Big changes are supposedly afoot in Washington.
A little over four months ago, Rep. Jerry Nadler (D-N.Y.) and Sen. Kamala Harris (D-Calif.) introduced America to the Marijuana Opportunity, Reinvestment, and Expungement Act, or MORE Act. (Thank goodness for acronyms!) This bill, which is the first comprehensive cannabis reform measure to be voted on in Congress and purportedly has plenty of momentum given that two-thirds of Americans want to see marijuana legalized, has three primary goals.
First, it would completely decriminalize marijuana at the federal level by removing it as a controlled substance. For those of you who may not be aware, marijuana's Schedule I classification not only means it's illegal and not recognized as having any medical benefits but subjects pot companies in the U.S. to tax code 280E.
This tax code, which was developed in the early 1980s to keep drug dealers from writing off their business expenses on their taxes, disallows marijuana businesses from taking normal corporate income tax deductions, save for cost of goods sold. By removing weed as a Schedule I substance, this would no longer subject cannabis businesses to exorbitant tax rates.
Secondly, it would require the federal government to review and potentially expunge previous or current cannabis offense convictions that were nonviolent in nature. This would also create the push for states do to the same, thereby reversing decades of impairment caused by the War on Drugs.
Third and finally, it would establish a 5% federal tax on marijuana that would be used to fund the newly created Opportunity Trust Fund. This Fund would be used to assist those folks were who disproportionately affected by the War on Drugs, as well as provide loans to small businesses in the pot industry.
Given America's budding support for marijuana, the MORE Act looks like a slam-dunk piece of legislation. Unfortunately, it has no chance of becoming law.
The MORE Act is dead on arrival if it reaches the Senate
The MORE Act did make history on Nov. 20 when the House Judiciary Committee voted overwhelmingly (24-10) to approve the bill. Eventually, it could make its way to the House floor for vote, which would give it a promising chance of passage. After all, the House is majority-run by Democrats, and most members of the Democratic Party believe in legalizing pot at the federal level. Following passage of the Secure and Fair Enforcement (SAFE) Banking Act by a vote of 321 to 103, it seems logical that the MORE Act would have little trouble garnering a majority vote in the House.
Bu that's where the history making will end, because once the MORE Act reaches the Senate, it'll be dead.
One problem is that Senate Majority Leader Mitch McConnell (R–Ky.) has no intention of allowing cannabis legislation to hit the Senate floor for vote. McConnell has not minced words about marijuana in the past and has purposefully blocked reform measures before. Put simply, as long as McConnell is Senate Majority Leader, there's virtually no chance of any House-sponsored cannabis reforms ever seeing the light of day in the Senate.
Another problem here is that even if a House-backed cannabis reform bill like the MORE Act were to reach the Senate floor for vote, there's little guarantee that enough votes would be there to pass it. The Senate is currently in Republican hands by a relatively slim majority, and Republicans historically have a more adverse view of marijuana than Democrats or Independents. Plus, Democrats would practically need to be unanimous in their support of the MORE Act in the Senate for the bill to pass, which is unlikely.
There's also a money component here that's being overlooked. The aforementioned tax code 280E nets the federal government a pretty penny each year. Removing marijuana from the controlled substances list would reduce future revenue for the federal government by approximately $5 billion over 10 years. The thing is, the MORE Act's implementation of a 5% federal cannabis tax may only further widen the cost between legal and illicit weed, ultimately leading to reduced federal revenue from the pot industry.
When will marijuana reform be on the table in the U.S.?
With this in mind, the question has to be asked: Can marijuana reform actually take place in the United States? Considering the strong support for legalization among the public, I'm inclined to say yes, but a few changes need to happen first.
For one, McConnell would need to step down or lose his seat as Senate Majority Leader. This is arguably the biggest stepping stone for cannabis reform in America.
We'd also need to see a more progressive Senate take shape. Either the Republicans would need to lose their majority in the upper house of Congress or their majority would need to be narrowed from its current lead.
This brings me to the next point: We don't know who'll be president come Jan. 2021. While most candidates in the presidential race support some form of legalization or decriminalization, Democrats Joe Biden and Michael Bloomberg, along with incumbent President Trump, aren't exactly the biggest fans of marijuana and tend to shy away from the issue. This means the Nov. 2020 elections will play a key role in determining how viable cannabis reform is at the federal level moving forward.
I don't believe a bill like the MORE Act has any shot of being passed prior to mid-2021, at the earliest, but it would depend on the political make-up of Congress, as well as who's elected president.
If my prognostication is correct, it would be particularly sour news for Canopy Growth (NYSE: CGC), the largest marijuana stock in the world, and a number of its Canadian peers, which are itching to move into the U.S. cannabis market. Canopy Growth is already spending $150 million to construct a hemp-processing plant in New York State that could easily be repurposed if marijuana were ever legalized at the federal level.
The company also agreed to a mammoth $3.4 billion cash-and-stock deal to buy multistate operator Acreage Holdings in April. Canopy is likely going to have to wait many years before the political landscape is right to make changes at the federal level in the United States.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.