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The 3 Biggest Hurdles to Legalizing Marijuana in the United States


The marijuana industry is seemingly budding before our eyes .

To our south, Mexico wound up legalizing medical marijuana in June 2017. Meanwhile, to our north, Canada is on the verge of becoming the first industrialized country in the world with legal recreational weed. With the Cannabis Act passed, it's simply a matter of counting down the days until Oct. 17, when legal adult-use sales in licensed dispensaries can commence.

Even multiple European countries have somewhat recently given the green light to medical marijuana in some capacity, be it for the dried flower, or cannabis oils.

A drug free zone street sign in a quiet neighborhood.

Image source: Getty Images.

Marijuana's three biggest barriers to legalization in the U.S.

Then we have the United States, which is an entirely different, if not bifurcated, story.

Since 1996, 30 states have passed sweeping legislation that legalizes medical cannabis. Nine of these 30 states have also permitted the use of recreational marijuana. And, as the icing on the cake , surveys have consistently shown that the American public favors allowing the sale of adult-use and medicinal marijuana.

But in spite of this momentum, marijuana firmly remains a Schedule I drug at the federal level. Placed on par with heroin and LSD, cannabis is defined by the Controlled Substances Act (CSA) as having no recognized medical benefits, and is categorized as entirely illegal and prone to abuse.

You're probably wondering what on earth it would take for lawmakers on Capitol Hill to reclassify cannabis, or remove it entirely from the controlled substances list. The answer involves overcoming the three biggest hurdles to legalization in the United States.

A tipped over bottle filled with dried cannabis lying on a messy pile of cash bills.

Image source: Getty Images.

1. It's all about the money

While a number of people are quick to point to big pharmaceutical lobbying as a reason that marijuana isn't legal (the thesis being that pharmaceutical sales would decline as marijuana replaces traditional medicine), there's actually a much larger dollar figure behind all of this .

As a result of marijuana's classification under the CSA, businesses that sell cannabis are subject to a more than three-decade-old section of the U.S. tax code known as 280E. Originally rolled out in the early 1980s to fight drug trafficking, 280E today prevents profitable businesses that deal in controlled substances from taking normal corporate income tax deductions, with the exception of cost of goods. This can lead to an effective tax rate of as much as 70% to 90% of net income.

Here's where things get interesting. Let's assume the federal government were to legalize marijuana for recreational and medical use. In doing so, the federal government would be able to collect an excise tax on each sale of the product. However, giving the green light to pot would mean no more tax treatment of cannabis businesses under 280E. This would actually result in a loss of $5 billion in federal revenue over the next half-decade, according to federal estimates. Put in another context, it can actually generate more revenue by taxing pot companies today than if the substance were made legal.

With the federal government regularly running a budget deficit, it could be difficult to claw any revenue away from its clutches.

Dried cannabis flower surrounding a car key fob.

Image source: Getty Images.

2. It's all about safety

Next, cannabis is going to have to overcome the stigma that it isn't safe.

On the bright side, something happened with marijuana this year that had never happened before: It received approval from the U.S. Food and Drug Administration (FDA). On June 25, GW Pharmaceuticals ' (NASDAQ: GWPH) cannabidiol-based lead drug known as Epidiolex was approved to treat two rare forms of childhood-onset epilepsy. Never before had a cannabis-derived medicine been approved by the FDA , but that's exactly what happened with GW Pharmaceuticals' therapy -- which ran circles around the placebo in multiple late-stage trials to reduce seizure frequency from baseline. In fact, GW Pharmaceuticals' Epidiolex may have a chance to incite federal reform for cannabidiol, which is the non-psychoactive cannabinoid best known for its perceived medical benefits.

On the other hand, marijuana use in adolescents has been shown in select studies to hurt long-term memory. Furthermore, a Denver Post article from last year notes that traffic fatalities linked to marijuana rose sharply in every year following recreational legalization. While no concrete conclusions can be reached without a deeper dive into all of the variables involved in these traffic deaths, it nonetheless raises concerns for lawmakers on Capitol Hill.

To boot, while marijuana breathalyzers capable of detecting tetrahydrocannabinol (THC) -- the cannabinoid that gets you high -- are being developed, they're still not ready for real-world application.

A Democrat donkey an Republican elephant squaring off atop the American flag.

Image source: Getty Images.

3. It's all about politics

Political considerations are a big hurdle for two key reasons.

First, Republicans currently control the legislative branch of the federal government, though that could change following the upcoming midterm elections. Traditionally, Republicans have a much more negative view of cannabis than folks who identify as Democrats or independents. There simply isn't any real incentive for the GOP to take up cannabis legislation at this time.

Second, as an issue, cannabis isn't polarizing enough yet.  Even though the American public seems to strongly support cannabis reform, an April 2018 survey from Quinnipiac University found that 82% of respondents could still vote for a candidate who didn't share their view on marijuana. Only 13% couldn't vote for a candidate who didn't share their opinion on cannabis. This suggests that lawmakers have little to fear by doing nothing about marijuana reform.

If marijuana is to be legalized in the United States, all three of these obstacles need to be tackled.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Stocks
Referenced Symbols: CSA , THC , GWPH



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