Marijuana Suffers an Epic Failure in Last Night's Elections
Image source: Flickr user Gennadiy Rudenko.
Few issues have captivated the nation more over the past couple of years than the marijuana movement. Over just the past two decades we've seen the "favorability" rating of marijuana double from around a quarter to just over 50%, based on Gallup's 2014 survey findings. As Americans have taken a more relaxed view on marijuana, states have, in increasing numbers, taken advantage by pushing through laws allowing the marijuana industry to take shape.
Marijuana gets the green light
For consumers with terminal or chronic illnesses, a more favorable view of marijuana has meant easier access to medicinal marijuana. Nearly two dozen states have approved allowing physicians to prescribe marijuana for specific ailments. These ailments can vary from state to state, but glaucoma and terminal types of cancer are fairly common examples.
When it comes to states, they're simply seeing the green (i.e., money) being created by the marijuana industry. Taxing medical and retail-level marijuana in the four recreation-legal states allows for a new source of revenue without raising taxes on a broad scope of the population. The extra revenue being collected by states from marijuana sales can be used to support education, law enforcement, and drug education, and it can even create jobs.
Although the stage is set for 2016 to arguably be marijuana's most important year in history, with residents in a number of states expected to vote on legalizing recreational marijuana in the November 2016 elections, last night's elections brought two key marijuana votes into the forefront.
Image source: Flickr user Cannabis Culture.
Colorado's marijuana vote yields no surprises
The first vote went very much as planned and was more or less a foregone conclusion. In Colorado, early indications as of this writing are that Proposition BB passed by a landslide. Proposition BB allowed Colorado voters to decide what happens with the retail tax revenue generated by selling marijuana in 2014. It was either to be returned to growers and state residents as a tax refund, or it would be funneled into schools, law enforcement, drug education, and other uses. Residents of Colorado overwhelmingly chose to ensure that this money wound up with the states' schools.
The reason most people expected Prop BB to pass is that Coloradoans already voted on, and overwhelmingly passed, a practically identical measure in 2013. A glitch in the Colorado Taxpayer Bill of Rights triggered by more revenue brought in by the state of Colorado (not just from marijuana) than was initially projected for 2014 required voters to once again head to the polls. While nothing is a certainty come election time, Colorado has set the national precedent that marijuana legalization could be a useful tool to get schools more funding.
However, in another vote that was arguably much more important and widely followed, marijuana met with an epic failure.
Image source: Flickr user Hobvias Sudoneighm.
Marijuana's epic failure in Ohio
The stage was set for Ohio to become the 24th state to legalize medical marijuana and the fifth state to allow the currently illicit drug to be sold for recreational use. Unfortunately for marijuana optimists, it wasn't meant to be.
Though votes are still rolling in, and will probably be trickling in for days to come, the latest tally for Issue 3, which would have allowed adults ages 21 and up to purchase up to an ounce of marijuana and created 10 grow farms around the state, shows it failing to pass by close to a 2-to-1 margin -- nearly 2 million "No" votes compared with fewer than 1.1 million "Yes" votes.
Ohio's vote was already expected to be unique because no state had previously tried to approve recreational marijuana without already having an approved medical-marijuana framework in place. Trying to approve both at the same time was viewed as risky, considering that regulators within the state had no experience with the industry.
But the bigger brouhaha was raised over Issue 3's apportioning just 10 grow fields throughout the state and setting up barriers that would have protected these growers from new competition for at least a couple of years. Some consumers viewed this move as introducing an oligopoly into the industry, and that apparently didn't sit well with Ohioans.
Even more interestingly, Issue 2, a ballot measure designed to prevent monopolies and oligopolies from infiltrating Ohio (specifically as it relates to Issue 3) passed by a somewhat slim margin. As of this writing, 1.55 million Ohioans voted in favor of the measure, with 1.45 million voting against it. This outcome suggests that the law affording competitive protections for the 10 prospective growers probably doomed its passage.
Image source: National Institute on Drug Abuse.
Lessons learned from Ohio
If we learned anything from last night's elections, it's that marijuana is no sure thing to succeed, even with the national approval of the drug rising pretty steadily over the past two decades.
Despite polls suggesting that favorability toward marijuana was around 50-50 heading into the election, the way marijuana bills and amendments are written and implemented can have a big impact on whether a marijuana bill is passed. Yesterday's defeat doesn't mean marijuana is a dead issue in Ohio, but it probably means a major rewrite of the proposal will be needed to gain the necessary votes for passage within the state.
Yet the landslide defeat in Ohio also demonstrates that marijuana is not guaranteed to be the slam-dunk investment some investors have opined it will be. There's no denying that marijuana's nationwide potential is huge, but certain federal laws continue to stand in the way of the industry's success.
For example, U.S. tax code 280E disallows businesses that sell federally illegal drugs (such as marijuana) from deducting normal business expenses. In general, it means that marijuana businesses are paying taxes on their gross profits instead of their net profits, resulting in a huge tax bill and far less money left over than expected. This situation could lead to slower business expansion and the inability to buy more product or hire additional workers.
Marijuana-based businesses also have to deal with big banking barriers. Only around 3% of the nation's 6,700 banks have been willing to offer basic banking services to the marijuana industry. Because the federal government still considers the plant illegal, aiding marijuana businesses with checking accounts or a loan could, in theory, be viewed as money laundering. Without access to basic banking services and credit lines, it's been doubly difficult for marijuana businesses to thrive.
Marijuana's epic defeat in Ohio likely doesn't kill its chances for expansion in 2016, but it's confirmed that investing in the industry is an extremely risky proposition that you'd probably be better off avoiding.
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 Marijuana Suffers an Epic Failure in Last Night's Elections 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 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .