As alcohol Prohibition ended 86 years ago today, 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.
U.S. markets are closed today to commemorate the funeral of former President George H.W. Bush.
Meanwhile, today is an important anniversary of an event which holds important lessons for cannabis – both for policymakers and for investors. The Twenty-First Amendment to the U. S. Constitution passed 86 years ago today, ending a 13-year national ban on alcohol.
Although December 5 represented the “official” end of Prohibition, several events happened before and after that date to bring along the return of legal alcohol to the United States.
In the end, Prohibition only became possible when many former supporters began to reconsider their positions and join those who had previously been in opposition.
Prohibition of course was not working – big U.S. cities had hundreds of speakeasies, where the well-connected could get alcohol at will. Profiting from this illicit system were violent gangsters like Al Capone. One prominent person who changed his mind is John D. Rockefeller. He was a lifelong teetotaler who originally supported Prohibition but changed his mind when he saw that it wasn’t working and put his clout behind bringing about change.
We’re seeing a sea change similar to the late days of the Prohibition Era in the cannabis space now, too. Former cannabis opponents are realizing that the “drug war” has not worked – it has only enriched sometimes violent criminals and created non-violent criminals out of otherwise law-abiding people.
After all, former U.S. 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 took part in the historic American Cannabis Summit that included his shocking prediction that full legalization is less than five years away. And it all 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 PTSD or physical ailments should be allowed to use cannabis.
But the important parallels don’t stop there…
The Relaxation of Laws Invites Huge Investments – Again
Like present day with cannabis, many states were not cooperating with the federal Prohibition. The residents of those states, which had opposed Prohibition in the first place, grew weary of funding and policing a “war” that they did not support and that was not working.
Another big parallel between then and now is taxes. In 1929, the United States entered the Great Depression. In addition to all the other deprivations of that economic time, government revenues declined significantly just as the demand for government spending increased. Tax revenue for the federal government declined by 50% between 1930 and 1933.
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With former cheerleaders for Prohibition changing their minds, the enforcement war failing, support from the states waning, and a growing need for revenues, all the pieces were in place. That last sentence should sound familiar to anyone acquainted with the cannabis laws in the U.S. right now.
But Prohibition wasn’t ready to be ended entirely just yet. First, in 1932, Congress amended the laws to allow 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 of dollars in profits for those early investors.
Then came the full, formal repeal. Again, the government allowed states to continue to ban alcohol if they chose.
But the state-ban option did not hold back the alcohol industry. Many producers who managed to hold on during Prohibition or started when 3.2% beer and wine was legalized became very wealthy.
You may have heard that the Kennedy family money came from bootlegging. That’s not true, but 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. 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. And those fortunes were made in two ways – the companies benefitted from the transition from illicit to legal production and from huge industry growth that happened after alcohol once again became legal.
Finally, Prohibition ushered in new alcohol consumption habits. The cocktail became popular as a way to disguise poor-quality alcohol. After Prohibition, the experimentation continued, further driving industry growth. The bathtub martini of the lower class during Prohibition became the three-martini lunch of the successful executive in the 1950s.
As alcohol Prohibition ended 86 years ago today, 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. And 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.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
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