As Americans head to the polls more divided than ever on social and economic issues, there’s one thing they’re actually coming together on: cannabis.
Much has been made of whether a victory for Democratic nominee Joe Biden, or a potential liberal sweep in the Senate, could bolster marijuana companies. But initiatives on the ballot in a handful of conservative states show Republicans are increasingly on board with legalization as well — perhaps paving the way for an end to federal prohibition, no matter who controls Washington.
"The prevailing wisdom has been that a conservative administration would be less receptive, but I think legalization is now inevitable on its own kinetic energy," said Sturges Karban, chief executive officer of cannabis logistics company ManifestSeven. While federal legalization was a political "third rail" as recently as 2016, he said, it now looks as though 2021 will be a turning point for the industry.
Pot pundits have long said national legalization will only gain ground once Republican senators have a reason to bring up the issue. After Nov. 3, that could happen, with more of their constituents supporting the measure. Three of the four states voting on recreational use are red ones: Arizona, Montana, and South Dakota. New Jersey, which swings liberal, is also considering adult-use legalization. Medical use is on the ballot in conservative Mississippi and South Dakota.
Ahead of the election, 33 states had already adopted medical or adult use, so any additional states would just add to what's already a critical mass of support.
A survey of 500 New Jersey voters from law firm Brach Eichler LLC earlier this month showed not only is the state likely to vote to legalize adult recreational use by a 2-to-1 margin, but Republican support is also there. Democrats were still the ones more in favor — at 75%, but the majority of Republicans also supported the measure — at 52%.
"People are just much less afraid of marijuana than they used to be," said John Fanburg, who co-chairs the cannabis practice at the New Jersey-based law firm that conducted the poll. He attributes that to the state's successful medical program, which has grown from 20,000 participants three years ago to 90,000, removing the stigma of marijuana for thousands of people on both sides of the political aisle.
Similar trends are playing out in red states. In Arizona, by far the most populated of the traditionally conservative states considering legalization, the measure is polling at 56% support, according to a recent poll from Monmouth University. Only in Montana, where around 49% of voters are in favor, is the initiative less likely, according to a recent report from Eight Capital analyst Graeme Kreindler.
"The red states are empirical evidence that there's enough demand and support at the grassroots that the issue is agnostic to party," Karban said. "How do you ignore that if you're in Washington?"
As bipartisan support for legalization grows in states across the country, there's increased likelihood of change at the federal level, too. First up might be the STATES Act, which wouldn't legalize cannabis but would defer authority to states, giving them leeway to allow interstate traffic and further develop their own laws.
The act has a good chance of passing in the first year of a new administration. If it does, it would pave the way to get rid of the industry’s biggest albatross — tax code 280E. Without the measure, which bars cannabis companies from deducting their operating expenses for tax purposes, many companies would suddenly have better cash flow, Cowen analyst Vivien Azer said in a Sept. 24 research note. Three multistate operators that she rates outperform — Green Thumb Industries Inc., Curaleaf Holdings Inc,. and Cresco Labs Inc. — would immediately have positive earnings.
The STATES Act would also pave the way for banks to serve the cannabis industry, letting companies take out loans, accept credit and debit cards, and have checking accounts if they comply with state laws, said Cowen analyst Jaret Seiberg. He predicts the STATES Act could pass quickly under a Biden victory, but that even President Donald Trump might also sign the bill from a Democratic Senate if he returns to the White House.
If the STATES Act doesn't gain support, either candidate could get behind the SAFE Act, which would allow banking. The MORE Act, which would altogether legalize marijuana, is only on the table under a Biden victory, Seiberg said.
But in the new COVID-19 era, with a new need for tax revenue and job creation, there's no telling what could happen.
“We’re cresting the summit on changing federal law,” said Graham Boyd, who heads the New Approach Political Action Committee, which has run ballot initiatives on recreational use. “Its been a painful uphill climb until now with the Senate being unmoved. But with South Dakota and Arizona and Montana on board, it starts to change that because they have Republican senators.”