Is a Federal Crackdown on Cannabis Coming?

A decade ago, marijuana would have been considered something of a taboo topic. Today, it's perhaps the fastest-growing industry in the country.

According to Marijuana Business Daily's newest report, "Marijuana Business Factbook 2017," legal U.S. weed sales are expected to jump 30% in 2017, another 45% in 2018, and reach $17 billion by 2021. The five-year growth between 2016 and 2021 is projected at approximately 300%!

On an individual state basis, Colorado has thus far led the charge. Data from the state showed just over $1.3 billion in combined recreational and medical-cannabis sales in 2016, up from $996 million in 2015, with the state nearing $200 million in tax revenue collected. Once

California begins selling recreational pot in 2018, it could be on track to receive $1 billion in additional tax revenue per year.

At the heart of this growth is a major shift in the way the American public views cannabis. In 1995, the year before California became the first state to legalize medical cannabis for compassionate use, just a quarter of respondents in Gallup's poll wanted to see weed legal.

As of October 2017, Gallup finds that nearly two-thirds (64%) are eager to see pot legal across the country. Support for medical cannabis is even higher, with a Quinnipiac poll in April 2017 finding that 94% support its legalization, compared with just 5% who oppose the idea.

But just because a majority of the public is in favor of legalizing marijuana, it doesn't mean the drug has gained any traction in Washington. Lawmakers on Capitol Hill remain mostly skeptical about cannabis' risk-versus-benefit profile, and many worry what will happen to adolescents if they have easier access to marijuana if home-grow is an option.

At the head of the opposition to marijuana lies Attorney General Jeff Sessions, who has made no secret of what he really thinks about pot. Back in March, Sessions had this to say while speaking to a room of fellow attorneys general:

"My view is that crime does follow drugs. In the '70s and '80s, we saw so many lives destroyed by drug abuse. And I think the drugs today are more powerful, they're more addictive, and they can destroy even more lives. Young people had their lives destroyed. I, as you know, am dubious about marijuana -- as states can pass whatever laws they choose. But I'm not sure we're going to be a better, healthier nation if we have marijuana being sold at every corner grocery store. I just don't think that's going to be good for us. We'll have to work our way through that," - Attorney General Jeff Sessions

In May, Sessions sent a letter to a few of his fellow lawmakers requesting that they repeal the Rohrabacher-Farr Amendment, which is what protects medical-marijuana businesses from federal prosecution in states that have legalized cannabis. Medical cannabis has been legal in California for more than two decades and has been approved in 28 additional states since 1996, but Sessions appears to have no issue with the idea of encroaching on states' rights in this area.

This past week, according to the Washington Examiner, Sessions again sounded off about a possible crackdown on the marijuana industry. In a radio interview with Hugh Hewitt, Sessions said: "I do not believe there's any argument [that] because a state legalizes marijuana, that the federal law against marijuana is no longer in existence. I do believe that the federal laws clearly are in effect in all 50 states, and we will do our best to enforce the laws as we are required to do so."

This commentary comes on the heels of comments just a few weeks ago from Sessions' No. 2 in command, Deputy Attorney General Rod Rosenstein, that the Justice Department is reviewing state-level marijuana enforcement and expecting to find that marijuana is more harmful than a lot of people anticipated.

However, it's worth pointing out that the marijuana industry was facing an uphill battle even before Sessions came along.

As a Schedule I substance, cannabis has no recognized medical benefits, and it's on par with LSD and heroin in terms of being wholly illegal. A number of lawmakers on Capitol Hill have suggested that Food and Drug Administration-approved clinical trial data on cannabis' risks and benefits would help them in their analysis of whether to reschedule pot. But simply running these trials has become challenging given the strict regulations surrounding clinical testing for a Schedule I substance.

Aside from the struggles researchers face, businesses that operate in the marijuana industry are also behind the 8-ball. For instance, few pot-based businesses have had any luck in securing loans or even something as simple as a checking account.

Since financial institutions report to the Federal Deposit Insurance Corporation (FDIC), and the FDIC is a federally created entity, banks fear criminal prosecution or fines for assisting businesses involved in marijuana, especially with Sessions at the helm of the Justice Department.

In addition, marijuana businesses face major tax disadvantages. In particular, U.S. tax code 280E disallows businesses that sell a federally illegal substance from taking corporate income-tax deductions. For pot companies, it means paying tax on gross profits as opposed to net profits, which leaves little in the way of cash flow to reinvest.

Yet despite these obstacles and challenges, we believe that the cannabis industry is here for the long game. In the short term, there may be additional struggles with the current administration, however those companies that can survive, will ultimately thrive.