Personal Finance

Should Marijuana Stocks Fear Supreme Court Nominee Neil Gorsuch?

The words "What's Next" written on top of cash.
The words "What's Next" written on top of cash.

Image source: Getty Images.

It's been a whirlwind week-and-a-half since Donald Trump took office. In his first 10-1/2 days, Trump has issued more executive orders and proclamations than any other modern-day president. Last night, the trend of action continued, with the American public privy to another long-awaited decision from the Trump administration: the nomination of Neil Gorsuch to the Supreme Court.

This nomination is obviously a big deal with a vacancy needing to be filled since the passing of former Justice Antonin Scalia in Feb. 2016. Having a ninth Justice added to the highest court in the land should resolve the possibility of any voting stalemates, and it could wind up shaping policy in America for years or decades to come.

While there are a number of big issues and industries that could be impacted by the Gorsuch nomination (should he be confirmed), the marijuana industry and marijuana stocks have to be wondering how this nomination could impact them.

Marijuana and marijuana stocks at a crossroads?

In recent years, the cannabis industry has been scorching hot. Last year alone, five new states approved medical pot for legal use, while the number of recreation-legal weed states doubled to eight from four. Without Arizona, where a recreational marijuana measure failed by just two percentage points, marijuana initiatives would have had a clean sweep in the November elections.

Marijuana plants in the sunlight.

Image source: Getty Images.

We've also witnessed a discernable shift in the public's opinion on pot. National pollster Gallup shows that the percentage of adults who want to see marijuana legalized nationwide has jumped from 25% in 1995 to an all-time high of 60% as of 2016. In terms of medical marijuana, a 2015 CBS News poll found that 84% of respondents wanted to see it legalized.

However, these figures mean nothing if the Trump administration limits or removes some of the freedoms that have been bestowed upon the marijuana industry. The Obama administration took a hands-off approach to state-level regulation of the cannabis industry despite the fact the federal government maintains a schedule 1 status on the drug. Schedule 1 drugs, by definition, have no medical benefits and are illegal. The big question going forward is whether that hands-off approach will persist if Jeff Sessions, an ardent opponent to marijuana's legalization, is confirmed as America's next attorney general, and Gorsuch, widely viewed as a judge with conservative views, is confirmed to the Supreme Court.

What we know about Gorsuch and legalized marijuana

The unfortunate answers for marijuana stocks and in the industry is that we don't know a whole lot, despite the fact that Gorsuch served as a federal judge in the Denver-based 10th Circuit Court of Appeals and actually oversaw a pot dispensary case in 2015.

The case in question involved Colorado dispensary Total Health Concepts, which wound up having to pay federal income taxes on previously taken business deductions. U.S. Tax Code 280E is a thorn in the side to nearly all dispensaries and marijuana stocks since it disallows businesses that primary sell illegal substances (which includes marijuana) from taking normal business tax deduction. Total Health Concepts' argument was that it shouldn't have to disclose the nature of its business due to the potential to self-incriminate, as reported by the New York Daily News .

Judge's gavel surrounded by marijuana buds.

Image source: Getty Images.

Gorsuch ultimately wound up denying Total Health Concepts' motion, but not without laying into the Obama administration for allowing a confusing double-standard to exist. On one hand, Gorsuch argued,

Later in the case document, Gorsuch points out that,

This doesn't exactly tell us one way or another how Gorsuch will side, but there's clearly some discontent on his part about the confusing nature of the federal approach to federal cannabis enforcement.

Marijuana stocks remain in limbo

For the time being, the long-term outlook for marijuana stocks remains somewhat in limbo.

If Jeff Sessions (assuming confirmation) holds true to his word during his confirmation hearings and uphold the views of President Trump when it comes to federal marijuana policy, then pot stocks may do just fine. Trump has previously advocated legalizing medical marijuana at the federal level but leaving recreational marijuana up to state choice and regulation.

Marijuana bud laying on top of money.

Image source: Getty Images.

But, Trump's cannabis ideology could have a hard time getting through a conservative and Republican-led Congress. Of the 22 states that haven't legalized medical marijuana, many are Republican-led states. Additionally, Sessions is a longtime marijuana legalization opponent, and it may be difficult for him to maintain a hands-off federal approach to a drug he clearly opposes.

What's likely for marijuana stocks is more of the status quo. This means a continuation of being unable to take normal business tax deductions, as well as having little to no access to basic banking services. Since banks ultimately answer to the federal government, working with pot shops could be construed by the federal government as money laundering. This connect-the-dots scenario and the mixed message today's federal marijuana laws are sending are probably going to keep most financial institutions firmly on the sidelines, forcing pot businesses to deal with cash, which is a security concern and growth inhibitor.

While there's nothing to signal that marijuana stocks are doomed if Gorsuch is confirmed, there's still no clear catalyst to suggest things will be better, either.

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