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Will U.S. Legalize Cannabis? Industry Insiders Give Their Take

Momentum for cannabis legalization at the federal level has never been stronger now that Democrats control the White House and both houses of Congress.
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The future of cannabis legalization is at the forefront of discussion for investors looking to get into the sector. 

The consumer appetite for the plant is undeniable and some 67% of Americans believe that marijuana should be legalized. 

Analysts at New Frontier Data expect the U.S. legal cannabis market to more than double from $19.95 billion in 2020 to $41.5 billion by 2025. Annual medical sales are expected to grow from $8.6 billion to $16.3 billion by 2025, while adult-use sales are expected to grow from $11.4 billion to $25.1 billion.

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Democratic control of the White House and both houses of Congress has some industry insiders more bullish than ever before about the prospects for federal legalization.

Here's what some insiders had to say about the prospect of cannabis legalization at the federal level in the near future. 

"I think the prospect of cannabis reform will improve with the Democrats in control, although it is unlikely that we get full federal legalization in the short-term," said Louie Reformina, chief business development officer at Turning Point Brands  (TPB) - Get Turning Point Brands Inc. Report, maker of the ubiquitous Zig-Zag brand of cannabis and tobacco rolling papers.

Reformina thinks there's still not enough political support for full reform, but expects "some legislation similar to a version of the STATES Act" that would ease banking regulations and make it easier in general for businesses to operate in states where cannabis is legal.

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Currently there are 16 states, along with the District of Columbia, that have fully legalized recreational marijuana. And while that piecemeal approach is a positive sign, until the plant becomes legal at the federal level, the industry likely can't reach full maturity. 

"Each state that legalizes cannabis for medicinal or adult-use, further solidifies the inevitability of federal legalization and positions the industry for sustainable long-term growth," said David Weinstein, CEO of NewLake Capital, a cannabis real-estate investment company.

NewLake expects legal sales in the U.S. to exceed $35 billion annually by 2025.

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With more states legalizing, however, there is also the specter of increased regulation, according to Everett Knight, executive vice president of international cannabis product maker The Valens Company  (VLNCF) - Get VLNCF Report.

"With many more legal markets in the States, the FDA will pass more regulations in 2021. Expect to see increased safety requirements and product recall processes instituted in the US market. US MSOs (multi-state operators) will have to transition to GMP (good manufacturing practice) and food safe regulations imposed on Canadian LPs (licensed producers)," Knight said.

GMP is a system for ensuring that products are produced consistently and according to quality standards, while food safe regulations ensure product manufacturing takes place in a hygienic way.