The Cannabis Industry Won Big on Election Day. Now What?

Voters in Arizona, Montana, New Jersey, and South Dakota on Election Day approved ballot measures legalizing recreational marijuana--becoming the latest states to do so since Colorado and Washington became the first states to ratify in 2012. Currently, recreational cannabis is legal in 11 states and Washington, D.C., and has been decriminalized in 16 states. South Dakota also moved to legalize medical marijuana, as did Mississippi. This version of legalization is currently on the books in 33 states and Washington, D.C. Interestingly, D.C. voters on November 3 also approved the decriminalization of psychedelic mushrooms.

While the prospect of some form of marijuana legalization now hitting even more states is, well, intoxicating, the timeline should be sobering--with some efforts taking nearly a year to kick in. That's not great news for the legions of cannabis entrepreneurs champing at the bit to get an in these states. 

But it's bound to be worth the wait. North America accounted for 88.4 percent of the global market size for legal marijuana in 2019, which clocked in at $17.7 billion and is expected to balloon to $73.6 billion by 2027, according to a 2020 industry report from Grand View Research.

As far as these latest ballot initiatives are concerned, voter approval is just the first step in the process. Next, state legislatures need to assess their current regulatory structures and establish the logistics of regulation and possession limitations. The timing of this process may be different in each state. 

It's worth noting that medical marijuana use typically takes longer, as regulations need to be run through a state's Department of Health. For instance, South Dakota says it expects to hash out the details at least 120 days after the measure is passed, and under Initiative 65, Mississippi says it aims to establish a program by August 2021. 

Besides the timing, the barriers to entry for building a cannabis business can be steep. Marijuana is still illegal at the federal level under the Controlled Substances Act, so companies that are engaged in the growth, manufacture, or sale of marijuana are have myriad legal hoops to jump that other types of legal business don't. What else? They often can't get a bank account. And even traditional business tax deductions--like being able to deduct ordinary and necessary business expenses--may be beyond their purview. 

Retail isn't an easy sell in some states either. In the same way that bars in some locales have trouble lassoing liquor licenses, marijuana sellers also face similar licensing issues, depending on where they're located. In Arizona, the Smart and Safe Arizona Act limits retail sites to mostly the existing medical-marijuana dispensary locations. The state also places a tax of 16 percent on the goods, in addition to regular state sales taxes.

As Mashable reports, in Montana, marijuana will be taxed at 20 percent. Washington and Illinois tax recreational marijuana at a hefty 43.5 percent and up to 31.5 percent, respectively. New Jersey, on the other hand, posts a staggeringly low tax rate for recreational marijuana at 6.625 percent, and local legislatures can tax an additional 2 percent on top of that. This is similar to the taxes on medical marijuana such as in Mississippi where it will be taxed at seven percent.