This past Thursday marked the 85th anniversary of the passage of the 21st amendment to the Constitution and the end of America’s 13-year experiment with “Prohibition.”
Maybe you bent an elbow in honor of Repeal Day.
As cannabis investors, the lessons of 1933 are all too relevant today: That was the year the country saw illicit revenue for criminals become fully legal profits for savvy investors and entrepreneurs who accurately gauged the desire for consenting American adults to have a stiff drink if they wanted.
Although Dec. 5 represented the “official” end of Prohibition, several events happened before and after that date to usher in the return of legal alcohol to the United States.
A lot of it had to do with the fact that Prohibition wasn’t working: Big U.S. cities had hundreds of speakeasies, where the well-connected could get alcohol at will, whether smuggled in across the border or made in “bathtub” stills.
The ones profiting most from Prohibition were the Al Capone types – gangsters, bombers, and gunmen who turned American neighborhoods into violent charnel houses and free-fire zones with their “Chicago typewriters.”
In the end, Prohibition’s repeal only became possible when many one-time supporters began to reconsider their positions and join those who had previously been in opposition.
One prominent person who changed his mind was John D. Rockefeller. He was a lifelong “teetotaler” who originally supported Prohibition but changed his mind when he saw that it wasn’t working. He put his political clout and considerable bankroll behind bringing about change.
It’s such a natural parallel with cannabis today…
This Was Unimaginable 10 Years Ago
In a textbook case of history repeating, we’re seeing a sea change in 2018, similar to the twilight days of the Prohibition Era. Former cannabis opponents are realizing that the “War on Drugs” has failed; it has hurt innocent people, enriched violent criminals, and created non-violent criminals out of otherwise law-abiding people.
After all, former Speaker of the House John Boehner was once “unalterably opposed” to the concept of marijuana legislation. Now, 10 years later, he’s become one of the industry’s biggest advocates, joined the board of one of the country’s largest cannabis companies (Acreage Holdings), and taken part in the historic American Cannabis Summit that included his shocking prediction that full legalization is less than five years away.
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That remarkable transformation started with one conversation with an injured veteran.
And he’s not alone. Plenty of public figures are either joining up with cannabis firms, advocating change, or even quietly supporting advancement of cannabis users’ rights. Remember, even White House Chief of Staff John Kelly said “medicine is medicine” while defending his belief that veterans suffering from post-traumatic stress disorder (PTSD) or physical ailments should be allowed to use cannabis.
But the important parallels don’t stop there…
Changing Laws Invite Soaring Capital Investments – Again
As it is with cannabis in 2018, in 1933, many states simply were not “cooperating” with Prohibition. The residents of those states, which had opposed Prohibition in the first place, grew weary of funding and policing a “war” they never wanted, never supported, and that wasn’t working.
Another lesson from 1933 we could (re)learn in 2018? Taxes. I’m talking revenue.
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As we’ll all remember, in 1929, the United States fell into the Great Depression. So much went wrong. The near-total ban on alcohol sales meant government tax revenue declined sharply… at precisely the time more government spending was needed. The hit to revenue was something like 50% between 1930 and 1933.
At that point, the writing on the wall was clear: Former Prohibition cheerleaders were changing their minds. The enforcement war was failing. State support was waning, and the need for more revenue was “acute,” to put it mildly. Ultimately, Franklin Delano Roosevelt campaigned on a platform that included the repeal of Prohibition.
So this scenario should be familiar to anyone acquainted with the cannabis laws in the United States right now.
But Prohibition wasn’t quite dead just yet.
From 20th Century Public Policy Failure to $1.3 Trillion Global Industry
First, in 1932, Congress amended the laws to allow “weak” beer and wine with alcohol levels up to 3.2%. They allowed states that wanted to prohibit this new alcohol to do so.
The relaxation of the laws ushered in a new wave of investment in the alcohol industry. The number of brewers and winemakers exploded almost instantly, creating millions – in 1933 dollars – in profits for those early investors.
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Then came the full, formal repeal. Again, the government allowed states to continue to ban alcohol if they chose.
By 1966, there wasn’t a single state left in the union where booze was banned.
Not that the state-ban option held back the alcohol industry. Many producers who managed to hold on during Prohibition or started when 3.2% beer and wine was legalized became outrageously wealthy.
For instance, you may have heard that the Kennedy family money came from bootlegging. That’s not true, but family patriarch Joe Kennedy did invest heavily in Scottish whisky companies to great profit after Prohibition.
The Busch family built Budweiser into an international company before finally selling out to InBev, while the Coors’ company created multi-generational wealth for themselves and their investors.
Other fortunes were created when smaller producers sold to the eventual industry giants, like Pabst. Still others created more modest fortunes and exist today, like the Yuengling brand here in the northeast.
Those fortunes were made in two ways: The companies benefitted from the transition from illicit to legal production, and from the huge industry growth that happened after alcohol once again became legal.
Finally, Prohibition ushered in new and ultimately very lucrative alcohol consumption habits.
The cocktail – during Prohibition, tipplers made a virtue of necessity and developed the mixed drinks as a (popular) way to disguise poor-quality alcohol.
After repeal, the experimentation continued, further driving industry growth; the “bathtub martini” of the Prohibition-era working classes became the “three-martini lunch” of the successful executive in the 1950s.
Today, a bottle of Welsh mega-premium Forager’s Clogau gin could set you back close to $200; good luck finding a bottle for your martini.
As alcohol Prohibition ended 85 years ago last week, illicit revenue became legal profits available to savvy investors, a flood of researched-based innovation drove new products, and the industry soared.
This is all happening in the cannabis industry right now. This very minute. There’s not a second to waste.
Because, just as with the end of Prohibition, life-changing fortunes are available to savvy investors willing to endure some volatility while they keep their eye on the long-term goal of a robust, profitable cannabis sector operating legally in the United States and around the world.
History is repeating itself before our eyes. Cheers!
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