While the federal government drags its feet on cannabis reform, states continue to charge full speed ahead.
The latest evidence: Ohio voters approved a referendum legalizing recreational-use cannabis this week. The change could open up a new multi-billion-dollar market.
In short, Ohio will likely be a big source of growth for cannabis companies that have wisely positioned themselves in the state ahead of the referendum vote. You can find the best-positioned companies in Cabot Cannabis Investor; I encourage you to subscribe here.
Currently, only medical-use cannabis is legal in the state.
Assuming the referendum results hold up, which I believe will be the case, Ohio will become the 24th state to legalize recreational marijuana. The District of Columbia has also legalized. The vote means people age 21 and over will be able to use, grow or sell marijuana. The measure takes effect in 30 days, though there could be some snags, which I explore below.
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Next up, two other big states appear poised to legalize recreational use: Florida and Pennsylvania. Maryland legalized recreational use last summer. Monthly sales just hit $90 million, making it a billion-dollar market in terms of annual sales.
Public Support Grows
Will Florida and Pennsylvania follow Ohio and Maryland? Big picture, it does seem likely given the overwhelming popular support for recreational-use legalization. Politicians notice public sentiment on issues, so holdout opponents of reform may likely soften their stance due to the growing evidence of more favorable public opinion.
A Gallup poll released November 8 found that support in the U.S. for legal marijuana is at an all-time high of 70%. The poll found support across the political spectrum. And importantly, it found increasing support among Republicans, who are most likely to oppose legalization. Democrats favor legalization the most (87%), followed by independents (69%) and Republicans (55%). Support by Republicans increased by four percentage points since last year.
Recreational-use legalization in Pennsylvania would likely happen via passage of a new law, which makes it harder to handicap.
The Florida Referendum
Florida, like Ohio, would get there with a voter referendum in 2024. The Florida Supreme Court this week heard arguments on whether the language in the proposed referendum passes muster.
Given the tone of questions by justices, it seems likely the court will approve the referendum. The justices reserved their toughest questions for attorneys representing Florida’s Attorney General, who has claimed the referendum language is not clear enough for it to get on the ballot in 2024.
“We were very encouraged by the questions asked by the justices,” says Kim Rivers, the CEO of Trulieve Cannabis (TCNNF), the largest cannabis company in the state. Rivers thinks there is a “high probability” the referendum will be on the ballot next November. Polls suggest voters would approve the referendum. Around 70% of Floridians say they will vote for the initiative. Voters approved a medical-use cannabis referendum a few years ago by a 72% margin. The Florida Supreme Court has until April 1 to decide the case.
Rivers thinks Florida voter approval of recreational-use cannabis could be one of the single biggest catalysts for the industry. Florida has 21 million residents and it gets 130 million tourist visits each year. She thinks annual sales in the state could hit $6 billion. Trulieve, the primary funder of the referendum initiative, is the biggest cannabis company in Florida. Its 127 dispensaries command a 40% market share, and the company has two million square feet of cultivation and production facilities there.
Ohio Not a Done Deal Yet
Back in Ohio, a potential snag for the recreational-use referendum is that state legislators can modify or repeal referenda. Several state lawmakers have said they intend to do so with the cannabis initiative. But it seems they intend to do more tinkering around use of tax revenue to subsidize certain dispensaries, rather than gun for wholesale change. Revoking the referendum would be controversial, given the public and political support for recreational use legalization.
A Looming Federal-Level Catalyst
While politicians at the federal level have been slow to enact cannabis reform, we could see progress on change soon, from Washington, D.C. The Department of Health and Human Services (HHS) recently asked the Drug Enforcement Agency (DEA) to reschedule cannabis to Schedule III under the Controlled Substances Act. That would be a big catalyst for cannabis companies because it would eviscerate an Internal Revenue Service regulation called 280E that prevents cannabis companies from deducting operating expenses against sales. The change would mean they could retain a lot more cash. The next step in the rescheduling process will come in the form of a proposed rule on rescheduling from the DEA.
This is likely to happen by year end.
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