Looking At The Election Through The Cannabis Lens

As the election quickly approaches, cannabis investors are keenly aware of the landscape and how it could play out for the industry. Looking at the Democratic party platform, candidates former Vice President Joe Biden and Senator Kamala Harris have taken the position of decriminalization and rescheduling (from DEA Schedule I) through executive action on the federal level.

They have said that they support legalization of medical marijuana nationwide and believe states should be able to make their own decisions about recreational use. In addition to that, their approach is a combination of the previously proposed legislation known as the STATES ACT and the MORE ACT.  Their position is that the Justice Department should not launch federal prosecutions of conduct that is legal at the state level, as well as that all past criminal convictions for cannabis use should be automatically expunged.

Many in the cannabis industry believed over the past four years that President Trump would pull a surprise maneuver and legalize marijuana to capture that voting bloc. However, it never happened and in fact the President recently asked red states to remove cannabis from state ballots to keep Democrats away. If he won, it isn’t really seen as a negative towards the industry. States have continued to legalize during his presidency and sales have risen accordingly. Despite this, the Uniform Crime Report from the FBI reported that more people were arrested for cannabis in 2019 than for all violent crimes put together. The hard data from the FBI’s report clearly showed that police arrested 545,602 people for cannabis-related crimes in 2019. “That arrest rate is 9% higher than the 495,871 people arrested for violent crimes the same year.” Expungement is rarely mentioned by Trump even though he has made a big deal of commuting some high-profile criminal sentences.

One comparison could be Franklin D. Roosevelt’s 1932 presidential campaign when the repeal of alcohol Prohibition was a key part of his Democrat party platform. Soon after he won the election, Congress proposed the 21st Amendment to end Prohibition.  This ironically sparked the beginning of the war on cannabis as the government agency had no desire to dissolve itself.

Dan Ahrens, Chief Operating Officer and  portfolio manager of the AdvisorShares Pure Cannabis ETF (YOLO), AdvisorShares Pure US Cannabis ETF (MSOS), and the AdvisorShares Vice ETF (ACT) said, “Regardless of who wins the White House, U.S. cannabis expansion is expected to continue past November.” He noted that Arizona and New Jersey each have ballot proposals for voters to decide on legalizing adult-use cannabis. Both states currently have existing medical marijuana programs.

Other states including South Dakota, Montana, and Mississippi also have recreational and/or medical marijuana proposals up for a vote.  This week, the Montana Supreme Court denied and dismissed a lawsuit seeking to remove CI-118 and I-190, the complementary marijuana legalization initiatives, from the November ballot. “This was an easy decision for the Montana Supreme Court,” said Dave Lewis, policy advisor to New Approach Montana, the campaign working to pass CI-118 and I-190. “At best, this lawsuit was a frivolous longshot. At worst, it was an intentional effort to create confusion right before the election.”

If New Jersey votes in favor of legalization, it is believed that Pennsylvania and New York could follow suit and legalize adult-use cannabis by legislative action, rather than ballot measure, which was how Illinois approved recreational use last year.

Ahrens said, “It’s important to note that neither party calls for full U.S. federal cannabis legalization. This means that Canadian LPs – companies such as Canopy Growth (CGC), Aurora Cannabis (ACB), Cronos Group (CRON), and Tilray (TLRY) – are expected to remain to do business in Canada and precluded from expanding into the U.S.  U.S. multi-state operators (MSOs) – those companies directly involved in the legal production and distribution of cannabis in states where approved – while not yet allowed to list on the NYSE or NASDAQ, are only expected to be strengthened through the continued state by state expansion and widely anticipated federal cannabis reform measures.” He believes U.S. companies like Curaleaf (CURLF), Green Thumb Industries (GTBIF), and Cresco Labs (CRLBF) become more attractive with their upside potential.

Joe Caltabiano, co-founder and former president of Cresco Labs said, “If Biden wins, we’ll certainly see more capital coming into the space. Biden has gone on record promising decriminalization if he wins, which generally kicks off the chain reaction towards full legalization. On the other hand, if Trump wins, then we’ll basically maintain the status quo for the next four years. It keeps the barrier to entry into the industry very high and keeps the MSOs even more entrenched. There won’t be any substantial program improvement and the amount of money that comes into the space will be significantly less than if Biden was in office.”

 Cannabis investment firm Mazakali provided this easy to understand breakdown of the pending legislation

Adult Use Ballot Initiatives:

MONTANA – Montana CI-118, Legal Age for Marijuana Amendment (2020); Montana I-190, Marijuana Legalization Initiative (2020)

• Montana CI-118: would allow the legislature or a citizen initiative to establish the legal age for purchasing, consuming, or possessing non-hemp cannabis (similar to alcohol).
• Montana I-190: would legalize the possession of use of 1oz or less of non-hemp cannabis or 8 grams of less of non-hemp cannabis concentrate by persons over the age of 21 in Montana. MT residents would also be allowed to possess, use, and grow non-hemp cannabis starting January 1, 2021.
• The most recent poll conducted by the University of Montana (Feb 12-22, 2020) asking if non-hemp cannabis should be legalized resulted in 54% of respondents in favor, while 37% opposed.

ARIZONA – Arizona 207, Marijuana Legalization Initiative

• Proposition 207: would legalize the possession and use of non-hemp cannabis for adults (age 21 and older) in Arizona.
• The latest poll from Monmouth University (Sept 11-15, 2020) reflects a close call, with 51% supporting, 41% opposing, and 9% undecided.

NEW JERSEY – New Jersey Public Question 1, Marijuana Legalization Amendment (2020)

• Question 1: would add an amendment to the state’s constitution that legalizes the recreational use of non-hemp cannabis for persons 21+. It would also permit possession, cultivation and sales of retail non-hemp cannabis. If passed, this constitutional amendment would take effect on January 21, 2020.
• The last poll from Brach Eichler Cannabis Polls (collected July 7-12, 2020) suggested passage is likely with 68% supporting, 27% opposing, and 6% undecided.

Medical Use Ballot Initiative

MISSISSIPPI – Mississippi Ballot Measure 1, Initiative 65 and Alternative 65A, Medical Marijuana Amendment (2020)

• Initiative 65: would allow medical non-hemp cannabis treatment for over 20 specified qualifying conditions, allow individuals to possess up to 2.5 ounces of non-hemp cannabis at one time, and tax non-hemp cannabis sales at the current state sales tax rate of 7%.
• Alternative 65A: would restrict smoking non-hemp cannabis to terminally ill patients; require pharmaceutical grade non-hemp cannabis products and treatment oversight by licensed physicians, nurses, and pharmacists. The vote was 72-49 in the House (March 10, 2020) and 34-17 in the Senate two days later.
• According to Politico, over 80% of MS voters favor medical non-hemp cannabis legalization of some degree.

Adult and Medical Use Ballot Initiative

SOUTH DAKOTA – South Dakota Constitutional Amendment A, Marijuana Legalization Initiative (2020)

• South Dakota is the first state to put both adult use and medical use initiative on the ballot. Currently, it has no legal cannabis policy.
• The adult-use initiative is constitutional (proposed by citizens) – meaning the legislature could not repeal it if it passes in November. The medical initiative, however, is statutory – the legislative would have the power to repeal or amend that law.
• Amendment A: would legalize the recreational use of non-hemp cannabis for individuals 21 years of age and older. If passed, the state legislature would plan to pass laws by April 1, 2022.
• Initiated Measure 26, Medical Marijuana: would require the establishment of a MMJ program for individuals who have a debilitating medical condition as certified by a physician. The measure would require the Department of Health to enact rules related to implementing South Dakota’s new medical program no later than 120 days after the measure goes into effect.