Cannabis is one of the fastest-growing industries in the U.S. even though the drug is banned under federal law. More Americans believe pot should be legal—68% according to the latest Gallup poll—and 18% of Americans now admit to using it, up from 10% in 2005.
The industry has had a few banner years and 2021 was no exception. Connecticut, New Mexico, New Jersey, New York, and Virginia all legalized adult-use this year.
Although Congress did not pass a bill to legalize pot federally, there were some encouraging movements. The Safe Banking Act, which would give the industry easier access to the banking system and end the punitive tax code the industry is currently subject to, passed the House for the fifth time but it did not make it out of the Senate.
In July, Senate Majority Leader Chuck Schumer and his colleagues Senators Ron Wyden and Cory Booker released a proposed draft of their much-anticipated bill that would end America’s decades-long prohibition of cannabis. In October, freshman Congresswoman Nancy Mace, a Republican from South Carolina, formally introduced a bill that would also end the federal pot ban and it has garnered support from the industry. Mace’s bill is very business friendly with a proposed 3% tax rate and organizations as diverse as NORML and the Charles Koch-founded Americans for Prosperity are behind it.
The legalization of marijuana has spread slowly across the country since 1996, when California became the first state to legalize medical marijuana. Now, 18 states allow for adult-use and 36 allow for medical use. In 2021, legal sales hit $25 billion, according to estimates by analysts at Cowen, and it will grow into a $100 billion industry within the decade.
This year will be an important one, says Matt McGinley, an analyst who covers cannabis at Needham.
“This is such an early-stage industry, every year should be a landmark year at this point,” says McGinley. “The industry will still have a very strong growth rate and we’ll see a number of key markets come online for adult-use in 2022 or set conditions for adult-use in 2023.”
McGinley says that federal legalization is unlikely in 2022.
“I think the best hope for federal reform is SAFE Banking,” he says, adding he believes there’s a 50/50 chance it passes this year. “I would not say there is no chance for more comprehensive reform at the federal level, but there is very little hope unless SAFE passes.”
McGinley says that if Congress can’t agree on SAFE Banking, which has bi-partisan support, then it’s unlikely that Congress would pass a bill ending prohibition.
A report written by Cowen analysts, including Vivien Azer, who leads cannabis coverage for the firm, and Jaret Seiberg, an analyst at Cowen’s Washington research group, lays out a path for federal legalization in 2022.
“We continue to view Washington’s legalization of cannabis as a matter of when, not if,” the reports says, “and it is conceivable this could happen in 2022, either as a result of bipartisan legislation ahead of the November midterm elections, or potentially in the lame duck period that will begin in November 2022 and end in January 2023 when a new Congress is convened.”
Cowen analysts believe that Mace’s States Act is a “possibility.”
In another report, Seiberg wrote that he believes Senate Majority Leader Schumer will formally introduce his cannabis legalization bill this year but doesn’t have high hopes for its passage.
“We don’t expect that to pick up the 10 Senate GOP votes needed to pass, but its failure should open the door for a more modest compromise bill,” Seiberg wrote. The compromise could include the SAFE Act, like McGinley predicts.
Even though large-scale federal reform is not a sure thing, more states are expected legalize adult use this year.
“We will very likely have a few states legalize in ’22,” says McGinley.
Rhode Island, which legalized medical marijuana in 2006, is close to legalizing adult-use.
“We’re very close to being able to, in the month of January, release the framework of a bill that will begin a robust public hearing and vetting process,” Rhode Island House Speaker K. Joseph Sherkarchi told the Providence Business News.
Senate Majority Leader Michael J. McCaffrey is confident the bill will become law. “Once it goes through the hearing process, I think that it will pass in both chambers overwhelmingly,” McCaffrey told PBN.
Delaware legalized medical use in 2011 but efforts to legalize recreational use stalled last year. House Bill 150, which would tax and regulate cannabis for adults 21 and older, was headed to a House floor vote in June but it was postponed. Legislators are expected to work on the bill in January.
Oklahoma, which is home to one of the hottest and most liberal medical marijuana markets, could also approve adult-use this year. Voters are likely to legalize adult-use through a ballot initiative.
There are other states on the horizon, but those outcomes are less clear. Maryland could legalize through the legislative process and Missouri could legalize through a ballot initiative, but McGinley is less optimistic about both of those states. Ohio and Pennsylvania are also possible, but McGinley says Ohio has an “onerous” legislative approval process and the Pennsylvania legislature “doesn’t seem supportive” of legalizing adult-use cannabis.