The People Have Spoken & Pot Prevails

Source: Cowen and Company

November 9th

The Cowen Insight

Post election, we offer a summary of results from the ballot initiatives impacting our coverage across cannabis, tobacco and soda. Cannabis results were encouraging, with 8 of 9 states likely passing their respective measures. As expected, California passed the ballot measure to increase the excise tax on a pack of cigarettes by $2.00, while all 4 cities look set to pass a tax on sugary beverages.

Cannabis Country

Momentum on cannabis was readily apparent in Tuesday’s results, as all but one of the nine states look to have passed their respective cannabis measure.

Reaching New Levels on Rec. As expected, California led the way with the measure to legalize recreational cannabis passing with ~56% approval (with 93% reporting). Massachusetts and Nevada also passed their respective recreational cannabis measures. Polling looks favorable in Maine, currently with 50.4% approval, though only 89.1% of votes have been reported, and it is therefore still too close to call. Meanwhile, the measure to legalize recreational cannabis in Arizona failed, which doesn’t come as a surprise, given polling heading into Tuesday’s vote was the weakest for this state. As such, it looks as though the number of states with legalized recreational cannabis doubled to eight after Tuesday’s election. What is more, the percent of Americans living in a state with legal recreational cannabis increased nearly 4x to over 20%. We view marijuana as low on the list of priorities for President Trump, in particular as they were voter led at the state level, but we would expect a notable amount of focus on enforcement (in particular depending who is appointed Attorney General).

Medical. As it relates to medical cannabis measures, all four ballot measures passed. As such, Florida, North Dakota and Arkansas bring the number of states with legalized medical cannabis to 28. Meanwhile, Montana passed a cannabis measure, removing a restriction that limited the number of patients per medical provider to three, which caused many dispensaries to shut down after becoming effective earlier this year.

Tobacco Taxes Manageable

As expected, California passed the ballot measure to increase the cigarette excise tax by $2.00, to $2.87 per pack and impose an equivalent excise tax on other tobacco products and vaping products. While CA accounts for over 12% of the U.S. adult population, the state accounts for less than 7% of cigarette industry volumes, as smoking incidence in CA is nearly 400 bps below the national average. We estimate that an SET increase in CA could present a ~40 bps drag on industry volumes in 2017, assuming a 25% border benefit and the increase going into effect April 1, 2017. See our full analysis of the CA excise tax impact here. Meanwhile, ballot measures to increase tobacco taxes in Missouri, North Dakota and Colorado each failed.

Soda Is the New Cigarette

San Francisco, CA. With all ballots counted, Ballot Measure V, which imposes a $0.01 per oz tax on sugary beverages, passed with ~62% of the vote (simple majority needed).

Oakland, CA. With all ballots counted, Ballot Measure HH, which imposes a $0.01 per oz tax on sugary beverages, passed with ~61% of the vote (simple majority needed).

Albany, CA. With all ballots counted, Ballot Measure O1, which imposes a $0.01 per oz tax on sugary beverages, passed with ~71% of the vote (simple majority needed).

Boulder, CO. With votes still outstanding, Ballot Measure 2H, which imposes a $0.02 per oz tax on sugary beverages with over 5 grams of added sweetener per 12 oz, looks set to pass with 54% of the vote (simple majority needed).

While these are local laws in cities with presumably lower levels of incidence relative to the overall U.S., passage of all four of these measures underscores the increasingly negative sentiment around sugar and we believe this may act as a catalyst for future excise taxes on sugary beverages going forward. Please see our previously published note on youth soda consumption (here) and added sugar (here).