The legal US cannabis market just got a little greener.
In midterm elections that saw Democrats gain control of the House and reaffirmed Republican control of the Senate, more states also voted to legalize marijuana. The outcome will help expand a US pot market that could be worth US$75 billion ($11.5b) by 2030, according to an estimate from Cowen & Co.
Pot stocks, led by Tilray, surged on the news.
Michigan became the 10th US state -- and first in the Midwest -- to legalize recreational pot. Sales there, estimated to start in 2020, could grow to as much as US$1.7b in the coming years, according to the trade publication Marijuana Business Daily. The total legal US market is expected to hit about US$11b in sales in 2018.
With Michigan voting to legalize adult use, neighbors like Ohio and Illinois could soon follow suit to help build a market in that region, according to Ken Shea, an analyst at Bloomberg Intelligence.
"Michigan can act as an anchor," he said. "You could get a cluster effect."
Long demonized as a dangerous drug, and still considered an illicit substance with no medical use by the federal government, marijuana is increasingly going mainstream as investors pour billions into the industry. Cannabis is now legal across Canada, and US firms are rushing north of the border for public listings and to access capital markets. In the US, meanwhile, the steady creep of legalization has companies buying up licenses and expanding operations.
In addition to the recreational market, more states are embracing medical marijuana. Missouri became the latest state to allow medical use, while a proposition in Utah also appeared poised to pass as of Wednesday morning.
Adding two more states with medicinal marijuana would mean almost 70 per cent of Americans could have access to the drug for that purpose. Some in the industry see federal legalization of medical marijuana as the best path to ending prohibition in the US, which has held big banks and institutional investors on the sidelines.
Still, not all states were ready to follow Canada's lead: North Dakota's ballot measure to decriminalize marijuana failed. More than 60 per cent of Americans support making pot legal, but with cannabis still illegal on a federal level, the politics remain fraught.
Cannabis stocks gained Wednesday, led by Tilray and Cronos Group Inc. Tilray, the largest publicly traded pot stock, gained as much as 9.3 per cent, while US-listed shares of Cronos rose as much as 6.6 per cent. Aurora Cannabis Inc. and Canopy Growth Corp. gained as well.
In the aftermath of the midterm election, attention in the cannabis industry will turn to Congress and, soon enough, the 2020 presidential election. Democrats in the House may hold hearings on marijuana and pursue legislation that would ease banking restrictions or even end federal prohibition.
It's unclear if marijuana bills could get through the Republican-held Senate. Nonetheless, pressure will continue to mount on lawmakers to ease restrictions, particularly as more countries move forward with medical cannabis, according to Chris Walsh, vice president of Marijuana Business Daily.
"You'll see immense pressure for them to do something," he said. "At some point they'll realize we're falling behind."