Though a dozen states have proposed cannabis initiatives, these states have the best chance to “go green” on Election Day.
First published in The Motley Fool as: The 4 Likeliest States to Legalize Marijuana in November
[Canniseur: States willing to legalize and voters willing to vote on legalization are showing to be two different things. In a few states where the legislatures had the opportunity to legalize, the lawmakers have deferred to the voters. If their deferment was real, then the voters will decide. But if their deferral was because they were too scared to vote it in on their own, then they should be voted out of office.]
Despite its numerous growing pains over the past year and change, marijuana remains one of the fastest expanding industries on the planet. After logging $10.9 billion in legal worldwide sales in 2018, Wall Street has global pot sales hitting anywhere from $50 billion to $200 billion by 2030.
Although cannabis is a global growth story, there’s no question that the U.S. is at the center of this expansion. The United States is already responsible for the lion’s share of legal weed sales, in spite of the fact that marijuana remains a Schedule I (i.e., illicit) substance at the federal level. Even with presidential candidates Joe Biden (D) and Donald Trump (R) unlikely to alter this classification, that’s not going to stop legalization momentum at the state level.
With less than five months left before Americans hit the polls, a dozen states have proposed various marijuana initiatives, 10 of which are looking to legalize medical marijuana, recreational cannabis, or both at the same time. While many of these proposals are still in the signature gathering stage or pending official review, the following four states look to have the best chance to “go green” come November.
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Perhaps the state with the best chance of legalization is the Garden State. In December, New Jersey’s two legislative houses voted very decisively in favor of putting a constitutional amendment on the November ballot that would legalize recreational marijuana. Similar to the other states to have OK’d the recreational consumption and sale of adult-use weed, adults 21 and over would be allowed to purchase cannabis, and an excise tax would be collected on all sales.
According to a Monmouth University poll released in April, 61% of New Jersey voters favor the legalization of adult-use cannabis, which would appear to signal a victory is imminent for pot enthusiasts come Election Day.
Of course, Curaleaf (OTC:CURL.F) will be doing some cheering of its own. Curaleaf already has a medical marijuana presence in the Garden State, and it’ll likely aim to use its deep pockets to build a considerably larger presence in what could well become a state capable of more than $1 billion in annual pot sales. Among U.S. multistate operators, none have more currently operational dispensaries than Curaleaf.
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Although Arizona has five separate marijuana initiatives being considered at the moment, and none of them are a lock to make it onto the ballot, it, too, looks to have an inside path to adult-use legalization.
Why Arizona? Back in 2016, it was the only one of nine states whose medical or recreational pot initiative/amendment didn’t pass. Arizona’s Proposition 205 came awfully close, with the “yes” votes for the measure totaling nearly 48%. History has shown that when adult-use legalization initiatives wind up on a ballot a second time following an initial defeat, they pass. This is what happened in both California and Oregon last decade.
Based on a new poll highlighted this week by Marijuana Moment, a whopping 65% of likely Arizona voters favor adult-use legalization, which is up considerably from the 54% support garnered last year in favor of legalization.
Though it’s struggled of late, Harvest Health & Recreation (OTC:HRVS.F) would absolutely welcome the idea of recreational legalization throughout the Grand Canyon State. Harvest Health has the largest presence among multistate operators in Arizona, and has pared down its expansion activities in recent months to conserve capital, likely giving it even more reason to focus on its home market.
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No need to adjust your reading glasses or clean off your computer screen — that really does say “Mississippi.” Despite being a historically conservative state — conservatives are less likely to support the legalization of cannabis in any form — Mississippi looks to have a good shot at joining the other 33 states to have previously legalized medical marijuana.
Mississippi voters will face up to two questions when they go to the polls in November. The first requests their vote (in a roundabout way) on whether medical marijuana should be legalized in their state. Should they agree with legalization, they’ll then need to pick between Initiative 65 and Initiative 65A. Initiative 65 allows for a more lax use of medical cannabis by patients with more than 20 qualifying conditions. Meanwhile, Initiative 65A would make smoking medical pot available only to terminally ill patients and dramatically increase the medical oversight of patients using cannabis.
A survey conducted by Millsaps College and Chism Strategies earlier this year found that 67% of respondents favored the idea of legalizing access to medical cannabis, with just 24% opposed.
Although Mississippi is unlikely to be a major target of pot stocks in a post-legalization environment, we could see larger players dip their toes into the pond if the less-restrictive Initiative 65 passes.
Image source: Getty Images.
Lastly, the Mount Rushmore State appears to have a really good shot at legalizing marijuana in some form. That’s because South Dakota is the first state to put a medical marijuana measure and a recreational initiative in front of voters at the same time. Currently, cannabis is illegal throughout the state.
First up in Constitutional Amendment A, which would legalize recreational marijuana, and require the state’s legislature to pass laws providing for the use of medical weed and hemp by no later than April 1, 2022. The other possibility is Measure 26, which supports establishing a medical marijuana program in South Dakota for patients with qualifying debilitating conditions.
While it’s unclear if South Dakota would have enough support to go from marijuana being completely illegal to recreationally allowed (cannabis surveys in the Mount Rushmore State are hard to come by), the numbers are on medical pot enthusiasts’ side. Nationally, around 9 in 10 Americans support the idea of legalized access to medical cannabis products. Even in traditionally conservative states, favorability tends to handily outweigh opposition. This makes it pretty likely that Measure 26 passes with ease on Election Day.
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.
Ed. Note: Cannabis stocks weren’t exempt from the brutal stock market, year-end collapse. Caveat emptor for cannabis stocks right now. Research thoroughly and invest carefully.
Despite no shortage of cannabis milestones, it was an odd year for pot stocks.
This has been a history-making year for the cannabis industry. Practically anywhere you look, marijuana firsts were occurring. In no particular order, here are some of the industry’s most notable events in 2018:
- Canada legalizing recreational marijuana following nine decades of adult-use prohibition.
- Vermont becoming the first state to approve recreational weed entirely through the legislative process in January.
- Two additional states (Utah and Missouri) approving medical pot during midterms, with voters in Michigan making it the 10th state to OK adult-use marijuana.
- Tilray becoming the first Canadian-based marijuana stock to go the initial public offering route on a major U.S. exchange.
- Nearly a half dozen previously over-the-counter-listed companies uplisting to the Nasdaq or New York Stock Exchange.
- The U.S. Food and Drug Administration giving the thumbs-up to its first-ever cannabis-derived medicine in June.
- Six of the largest deals and acquisitions in the history of the marijuana industry being completed or announced.
And there were many more events to list than this. It was truly a year of validation and legitimacy for the cannabis industry and marijuana stocks as a whole.
A year of validation, with little victory for investors
Yet what looks to have been a great year for the industry is shrouded by perhaps the craziest marijuana statistic of all for 2018. Despite this perfect storm of good news throughout the year, the Horizons Marijuana Life Sciences Index ETF (NASDAQOTH:HMLSF), the very first marijuana ETF, is down 35% year to date, through Dec. 6. With approximately four dozen pot stocks held by the Horizons Marijuana Life Sciences ETF (albeit at different weightings), it suggests that the average marijuana stock lost a double-digit percentage during the year.
What companies were the primary culprits, you ask? We can begin with Aphria (NYSE:APHA), an Ontario-based grower that’s been rocked by allegations of overpaying for Latin American and Caribbean assets in order to enrich company insiders. Once among the largest marijuana stocks by market cap, Aphria’s share price has been shelled, having lost two-thirds of its value since the year began following the report issued by short-side firm Quintessential Capital Management and forensics company Hindenburg Research. When combined with the fact that this is Aphria’s second questionable transaction of 2018, it’s not hard to understand why it’s been such a drag.
Aurora Cannabis (NYSE:ACB), which is also among the most heavily weighted marijuana stocks in the Horizons Marijuana Life Sciences ETF, is down 44% year to date. Even with Aurora aggressively acquiring companies, partnering with Alfred Pedersen & Son in Denmark to retrofit existing vegetable-growing facilities for cannabis production, and announcing a new organic build project in Medicine Hat, Alberta, investors clearly have concerns. In particular, Aurora Cannabis’ rapid growth has come at a cost to investors: excessive dilution, with its share count likely to surpass 1 billion in the coming quarter.
There are broader issues at work
Beyond just individual stock underperformance, there were broader issues at play that dragged down pot stocks amid what should have been a time for celebration.
To begin with, the legalization of marijuana in Canada officially put an end to the “promises stage” of the investment cycle and forced investors to come to terms with the fact that earnings reports actually matter now. The first round of operating results in a legalized environment simply wasn’t that pretty, with seven of the top producers combining to lose nearly $300 million.
The biggest loss of all came from Canopy Growth (NYSE:CGC), which on an operating basis — i.e., excluding fair-value adjustments and one-time gains and losses tied to acquisitions and derivatives — lost almost 215 million Canadian dollars. Growers like Canopy are going to be busy completing capacity-expansion projects for probably the next year or two, all while working on brand building, marketing, and international expansion. Essentially, it means Canopy Growth and its peers will be spending liberally and, as a result, may not be profitable anytime soon.
It also looks as if investors have come to terms with the fact that the industry is very crowded and not yet able to take advantage of many high-margin alternative products.
You see, only dried marijuana flower and cannabis oil are legal for sale in our neighbor to the north. Canada’s Parliament is expected to discuss and approve alternative consumption options (edibles, infused beverages, vapes, and concentrates) by this upcoming summer, but there’s no official timeline beyond these rumors. That leaves growers potentially exposed to what’s proven to be a highly commoditized product (i.e., dried cannabis flower), at least in U.S. markets where adult-use weed is legal. Effectively, operating margins for marijuana stocks may not be anywhere near as high as Wall Street and investors expect.
Image source: Getty Images.
Will 2019 be a better year for marijuana stocks?
The big question is: Will pot stocks have a better year in 2019 than they did this year? While I’d like to say yes, the bottom-line dilemma for marijuana is…well…their bottom line.
As we likely near the end of the second-longest economic expansion cycle in more than 160 years of U.S. history, investors’ attention is liable to turn away from growth stocks and toward value stocks. Even with the meaning of “value” potentially changing from one person to the next, the common factor investors will be looking for is recurring profitability. That’s simply something that marijuana stocks may not be able to deliver over the next year.
On one hand, expenditures are going to be through the roof as capacity expansion continues, product lines expand, and existing products are built up and marketed to the public. Rapid sales growth has, so far, been met by even faster cost growth, leading to losses. This may not change much in 2019.
The other concern is that red tape could hold marijuana stocks back next year. Health Canada, the regulatory agency responsible for approving or denying cultivation licenses and sales permits, has been absolutely bogged down with requests for most of the year. Its inability to quickly review and approve cultivation licenses and sales permits could really stymie production, thereby slowing sales growth and dooming pot stocks to ongoing losses.
Until we see recurring profitability, it could be difficult for investors to trust marijuana stocks.
Original Article – Motley Fools: The Craziest Marijuana Statistic of 2018
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