A worker waters cannabis plants at a facility in Lincoln, Ont. Many cannabis companies posted sharp stock increases on Wednesday in response to pro-legalization results in the midterms.LARS HAGBERG/AFP/Getty Images
While voters in three American states approved major changes that would remove barriers to legal cannabis on Tuesday, the U.S. midterm elections produced arguably far more important advances for the cannabis industry in states where marijuana was not on the ballot.
In Texas, Republican Pete Sessions lost his bid to continue representing the state’s 32nd congressional district. Once named Washington’s “most powerful anti-pot official” by Politico, Mr. Sessions used his position as chair of the House rules committee to prevent as many as three dozen proposed laws that would help the cannabis industry from reaching the House floor for debate and eventual vote, according to Mason Tvert, a spokesperson for the Marijuana Policy Project, a pro-legalization lobby group.
“There are all sorts of [initiatives] that we might see now that Sessions is no longer there,” said Mr. Tvert, predicting measures aimed at making it easier for legal cannabis businesses to access banking services and apply for tax incentives will likely be among the first legislative victories for the industry. More significant legislation such as the STATES Act, which would provide federal recognition of cannabis businesses that are legal at the state level, would likely come later, Mr. Tvert said.
“Pete Sessions’s loss is huge,” said Adam Orens, founding partner of the Denver-based Marijuana Policy Group. “It is amazing that one person can have that level of power being elected from a relatively small district in Texas.”
Democrat Colin Allred, who will take Mr. Sessions’s seat, has been supportive of medical cannabis legalization. Adding to the optimism among legalization advocates was the Wednesday resignation of U.S. attorney-general Jeff Sessions (no relation), who as the country’s chief law enforcement official had regularly threatened to crack down on cannabis-related businesses for violating U.S. federal law, even in jurisdictions where those businesses are operating within state laws.
Cannabis stocks posted dramatic gains after pro-legalization results in the midterms and the resignation of Mr. Sessions. Shares of Nanaimo, B.C.-based Tilray closed more than 30 per cent higher on the Nasdaq in New York while Smiths Falls, Ont.-based Canopy Growth’s New York listing gained nearly 8.3 per cent as of Wednesday’s close. In Canadian markets, shares of MedMen gained 6.3 per cent on the Canadian Securities Exchange while shares of Edmonton-based Aurora Cannabis gained nearly 9 per cent on the Toronto Stock Exchange.
In Illinois, incumbent Republican Governor Bruce Rauner lost his re-election bid to Democratic challenger J.B. Pritzker, who has on multiple occasions pledged to support full-blown legalization of recreational cannabis for adults. Mr. Pritzker referenced an estimate for tax revenue from recreational cannabis sales, which determined the sales could generate as much as US$700-million in state revenue during the first few years.
Two bills are already before Illinois lawmakers that would establish the right for state residents aged 21 and older to grow up to five plants per household and purchase up to one ounce of dried bud at a time. The legislation would also set wholesale tax levels at US$50 an ounce and an additional 6.25-per-cent sales tax with the potential for higher local excise taxes. Mr. Rauner had promised to veto those bills were they to reach his desk, but with Mr. Pritzker set to replace him, legalization advocates are growing more hopeful.
“We could see some legislation move very quickly early next spring,” said Dan Linn, executive director of the Illinois chapter of the U.S. National Organization for the Reform of Marijuana Laws. “If everything goes as well as it possibly could, and we get a bill on the governor’s desk in the spring that has immediate effect, we could see sales start as soon as next summer.”
More realistically, Mr. Linn expects the legalization process will take until the end of the decade, with Illinois beginning recreational sales closer to mid-2020. However, Mr. Linn also noted the passing of Tuesday’s ballot measure in neighbouring Michigan could “light a fire” under Illinois lawmakers to move quickly, as many state residents will soon be able to drive a short distance to acquire marijuana products.
Michigan’s Proposal 1 passed with 57 per cent of the vote, meaning recreational cannabis use and possession will be legal in the Wolverine State as soon as the results are certified in as little as 10 days. Once certification is complete, Michigan lawmakers will have one year to establish a regulatory framework for the recreational market. The value of Michigan’s cannabis market is expected to nearly double over the next five years from US$856-million in 2018 (for medicinal and potentially up to a month of recreational) to roughly US$1.3-billion in 2022, according to Canaccord Genuity analyst Bobby Burleson. California-based cannabis retail chain MedMen, which went public on the Canadian Securities Exchange in May, gained direct exposure to the Michigan market when it agreed to buy PharmaCann, which has a Michigan presence, in a US$682-million stock-based deal last month.
Daniel Yi, MedMen’s senior vice-president, was in Chicago on Wednesday meeting with the PharmaCann team. While he called Michigan’s legalization a “tremendous step forward,” in a telephone interview, Mr. Yi stressed the industry is taking a broader view of its U.S. midterm victories. “There is pretty low-hanging fruit for Congress in terms of the STATES Act, as there is bipartisan support there at least from the electorate and I think it would be wise for Congress to capitalize on that,” Mr. Yi said. “All these arrows are pointing in the direction of eventually ending prohibition.”
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