Current administration poses risk to marijuana investment
With the legalization of recreational marijuana use in eight states, potential investments within this new industry are on the rise. Cannabis businesses are expanding and going public, showing themselves to be good potential investments. However, there are concerns over investing into these types of business because of the classification of marijuana under the current administration. In order to be a worthwhile investment, investors must consider a plethora of variables that may impact how much to invest or whether to invest at all.
Marijuana’s potential risks include specific commerce issues and its federal classification as an illicit substance with no medical use. With this current administration, states’ abilities to control commerce created from marijuana may be restricted.
Earlier this year, U.S. Attorney General Jeff Sessions announced he would rescind the Cole memorandum. The memorandum was created during the Obama administration by former Deputy Attorney General James Cole.
It effectively told the states that if they followed some guidelines, like not allowing marijuana to be obtained by minors or cross state lines, then the federal government would not interfere in the states’ regulation or legalization of the substance.
It is still illegal and considered a class-1 substance, similar to cocaine or methamphetamines, at the federal level.
This shift in policy from administration to administration creates a sense of uncertainty for those who may invest in what is expected to become a multibillion-dollar industry within the next decade.
In 2014, Colorado, the first state to legalize recreational marijuana, generated $700 million in sales while collecting $76 million in tax revenue from cannabis-related sales and fees. There were also 16,000 new jobs created. Since legalization began in 2014, Colorado has now generated over $500 million in tax revenue from marijuana sales and fees.
Since marijuana is still illegal at the federal level, companies doing business in recreational and medical pot do not have access to certain tax-cutting schemes that other similar small businesses do, nor do they have simple access to the banking sector, having to facilitate their operations in cash only.
This fragile industry, with the suspension of the Cole memorandum, has recently become further destabilized.
As Neill Franklin, executive director of the pro-legalization Law Enforcement Action Partnership, articulated, “This is going to create chaos in the dozens of states whose voters have chosen to regulate medical and adult use [of] marijuana rather than leaving it in the hands of criminals.”
Franklin continued, “If enforcement of laws are subject to the whims of individual prosecutors, no one will have any idea what is legal or what isn’t — because it could change from day to day.”
If no one knows what is legal and what is not, investment becomes much more risky. President Donald Trump attempted to stave off some of the panic within the industry on April 13 when it was announced by Sen. Cory Gardner of Colorado that he and Trump had come to an agreement that the Cole memorandum rescission would not negatively impact the states’ marijuana industries.
Furthermore, Trump would also support congressional solutions to the conundrum of federal versus state enforcement of legality. Gardner had threatened to block any Department of Justice nominees until an agreement had been arranged.
Washington state’s Attorney General Bob Ferguson released a statement saying, “I understand President Trump has offered his support for states to have the right to regulate marijuana and for legislation to enshrine this right in law.”
The statement continued, “I am cautiously optimistic that the president appears to have heard the will of the people on this issue. But this president has demonstrated a willingness to go back on his word. Until there is a formal agreement protecting Washington’s well-regulated marijuana industry, I will continue to stand ready to defend it.”
As Ferguson alluded to, the will of the people is in favor of legalization. A Gallup poll found that 64 percent of Americans are in favor of legalization, up from 36 percent 10 years ago. The legalization gains made over the recent years are far from solidified in federal law, however.
As long as the future status of enforcement laws for cannabis remains in question, any potential future of investment into the budding cannabis industry remains in question, too.