3 Ways Oregon Is Setting the "Green" Standard for the Marijuana Industry – Motley Fool
The marijuana movement, for lack of a better phrase, is growing like a weed.
Looking back only two decades we would not find a single state allowing marijuana to be legally sold in a shop or prescribed by a physician, and only a quarter of respondents in Gallup’s national survey shared a favorable view of the drug.
Today, we’re closing in on two dozen states that have legalized the still federally-illicit drug for medicinal use (along with Washington, D.C.), and another four states — Alaska, Oregon, Colorado and Washington (and Washington, D.C.) — have allowed marijuana to be sold for recreational adult use. Furthermore, the American public wants to see the federal prohibition on marijuana end. Respondents in national polls have expressed favorable views of the drug by a slim margin, and in terms of medical marijuana, independent state polls have suggested that support is significantly higher.
But the calls for marijuana legalization have run into a number of obstacles along the way. Unfavorable tax treatment for marijuana businesses, the inability to obtain basic banking services and lines of credit, the persistence of black market operations, and an apathetic federal government that seems unwilling to alter its current stance on the drug are all reasons why marijuana’s future is still a bit cloudy.
The hope is that the aforementioned four recreational-legal states will provide the evidence lawmakers want to see (i.e., safety and crime data) that’ll help them decide whether or not to legalize or decriminalize marijuana.
Three ways Oregon is setting the “green” standard
The start for recreational marijuana in some of the aforementioned states has been a bit bumpy. Colorado’s $66 million in retail marijuana tax revenue was actually $1 million below projections in 2014, even though total marijuana sales, inclusive of medical marijuana, have now topped the $100 million per month mark within the state. Washington state also got off to a bumpy start in mid-2014 when it only sold $2 million worth of recreational marijuana in its first week.
Oregon, though, has been a different story in the early going. With voters approving the sale of recreational marijuana in the November 2014 elections, Oregon began allowing medical marijuana shops to sell to recreational customers on Oct. 1, 2015. In its first week, Oregon’s recreational marijuana sales topped the $11 million mark. By comparison, Colorado and Washington sold roughly $5 million and $2 million in their first week.
Oregon truly has a good shot at becoming the gold standard — or should I say “green” standard — for the marijuana movement. Here’s why.
1. A price-competitive environment
First, Oregon has the vastest network of legal medical marijuana shops in place of any state. When recreational marijuana laws were amended in Oregon following its passing vote in November 2014, it allowed these shops to begin selling recreational marijuana in October 2015. This instantly gave consumers access to more than 250 retail outlets to purchase recreational marijuana. Other states are limited in the number of licenses they’ve handed out for recreational retailers.
Why’s this important? Having a strong retail presence is not only convenient for the consumer, but it could help keep black market operations at bay. The sheer volume of marijuana available for recreational customers, and the fact that Oregon has one of the highest marijuana use-rates in the U.S., sets Oregon up to be the most price-competitive market relative to the black market. Oregon should be the perfect state to see whether or not legal marijuana prices can effectively compete with the black market.
2. Yet a still tightly regulated environment
Secondly, despite having an open environment that’s allowed more than 250 shops to operate within the state, regulations on opening new shops are very tight. Applications for licenses are reviewed by the Oregon Liquor Control Commission (OLCC) over a 30-day period, business owners of shops, grow farms, and processors are required to maintain residence in Oregon for a minimum of two years, and for the time being anyone with a prior felony conviction is not allowed to possess a license to sell marijuana.
However, some changes could be in the works, including the potential to expunge prior marijuana felony convictions, thus allowing some previously convicted drug offenders to open marijuana shops. Additionally, investors are allowed to invest in legal marijuana shops even if they don’t live within Oregon.
Initially you’d think these tight regulations are a bad thing, and that they could constrain Oregon’s marijuana industry. In reality, these regulations provide a strong barrier between the legal and black markets that could become the standard for other states to follow.
3. An industry first
Finally, Oregon is set to become the first state in the U.S. to try a recreational marijuana delivery service.
As you can imagine, a delivery service is expected to come with a boatload of restrictions. For instance, consumers will be required to place their orders before 4pm, delivery vehicles can only carry up to $100 worth of retail product with them, and recipients can be denied their deliveries if they’re visible intoxicated. Amazingly, these are just some of the restrictions associated with recreational marijuana delivery in Oregon.
However, a delivery service also opens up new doors for the marijuana industry. Seniors with limited access to transportation and the disabled could become valuable new sources of revenue. Despite being a guinea pig, Oregon’s industry first could quickly catch on if it’s successful.
Oregon may be a bright spot, but it’s still a dangerous investment
Oregon is truly the pioneer state of the marijuana industry, and in my best estimation the one that’s most likely to be successful. But just because Oregon is looking like a success in the early going doesn’t mean that marijuana stocks have suddenly become an investment you need to own.
As noted above, the long-term outlook for marijuana is still greatly in flux. The 2016 elections could have an important say on what happens to the marijuana industry. A change in the oval office or in Congress could stymie the industry or push its cause to the forefront on Capitol Hill.
The safety profile of marijuana remains another glaring concern. Although studies have emerged highlighting the possible benefits of marijuana in treating certain types of epilepsy, as well as type 2 diabetes and select cancers, a mountain of clinical data also exists suggesting that marijuana has harmful effects on the body and mind. Establishing an all-encompassing profile of marijuana is going to take time, and it’s giving lawmakers in Washington a much needed scapegoat to not have to decide one way or another whether to reschedule marijuana at this time.
All of this likely spells one thing for marijuana-based stocks: ongoing losses. As long as the federal government views marijuana to be a potentially dangerous substance, federal tax and banking constraints are likely going to put a stranglehold on the industry. Long story short, there are probably far better places you can invest your money than in marijuana stocks.
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