results, the CEO of Canopy Growth remarked that “ballot results clearly support adult-use marijuana legalization across geographic and party lines”. 

CNN Business reported a “triple whammy” of good news for cannabis:

Recreational use was approved in Arizona, Montana, New Jersey and New Mexico; New Jersey and Arizona are both pegged as billion-dollar markets; major cannabis players are positioning themselves to take advantage of legalization; cannabis industry leaders believe legalization is the “new normal” and congress will likely enact federal cannabis reform legislation in the near future. As former Speaker of the House, John Boehner, remarked, “when cannabis is on the ballot, it wins, and it is the one topic on which America is united.”

How the cannabis industry will develop over the next few years remains to be seen but the future appears positive. Some of the more enthusiastic projections suggest that the cannabis segment could employ 10-15% of the US workforce and contribute as much as $100 billion to the nation’s economy. Imagine what the industry might look like if it were legal.

The future of the American cannabis industry looks very promising with legalization efforts making progress at the state level and there’s still hope in Washington. 

Looking back, most will recall the election of 2020 as one that marked a year of exceptional progress for the cannabis industry.