Legal marijuana is increasingly becoming a reality across the United States. With multiple states authorizing pot sales and the looming possibility of legalization at the federal level, marijuana is a hot topic in the investment world.
This time on Financial Sense Newshour's Big Picture, Jim Puplava and Chris Preitauer discuss the changing legislative landscape, as well as the opportunities and pitfalls legal marijuana presents to investors.
For related podcast and audio, see Marijuana: Lucrative Leaf or Harmful Herb? (You can also subscribe to Financial Sense Newshour on iTunes, Spotify, Stitcher, and wherever else you listen to podcasts!)
Writing on the Wall
Ten states in total—Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont and Washington—have already legalized cannabis outright. An additional 22 states have decriminalized marijuana, meaning it is no longer illegal to possess small amounts in most cases, and 33 states have approved marijuana for medicinal use.
There is almost no uniformity in how these laws are implemented. That said, many people believe legalization is increasingly likely at the federal level, Puplava stated.
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Public acceptance is growing across the country. Two in three Americans now support marijuana legalization, Puplava added, noting that figure is up from 12 percent in 1969, when 84 percent of the public disapproved of marijuana legalization.
“Approval is growing and it differs by age, by group, political affiliation, race and sex,” Puplava said. “Forty-five percent of Republicans approve of legalization. Compare that to Democrats at 69 percent and about 68 percent approval coming from Independents.”
Regulatory Framework Needed
Because there is no standard in how marijuana is regulated between states, confusion keeps the marketplace from fully embracing marijuana. This confusion will probably fuel those calling for Federal reclassification and regulation of cannabis going forward.
“Marijuana advocates are pushing for federal legislation to legalize its use, either for medical purposes or recreational use, or both,” Puplava said. “It's just a matter of time and, quite honestly, it could be an issue in the 2020 presidential campaign.”
The reality is that legalization presents challenges to both law enforcement and health care professionals, Puplava noted.
Because of pot’s current legal status, there are few high-quality, long-term studies on its health effects, both positive and negative.
Puplava highlighted former New York Times reporter Alex Berenson’s book, Tell Your Children: The Truth About Marijuana, Mental Illness, and Violence, in which he notes that new evidence suggests marijuana can lead to mental health issues.
“Berenson’s book is very deeply researched and meticulously written, but it does raise a lot of questions, and points to the risks of cannabis that have not been fully explained or answered.”
Luxury Cannabis Paving the Way
With Federal regulation likely on the way, at some point Wall Street and large corporations will get involved, Puplava stated.
“If you look across all these states, it's really a hodgepodge of rules and regulations,” Puplava said. “This is one reason why you have not seen Big Tobacco companies get more fully involved.”
Regardless, marijuana is already becoming big business. For example, several high-end retailers, such as Barney's and Neiman Marcus, have started offering cannabis-based beauty products and other hemp-derived CBD items.
Barney’s Beverly Hills store is even offering glass pipes for smoking pot, Puplava noted, along with gold rolling papers and grinders, necklaces and a number of other related products.
“It represents a high-profile harbinger of where cannabis-related retail and, most likely, the luxury store space is headed in this era of legal marijuana,” Puplava said. “(It’s) probably going to have a ripple effect, and other high-end retailers such as Saks Fifth Avenue and Lord + Taylor are exploring the possibilities. Don't be surprised if in the next 5 years we see cannabis-related products in Costco and Walmart.”
Financial Opportunities
States that have legalized marijuana have seen sharp increases in tax revenue. With so much money and demand being thrown at the segment, it’s only a matter of time that for markets to embrace the trend. We’ve already seen high-profile cannabis IPOs crop up as of last year. While these stocks corrected after an initial price spike, they are largely still up from their initial public offering price.
Most of these companies are essentially startups and do not currently make money, Puplava noted. They may or may not prove to be players in the industry going forward.
More likely, Puplava stated, we’ll see Big Tobacco companies move in as the regulatory framework becomes clear. Such companies have already begun investing in cannabis outside the U.S., and we could see Big Tobacco return to growth at some point in the future.
“Look for legislation to move forward at the federal level, which is, in my opinion, what is needed to bring standardization and probably some semblance of order to this budding industry,” Puplava said. “Once legalization happens, there will be cannabis business in a split second. You can bet the big guys will move in immediately and they're making plans for it. … Maybe we see the Marlboro Man on a horse again, this time smoking a joint.”
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