The year is nearly coming to a close and little federal progress has been made regarding the legalized cannabis industry. In August, the U.S. Department of Health and Human Services (HHS) formally recommended reclassifying cannabis as a Schedule III controlled substance. Four months later, it is unclear if the Drug Enforcement Agency (DEA) will heed the advice of the HHS or wait until the first quarter of the new year to reschedule cannabis under the Controlled Substance Act. However, there is a group of six governors who want to see cannabis rescheduled by year's end.
"We hope that [the] DEA will follow suit and reschedule cannabis to Schedule III this year, given that 88 percent of Americans are in favor of legalization for medical or recreational use. Rescheduling cannabis aligns with a safe, regulated product that Americans can trust," a five-page letter signed by Governors Jared Polis (Colorado), JB Pritzker (Illinois), John Bel Edwards (Louisiana), Kathy Hochul (New York), Phil Murphy (New Jersey) and Wes Moore (Maryland) reads.
It is great to see state leaders acknowledge the benefits of cannabis and hold President Joe Biden accountable for his promises to decriminalize the plant. Reclassifying cannabis as a Schedule III substance under the Controlled Substance Act is an "overdue step" in the right direction. Though we are not expecting it until next year, it would be incredible if the DEA doesn't wait until the ball drops and the calendar turns. The time is now.
GOP pushes back as recreational marijuana use begins in Ohio
At the direction and will of the voters, Ohio will enter the world of legalized adult-use cannabis in December. Adults over 21 years of age can possess up to 2.5 ounces of marijuana in plant form or up to 15 grams in extract form and grow up to six marijuana plants per adult.
"Marijuana is no longer a controversial issue," Tom Haren, a spokesperson for the Coalition to Regulate Marijuana Like Alcohol, said. "Ohioans demonstrated this by passing State Issue 2 in a landslide. Ohioans are being extremely clear on the future they want for our state: Adult-use marijuana legal and regulated."
Despite Ohioans voting to legalize of adult-use cannabis in November, state lawmakers are threatening to make significant changes to the state's adult-use landscape. Most notably, the Republican-controlled Ohio Senate voted 28-2 to approve a measure that would tax cannabis sales at 15% and cut the number of cannabis plants residents can own in half.
"Ohioans will remember blatant disregard for the voters on marijuana. I have been a Republican my entire adult life, but I have never felt as disrespected or disenfranchised by my own party and my legislature as I do right now," Ohio resident Tyler Ward wrote in a letter to the editors of The Columbus Dispatch.
The latest measure pushed through the Ohio Senate must be approved by the Ohio House of Representatives before it can be signed into law. In the meantime, the voters of Ohio and those in the other 49 states will be watching and hoping the lawmakers abide by the will of the people. That is what's right for Democracy and for basic economics.
News broke this week that the initiative is now being fast tracked, with recreational marijuana sales now expected to commence within 90 days. It seems the compromise included a 15% excise tax and caps on potency, which are both illogical. We expect some serious unintended consequences around the potency cap with vape as just an initial example. The positive is that the market will quickly open with existing medical doors being able to sell adult use.
Most Floridians support legalizing adult-use cannabis
Less than four weeks stand between American voters and another eventful election year. Aside from the high-profile federal races, many will be watching the Sunshine State as state-level initiatives bring the topic of legalized adult-use cannabis to the forefront.
Florida has entertained the idea of adult-use weed legalization before, but each attempt has missed the mark for one reason or another. However, Florida has changed quite a bit since the most recent failed attempt at legalizing recreational cannabis use.
A recent survey conducted by the UNF Public Opinion Research Lab (PORL) found that 67% of Floridians would vote for an initiative that legalizes the possession and regulates sales of small amounts of cannabis for personal use among adults. Support was highest (77%) among adults between 18 and 24 years old, followed by Floridians between 55 and 64 (70%). While the survey sample size was limited to 716 respondents, it was surprising to see support among 35 to 44-year-olds sit below 60% and no data was presented about adults between 25 and 34.
"Unlike previous surveys when we simply asked if folks support or oppose [the] legalization of recreational marijuana, this time we gave respondents the specifics of the proposed amendment," PORL Faculty Director Dr. Michael Binder said. "Yet again, it looks like (the amendment) has a good chance of passing, if it makes it through the courts, and that is a very big ‘if.'"
The results of the survey are consistent with the prevailing notion that young Americans nationally are very much in favor of ending cannabis prohibition. The future leaders of this country will bring about change despite efforts from the old guard who continues to hang on to their political positions.
More improvement could be made on California's cannabis tax revenue
California, despite its many known challenges, remains the largest legal cannabis market in the world. Industry projections estimate California will make up 20% of the U.S. market by 2025 and be worth $5.4 billion by 2030.
This year, California's cannabis market produced $285.1 million in tax revenue during the second quarter and $269.3 million during the third quarter. The market should be more desirable and implementing the following strategies could result in a more significant legal industry.
- Access: Incentivize the many jurisdictions that have yet to allow for legal cannabis to open immediately.
- Taxes: Cut the state's excise tax down to 10%, as seen in many other adult-use legal states. It would also be beneficial to cap the tax rate that cities are also adding in.
- Enforcement: Address the burning distribution license matter, that is currently allowing massive diversion to the illicit market and undercuts the legal market. The state is aware of this issue and public officials should address it immediately.
The state has our support as it takes steps toward enhancing its significant cannabis program. Some progress has been made, but there is always room for improvement, as no market is perfect. The state and its cannabis industry can tackle these issues, find solutions and provide citizens and legal industry participants with the healthy and thriving program they deserve.
Morgan Paxhia is Managing Director and Co-Founder of Poseidon Investment Management. With over 10 years experience in investing and finance, Morgan has developed a deep understanding of individual company analysis, portfolio construction, and risk mitigation. This content is not intended to provide any investment, financial, legal, regulatory, accounting, tax or similar advice, and nothing should be construed as a recommendation by Poseidon Investment Management, LLC, its affiliates, or any third party, to acquire or dispose of any investment or security, or to engage in any investment strategy or transaction. An investment in any strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. This content should not be considered as an offer or solicitation to purchase or sell securities or other services. Any of the securities identified and described herein are for illustrative purposes only. Their selection was based upon nonperformance-based objective criteria. The content presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Past performance is not indicative of future results.
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