Legal Marijuana in Oregon Comes With a Surprising Twist
Image source: Pixabay.
Pardon the pun, but you could say expectations are high around the country that this could be the biggest year ever for marijuana legalization.
Consumers and legislators are seeing green
To recap, the past two decades haven't been too shabby for marijuana supporters. Some 23 states, as well as Washington, D.C., now allow for physicians to prescribe medical marijuana for specific ailments, and four states -- Washington, Colorado, Oregon, and Alaska -- plus D.C. now allow for the sale of recreational marijuana to adults ages 21 and up. Even a decade ago the thought of marijuana being legal anywhere would have been somewhat far-fetched, but it's a reality now in four states, and perhaps more by the end of the year.
Being an election year, multiple grassroots campaigns are working hard to obtain the appropriate number of signatures and support to get a cannabis initiative or referendum on their states' ballots for November. Nevada has already obtained enough signatures to get a ballot initiative in front of voters, and it seems likely that Ohio, California, and perhaps as many as a dozen additional states may do the same.
At the same time, legislators in recreation-legal states appear to be happy -- the sale of marijuana is generating much needed tax revenue that schools, law enforcement, and drug abuse education programs can use. Colorado looks to be on pace for more than $80 million in tax revenue for 2015, up considerably from the $52 million reported in 2014. Proposition BB wound up apportioning schools about $40 million from the state's 2014 tax haul, meaning the education system in Colorado could wind up with around $60 million when the next budget is drawn up.
Image source: Pixabay.
Legal marijuana's surprising twist in Oregon
Despite Colorado's success, it's Oregon that most people are looking to as the leading "green" state. Oregon had the largest legal shop infrastructure in place when recreational marijuana was legalized in a November 2014 vote, thus it was widely believed to be the state most capable of challenging black market prices. However, an interesting twist has emerged, at least since recreational marijuana first became available in October 2015.
Like other recreational marijuana states, Oregon boasts a marijuana tax designed to raise revenue. About 40% will go to schools, 35% to police and law enforcement causes, and the remainder to mental health and drug programs. Following a three-month tax holiday, a 25% tax went into effect on recreational sales Jan. 1, 2016. As noted by The Oregonian , when the Oregon Liquor Control Commission assumes control over the recreational marijuana industry later this year, taxes will drop to 17%.
Image source: Flickr user Cannabis Culture.
Oregon's tax is a bit of a wild card. Whereas some states impose taxes on various levels of the retail marijuana process (such as growers, processors, and retailers), dispensaries in Oregon are free to pass along the taxes to their customers, absorb some or all of the costs of the tax, or ask growers and processors to share in the tax. State regulators aren't involved in marijuana pricing one bit, but are content as long as they get their fair share of tax revenue.
As The Oregonian pointed out after interviewing several dispensary owners, the responses from consumers and shop owners to the tax have been mixed. Some consumers buy the legal product without balking, while others have returned to the black market to purchase marijuana. Similarly, some shop owners are taxing their customers, and others are attempting to absorb the tax in an effort to establish a loyal customer base.
But it was comments from one shop owner, Brad Zusman at Cannadaddy's in Portland, which were eye-opening. Zusman pointed out that recreational consumers are spending an average of $38-$45 per transaction, compared to $100-$110 among medical marijuana patients. Why the difference? Medical marijuana patients don't pay Oregon's 25% tax, and these patients are allowed access to pricier concentrates and edibles -- something recreational customers aren't allowed to buy.
In Zusman's words, "It's really hard for any dispensary to survive just on recreational sales."
What a twist. Recreational sales, once believed to be the kingpin of success in the marijuana industry, are taking a backseat in profitability to medical marijuana patients in perhaps the most widely followed marijuana market in the United States.
It's tough to read too deeply into these figure considering that recreational marijuana has only been legal for a matter of months in Oregon and is still maturing, but it certainly adds fuel to speculation that medical marijuana may eventually be legalized at the federal level, or at least in a majority of states.
Image source: Flickr user Yutaka Seki.
Twist or not, this remains a near-certainty
If we look at individual polls concerning medical marijuana, support among the public is overwhelming. CBS News' 2015 poll showed that 84% of respondents were in favor of legalizing marijuana for medical purposes. National polls tend to show a much slimmer majority in favor of legalizing the drug for recreational purposes.
Despite this support, the only near-certainty we have is that the federal government isn't planning to do anything anytime soon when it comes to marijuana's scheduling. President Obama has made it clear that marijuana reform isn't on his agenda in his final year in office, and it's unlikely that Congress will act during an election year when its members are busy garnering votes. Furthermore, many presidential candidates and lawmakers have expressed concerns over marijuana's safety profile. Until lawmakers believe they have a more encompassing profile of the drug, they're unlikely to alter their stance.
This indecision is what makes investing in marijuana businesses so potentially dangerous. Regardless of being legal in certain states, most banks simply won't deal with marijuana businesses for fear of federal prosecution. This means no access to loans, credit lines, or even checking accounts. Having to deal with cash also means extra security expenses for most dispensaries.
Marijuana businesses are also required to pay federal taxes, despite the irony that marijuana isn't legal at the federal level. U.S. tax code 280E ensures that they don't have the ability to take normal business deductions either, since they're selling a federally illegal substance. All told, it's a lose-lose situation for marijuana businesses, and it places their long-term survivability in doubt.
It'll definitely be worth keeping an eye on other states to see if their medical marijuana industries continue to bloom, but for investors wanting their piece of this rapidly growing pie, I'd suggest staying on the sidelines until we see changes at the federal level.
The next billion-dollar iSecret
The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .
The article Legal Marijuana in Oregon Comes With a Surprising Twist originally appeared on Fool.com.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy .
Copyright © 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .