The next decade is expected to be huge for the marijuana industry. After logging $10.9 billion in global legal sales in 2018, the State of the Cannabis Markets report from Arcview Market Research and BDS Analytics is calling for north of $40 billion in worldwide revenue by 2024. Meanwhile, Wall Street is forecasting as much as $200 billion in annual sales by 2030.
At the center of this growth is the United States. Most Wall Street and independent sales projections suggest that the U.S. will account for a third, to maybe even more than one-half, of worldwide legal weed sales.
But as you're always probably aware, the U.S. federal government has remained firm on its stance that cannabis is a Schedule I, and therefore wholly illegal, drug. This hasn't stopped 33 states from legalizing marijuana in some capacity (11 of which have also given the green light to adult-use recreational pot), but it's certainly put a ceiling on the potential of the U.S. weed industry, as well as created regulatory headaches galore.
Former FDA Commissioner Scott Gottlieb offers a controversial take on cannabis oversight
What should be done to bridge this gap in opinion between the federal government and select states remains a point of contention. But it is a topic that's drawing a lot of interest from Scott Gottlieb, the former head of the U.S. Food and Drug Administration (FDA). Gottlieb stepped down at the beginning of May after nearly two years on the job.
In an on-air interview with CNBC on Oct. 14 (link opens YouTube-hosted interview), and following an editorial in The Wall Street Journal on the recent vaping health scare, Gottlieb laid out his ideal vision for what should happen with cannabis in the United States. While Gottlieb is no fan of recreational marijuana (he thinks it should remain illegal), and believes that vaping any liquids containing tetrahydrocannabinol (THC) should be banned, THC being the psychoactive cannabinoid that gets users high, he recently suggested that the U.S. federal government is the only entity capable of effectively regulating state-level marijuana programs.
During the interview, Gottlieb admits that attempting to pass federal cannabis legislation that doesn't involve some allowance for recreational use would be impossible, given just how many states have approved adult-use marijuana sales. However, the former FDA chief also realizes that there's real opportunity for common ground to be found between the federal government and states that would allow the U.S. Drug Enforcement Agency (DEA) and FDA to come in and offer resources that would allow for proper oversight. Only with federal agencies involved does Gottlieb believe the black market can be driven out.
In Gottlieb's ideal scenario, the medical marijuana market would be treated stricter, with the DEA and FDA teaming up to control the concentrations of THC and/or cannabidiol (CBD) in products, as well as substantiating claims made medical pot companies make through clinical studies. (CBD is the nonpsychoactive cannabinoid best known for its perceived medical benefits.) These federal agencies would also be able to regulate what forms of consumption are allowable. For example, federal law could stamp out vape-based cannabis consumption, both medical and recreational. As a reminder, more than two dozen people have died in recent weeks from mysterious vape-related lung illnesses.
Likewise, the DEA and FDA would work together in the recreational pot market to control the potency of product, as well as oversee the manufacturing and testing process.
Can Gottlieb's vision become a reality?
In other words, Gottlieb's proposal is that the federal government legalize cannabis at the federal level in order to provide a level of enforcement that's just not there are the state level right now. But is this suggestion even possible?
On one hand, we've certainly seen a shift in public opinion in favor of cannabis in recent years. Back in 1995, the year before California became the first state to legalize medical marijuana, only a quarter of Gallup survey takers favored legalizing the drug nationally. As of October 2018, support for national legalization hit an all-time high of 66%. There's brewing support among the public for federal change, as well as a lot of tax dollars that could be collecting from marijuana sales conducted at the state level.
On the other hand, there is no shortage of obstacles to legalization -- even if it were a very strict proposal. For example, all cannabis-based riders and bills have been stopped short of a Senate vote by Senate Majority Leader Mitch McConnell (R-Ky.). Republicans also control the Senate and Oval Office, which is problematic considering that they have historically had a more adverse view of marijuana than Democrats or independents.
Furthermore, cannabis isn't a polarizing issue, as of yet. According to a survey from the independent Quinnipiac University, just one in eight respondents wouldn't vote for a candidate if that candidate didn't share their view on marijuana. In other words, lawmakers aren't in danger of losing their elected seats if they oppose marijuana legalization efforts.
Gottlieb's vision could become a reality, but probably not in the near term. A change in the makeup of the Senate would almost certainly be required for real cannabis reform to take hold in the United States.
Gottlieb's proposal would be a mixed blessing for pot stocks
As for marijuana stocks, Gottlieb's proposal offers a mixed blessing. It would be a positive in that more markets would be reached with a federal legalization bill. At the same time, production costs would probably rise because of added testing and oversight, and consumption options would probably decline.
For example, tobacco giant Altria Group (NYSE:MO) is betting big bucks on Canadian pot grower Cronos Group (NASDAQ:CRON). Following years of declining tobacco cigarette shipments in the U.S., Altria invested $1.8 billion into Cronos in mid-March for a 45% non-diluted stake. While this investment in Cronos does give Altria exposure to the Canadian pot industry, the real purpose appears to be to create a vaping powerhouse. After all, Altria is a 35% stakeholder in Juul, the vaporizer company that currently dominates the U.S. vape market. With derivative marijuana products hitting dispensary shelves in Canada in about two months, Cronos will be looking to stake its claim up north, while potentially using its marijuana expertise to push into U.S. markets once weed is federally legalized.
Assuming Gottlieb's proposal finds an audience, cannabis-based vaping solutions wouldn't be an available option in the United States. This isn't to say that Cronos Group doesn't have other alternative consumption options at its disposal, so much as to demonstrate that Altria's grandiose plan would somewhat go up in smoke,
To be clear, what Gottlieb suggested on CNBC is nothing more than one of many ideas in the cauldron at the moment. But there's no denying that the pot is being stirred (pardon the pun), and both cannabis businesses and enthusiasts are counting on action from the federal government sooner than later.