Tiny U.S. Territory to Make Legalization History

Canada Weed Legalization

The pot landscape is set to change irrevocably in just over two months, on October 17, to be exact. That is when Canada is set to make recreational sales legal for adults, which will make it the first industrialized country to take this step, and the second country to legalize weed for adult use, the first being Uruguay.

Embracing recreational cannabis sales is likely to generate around $5 billion in added annual sales, this on top of what domestic and export sales of medical pot already brings in. These exorbitant dollar figures are the reason investors have been pumping up valuations of pot stocks over the last two years or so. However, another tiny little speck on this earth is about to outdo everyone else.

Canada is not the only country, state or territory busy moving legal marijuana forward. As Forbes reported recently, one U.S. territory seems about to greenlight the use of cannabis recreationally: The Commonwealth of the Northern Mariana Islands, or CNMI. As of the 2010 United States census, CNMI boasted a population of almost 54,000 people.

Back in May, the CNMI’s Senate voted in favor, with three abstentions and six yes votes, of drafting legislation to end cannabis prohibition and allow anyone 21-years or older to cultivate, carry, and use weed legally. Like in U.S. states that have liberal weed laws, the CNMI intends taxing products and using the money generated from sales to fund the program, as well as other government functions.

However, at the time of its drafting, there was a little hiccup in the legislation, namely that any bills generating revenue must originate not in CNMI’s Senate, but in its House. The issue became moot this week, as the CNMI House of Representatives approved similarly crafted legislation of its own to legalize adult-use pot with 18 yes votes, one abstention, and one no vote.

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Although the original Senate bill underwent a few changes, the House CNMI’s bill now goes to the Senate. Seeing as the CNMI Senate showed strong support for the original bill, it seems very likely that the tiny territory will soon legalize recreational marijuana. What makes this move unique is that it is occurring entirely through the legislative process.

What this means that is citizens of the CNMI are not voting themselves whether to legalize cannabis recreational or not. Lawmakers in the Senate and House are making these decisions on their own. If you remember, back in January, Vermont became the very first state in the U.S. to legalize recreational pot through the legislative process.

The other eight states that gave adult-use pot the green light had their voters approve measures in state ballots. However, Vermont does not permit the retail sale of cannabis. The uniqueness of the CNMI’s legislative approval of recreational weed is due to it becoming the very first of any U.S. state or territory to permit sales of recreational marijuana to adults.

Additionally, the CNMI does not currently have any programs in place for a legal medical pot industry, which means that it will also be the first to use one bill to legalize medical marijuana, recreational pot, and industrial hemp in one single move. With CNMI about to legalize, it once again raises to the fore the idea that perhaps we are nearing an inflection point with cannabis in the United States.

It seems that we are almost at a point now where the scales could tip and force reform at the federal level. The data certainly seems to support this idea. In every survey now coming out, the American public favors legalization overwhelmingly. Over just the last year, five national polls show support ranging between 59 percent and 64 percent for federal legalization of recreational weed.

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At the same time, according to an independent poll from Quinnipiac University in April this year, 93 percent of Americans want physicians legally able to prescribe marijuana for medical reasons. Since 1996, 30 states have drafted laws to legalize medical weed, including the ultra-conservative Republican state of Oklahoma this June.

With a whopping three-fifths of the country now actively regulating and managing their pot industries, reform at the federal level is presumably imminent. Then, there is the FDA approval on June 25 of Epidiolex, GW Pharmaceutical’s (NASDAQ:GWPH) lead drug, a cannabidiol-based oral medication for two types of rare childhood-onset epilepsy. This is the first cannabis-derived drug approved by the FDA.

The question here is if FDA-approval of this cannabinoid-based medication would drive federal reform. Federal law does not recognize Schedule I drugs, such as cannabis, as having any medical benefit, but GW Pharmaceuticals has officially and very clearly proved that a factual inaccuracy. However, despite momentum for legalization growing rapidly, there are no guarantees federal scheduling will change.

The almighty dollar is just one reason why the federal government prefers to keep the drug illegal. Even though legalization enables the collection of excise taxes, pot-based companies are already paying a substantial amount to the federal government in corporate income taxes. Under Section 280E of the U.S. tax code, companies that sell Schedule I or II substances cannot benefit from normal corporate income tax deductions.

The result of this is an effective tax rate for weed businesses that can exceed 70 percent. If the federal government removes cannabis from its schedule, then under 280E, it would lose billions of dollars over the next five years in revenues. It has other concerns too, such as the impact that driving under the influence of marijuana would have if legalized at the national level.

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Although there are clear guidelines for drunk driving, such as blood alcohol limits, sobriety tests, and enforcement processes in place to determine impairment, there are no guidelines to determine marijuana use. Additionally, breathalyzers capable of measuring THC in a driver’s system with any real accuracy are still a ways from official deployment.

Furthermore, Republicans currently hold a majority of seats in both the House and the Senate. Historically, Republicans have always held a less favorable view of cannabis than independents and Democrats, which makes it unlikely that they would legislate the legalization or rescheduling of weed without a notable push.

Even if the 2018 elections end up flipping or mixing Congress, there is still no guarantee that President Trump would sign marijuana legislation into law, especially if passed by Democrats. Despite all this, there is no doubt that momentum is fast building within the marijuana industry, but decisive changes at the federal level are likely still years away in the United States.

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