The war has delayed the legalization of marijuana in the US and Germany

In early October, Joe Biden pardoned those convicted of marijuana possession. For a moment, there seemed to be hope for an imminent, full legalization of marijuana in the US. However, it turns out that after the pandemic, the war in Ukraine attracts the attention of politicians and stops work on this topic. This is why stock prices of companies in this market are constantly depressing.

Full legalization of marijuana in the USA?

Joe Biden stated that it didn't make sense to marijuana was subject to the same restrictions as heroin under federal law. This was the long-awaited first step toward federal decriminalization of recreational marijuana. But there is still a long way to go to finally complete this process, as many legal and factual problems have to be resolved.

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There is now a patchwork of state laws and conflicting federal laws in place in the United States. Companies related to this industry and investors definitely counted on faster progress. However, it has been delayed, first by the pandemic and now by the focus of politicians on inflation and international issues, including the conflict in Ukraine. The delays strongly affect the fall in prices of companies in this industry. Their ETF Alternative Harvest (MJ) has fallen 58% this year, and the marijuana industry is a small fraction of the size and profitability of similar tobacco and alcohol sectors.

Consultation in Germany

In Europe, a turning point in thinking about marijuana and the business associated with it will be its legalization in Germany. The implementation of this postulate is part of the coalition agreement between the SPD,
Greens and FDP, which is the basis for the activities of the government of Olaf Scholz. Legalization is a priority for the government, but work on it has been slowed down by the pandemic and the war. Work is progressing slowly: public consultations on the proposed solutions are ongoing. A detailed design is to be presented by the end of 2022. The initial assumptions of the project assume that each adult will be able to own and buy marijuana at licensed stores. The sale is also to be taxed.

According to the FDP pre-election announcements, the taxation of marijuana, similar to cigarettes, should bring about EUR 1 billion in additional revenues to the budget annually. According to independent analysts, this amount is even higher and may even reach EUR 5 billion. Germany could thus become the largest legal marijuana market in the world. Therefore, it is not surprising that American companies have repeatedly expressed their interest in this market.

Medical marijuana

Currently, medical marijuana is legal in 47 countries and 37 US states. Recreational use is legal in seven, such as Canada, Mexico, and South Africa, as well as 19 US states. In the margins of the upcoming congressional elections on November 8 in the US, voting on recreational cannabis use will take place in five more: Arkansas, Missouri, North and South Dakota, and Maryland.

According to statistics, currently 16 percent. Americans admit to using marijuana. For comparison, 11 percent. smokes cigarettes and 45 percent. drinking alcohol. However, the situation in the capital markets is completely different. The top ten alcohol and tobacco stocks have $ 740 billion and $ 410 billion of market capitalization, respectively. This is many times more than the $ 17 billion capitalization of the marijuana industry.

The largest company in this industry - Curaleaf, increases sales by 30 percent. per year, but with a low gross margin of 15%. For comparison, the tobacco giant Philip Morris only increases sales by 6%, but its margin is 66%. This shows how much future potential lies in this very battered industry. The eToro @CannabisCare Smart Wallet offers an exposure to the marijuana industry.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.