This Bill To Legalize Recreational Weed Has One Glaring Omission

This article originally appeared on the Motley Fool.

Considering how unpopular marijuana was with the public during the mid-1990s, it's phenomenal to take a step back and witness just how rapidly pot's presence has grown in the United States over the past 21 years.

Marveling marijuana's expansion

In 1996, California became the first state to legalize the use of medical cannabis for compassionate use. Since California, 27 additional states and Washington, D.C., have followed. Five new states legalized medical weed last year alone, including Pennsylvania and Ohio, which chose to do so entirely through the legislative process.

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In 2012, Washington and Colorado became the first two states to legalize recreational marijuana for adult use. Since then, six additional states have legalized recreational pot, too. If not for Arizona's recreational weed initiative falling 2% short of passing in November, it would have been a clean sweep for pot initiatives this past election.

This expansion is founded upon a fundamental shift of opinion from the public (and to some degree legislators) on marijuana. According to a Gallup poll in 2016, 60% of respondents want to see cannabis legalized nationally, which compares to just 25% in 1995. This shift also allowed North American sales of legal weed (which includes Mexico and Canada, as well as recreational and medical sales) to jump 34% last year to $6.9 billion, per ArcView Market Research.

And this expansion could be far from done in North America. Our neighbors to the north are contemplating a bill to legalize recreational weed by the summer of 2018, while Mexico's legislature recently passed a bill to legalize medical marijuana.

A first-of-its-kind recreational marijuana bill was just introduced

Within the U.S., a number of states could be readying for a run at recreational legalization in 2017 or 2018. However, one of the unlikeliest of candidates, New Jersey, just entered the picture in a big way.

Last week, Sen. Nicholas Scutari (D-NJ) introduced a bill that would legalize recreational marijuana in The Garden State. Said Scutari, "It's time to end the detrimental effect these archaic laws are having on our residents and our state."

The move to introduce a recreational weed bill is a bit surprising given that Gov. Chris Christie (R-NJ) is one of the most ardent opponents of marijuana's expansion. In fact, during his presidential campaign Christie alluded that federal law would have been reinstated had he won the Republican ticket and national election over the Democratic candidate. In other words, Christie would almost certainly reject a legalization initiative that gets to his desk, assuming approval in the state's legislature.

But, Scutari also notes that he's looking toward the future. New Jersey has a gubernatorial election this November, and plenty of Democrats are lined up in an attempt to unseat Christie. A majority of these leading candidates have voiced their willingness to legalize recreational pot if a measure were brought to their desk.

However, it's not Scutari's forward-thinking bill that makes it so unique -- it's what would (and wouldn't) be legalized.

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According to the bill, marijuana products would face a tax for five years ranging from 7% to 25%, and a special regulatory division known as the Division of Marijuana Enforcement would be created to oversee the industry. Adults ages 21 and over would be allowed to possess up to one ounce of cannabis, along with 16 ounces of cannabis-infused edibles, 72 ounces of marijuana tinctures, drinks, and oils, and seven grams of concentrates.

Now here's the interesting component of this bill: home cultivation would not be allowed! If passed, it would make New Jersey the first state to legalize recreational marijuana without allowing at least some legal home cultivation.

But with Christie as governor, the chances of this bill passing into law in its current form are slim-to-none.

A mountain of hurdles crush businesses and marijuana stock investors

Admittedly, New Jersey introducing a recreational pot bill was a huge surprise. However, it doesn't overshadow the fact that the weed industry is facing a number of major hurdles that aren't likely to go away or dissipate anytime soon.

Plain and simple, marijuana remains a schedule I substance at the federal level. This means it has no recognized medical benefits, and it's illegal. This illegal status makes it very difficult for research companies to run clinical trials involving cannabis, and it makes life tough for companies that operate in the weed business.

For example, marijuana-based businesses have little or no access to basic banking services, which forces many to deal solely in cash. This can be a major security concern, and it's also quite the detriment to growth given a lack of access to lines of credit or traditional loans.

Pot companies also get the short end of the stick come tax time. Unlike normal businesses that are able to take corporate income-tax deductions, businesses that sell a federally illicit substance aren't allowed to take corporate tax deductions. This result in weed companies paying an exceptionally higher tax rate than normal businesses.

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These disadvantages, along with a White House that doesn't seem keen on the idea of marijuana's expansion, are what make investing in marijuana stocks so dangerous.

Take a drug developer like Insys Therapeutics (NASDAQ:INSY) as an example. Its Food and Drug Administration-approved drug Syndros, an oral dronabinol solution that's essentially the pharmaceutical version of tetrahydrocannabinol, the psychoactive component of cannabis, was approved last year but won't hit pharmacy shelves until the second-half of 2017. The nearly one-year wait between approval and eventual launch for this drug to treat chemotherapy-induced nausea and vomiting and anorexia associated with AIDS is because of the need for scheduling from the Drug Enforcement Agency (DEA). As a schedule II substance, which is what the DEA labeled it earlier this year, it'll face tight regulatory oversight, which will make sales growth challenging for Insys.

Other pot stocks within the U.S., both big and small, will face similar challenges from either the Food and Drug Administration or federal law. Even with public opinion changing rapidly and legal sales of weed growing by a double-digit percentage, your best bet is to stay away from marijuana stocks for the time being and cross your fingers for change at the federal level.

Sean Williams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.