Since 2021 began, perhaps no industry has created more buzz than cannabis. It’s certainly not hard to understand why, with some estimates suggesting that annual U.S. pot sales could triple between 2019 and 2025 to more than $41 billion.
In the November election, 36 states waved the green flag on medical marijuana, 15 of which also allow for the consumption and/or retail sale of adult-use weed. You could rightly say that the U.S. is going green at an extraordinarily fast pace.
Marijuana is still illicit in more than a dozen states
But even with an all-time record 68% of respondents in Gallup’s annual survey favoring nationwide legalization of cannabis, more than a dozen states have resisted these calls to legalize pot. In alphabetical order, the states where marijuana remains entirely illegal are:
- North Carolina
- South Carolina
Gallup’s annual cannabis survey shows that support for legalization is far-reaching. All household income levels, all attained levels of education, all genders, and all age groups are in favor of legalization. Individuals who identify as Republican are the holdouts: 83% of Democrats and 72% of Independents want to see marijuana legalized nationally, compared to only 48% of Republicans. These 14 states all either currently have Republican leadership or have often leaned red in past elections.
Furthermore, only three of these 14 states (Idaho, Nebraska, and Wyoming) use the initiative and referendum process. This means state residents have the option of introducing a ballot measure, collecting signatures, and potentially having that measure put to the vote in a general election. The other 11 states rely wholly on their respective GOP-led legislatures to enact change on the cannabis front.
Will Biden shake up the cannabis landscape?
Will the new administration in Washington shake things up in the remaining holdout states?
Marijuana stocks have been in all-out rally mode since the year began. President Joe Biden took office last week, and both Democratic Party candidates from Georgia won their respective Senate runoff elections on Jan. 5. This gives Democrats narrow control of the legislative branch of the federal government. On paper, this makes the prospect of federal legalization far more likely than if Republicans had held onto their slim majority in the Senate.
What’s especially noteworthy about this shift is that Republican Mitch McConnell is no longer Senate Majority Leader. McConnell strongly opposes cannabis legalization measures and has almost universally blocked bills or riders containing marijuana legislation from reaching the Senate floor for a vote. New Senate Majority Leader Chuck Schumer, a Democrat, is more likely to allow cannabis legislation to at least reach the Senate floor for a vote.
Still, this doesn’t guarantee that we’re going to see major changes in cannabis policy at the federal level. Washington lawmakers aren’t certain to vote along party lines. More importantly, President Biden hasn’t offered support for full-fledged legalization. While on the campaign trail, Biden advocated for decriminalizing and rescheduling marijuana — a far cry from legalization.
No matter what happens, U.S. pot stocks are in great shape
But if there’s a green light at the end of the tunnel, it’s reserved for marijuana stock investors. At this point, cannabis companies are in great shape whether the federal government takes action or not. As long as the Justice Department maintains a hands-off approach, which looks like a given under the new administration, pot stocks will be free to operate in the three dozen legalized states.
For example, the investing community is likely to see history made this year by Curaleaf Holdings (OTC:CURLF), the largest pure-play U.S. cannabis stock. Following its acquisition of the popular Select brand of pot products, as well as its buyout of privately held multistate operator (MSO) Grassroots, Curaleaf is on track to be the first pot stock to hit $1 billion in annual sales this year. The Grassroots deal also expanded Curaleaf’s presence to 23 states, which is nearly two-thirds of the currently legalized market.
Cannabis-focused real estate investment trust (REIT) Innovative Industrial Properties (NYSE:IIPR) is an ancillary player that has a great chance of thriving if Biden only reschedules cannabis. Innovative Industrial Properties relies on its sale-leaseback program to grow its business. With this program, IIP buys cultivation and processing facilities from cash-needy MSOs, then immediately leases these properties back to the seller. The MSO receives much-needed cash, while IIP lands a longtime renter.
The point is, even large states like Texas can remain cannabis holdouts without adversely impacting the growth potential of marijuana stocks in 2021 and beyond.