Winning the Drug War Through the Ballot Box

One of the most refreshing news items to emanate from the recent elections was the fact that both Washington and Colorado legalized marijuana for recreational use. Hemp has thereby attained a legal status similar to alcohol and tobacco, provided the pot-heads manage to avoid federal agents.

Of course it is difficult to see what could still turn the tide at this point – after all, if the statistics are to be believed, nearly 15% of the US population actually belongs into jail according to federal law. That is the percentage of marijuana smokers in the US population as per the most recent data. 45% of all drug-related arrests are for marijuana use – in Washington and Colorado, some 23,000 people were arrested for possession last year alone. Not anymeure, as Clouseau would say.

There are powerful vested interests that want to retain the status quo. Interestingly, the two parties most strongly interested in leaving the criminalization of 15% of the population intact are so to speak on the opposite sides of the fence. As the saying goes, the grass is always greener on the other side of the fence …

 

The one group is law enforcement, which has discovered a huge new source of income through forfeiture regulations. As soon as marijuana is no longer illegal, a large portion of the forfeiture income will presumably dry up. All this extra income inter alia pays for the increasing militarization of the police, i.e., it pays for lots of lethal toys. There is also the fact that the more criminal offenses are on the statutes, the more work there is in theory for the police – and it is probably a lot more fun to chase non-violent perpetrators of victimless crimes than real criminals. This is by the way not meant to cast aspersions on the many dedicated police officers who no doubt take a great many risks in the course of their duty. Rather, it needs to be pointed out that a lot of effort is simply wasted on chasing after non-criminals for no good reason. Here by the way is the very first one who got caught:

 


 

Sam Caldwell, marijuana prisoner number one, caught in 1937 and sentenced to four years of hard labor for selling two joints.

(Image via The Web)

 


 

The other group that must be deeply unhappy about the end of prohibition in Colorado and Washington are the Mexican drug cartels. Marijuana is reportedly their bread and butter. Without it, they would likely have only bought half as many guns in the course of Operation 'Fast & Furious' than they actually did.

As the Economist pointed out shortly before the election:


Between 40% and 70% of American pot is reckoned to be grown in Mexico. According to a recent study (in Spanish) by the Mexican Institute for Competitiveness (IMCO), a think-tank in Mexico City, the American marijuana business brings in about $2 billion a year to Mexico’s drug traffickers. That makes it almost as important to their business as the cocaine trade, which is worth about $2.4 billion.


In Mexico relatively few people take drugs. But many are murdered as a result of the export business. About 60,000 have been killed by organised crime during the past six years. Thousands more have disappeared. Many Mexicans therefore wonder if America might consider a new approach. Felipe Calderon, the president, has said that if Americans cannot bring themselves to stop buying drugs, they ought to consider “market alternatives”, by which he means legalisation. Vicente Fox and Ernesto Zedillo, the two previous presidents of Mexico, have reached the same conclusion.“


[…]


„IMCO reckons that home-grown marijuana from Colorado, Oregon or Washington would be cheaper than the Mexican stuff virtually everywhere in the country, with the exception of a few border states where the Mexican variety would still come in a bit cheaper.


As a result, it estimates that Mexico’s traffickers would lose about $1.4 billion of their $2 billion revenues from marijuana. The effect on some groups would be severe: the Sinaloa “cartel” would lose up to half its total income, IMCO reckons. Exports of other drugs, from cocaine to methamphetamine, would become less competitive, as the traffickers’ fixed costs (from torturing rivals to bribing American and Mexican border officials) would remain unchanged, even as marijuana revenues fell.


Legalisation could, in short, deal a blow to Mexico’s traffickers of a magnitude that no current policy has got close to achieving. The stoned and sober alike should bear that in mind when they cast their votes on Tuesday.“


 


(emphasis added)


Apparently voters did think the whole thing properly through. And maybe the Sinaloa cartel will soon have to file for bankruptcy.


 


 

Consider it done!

(Image: The Web)


 



 

Social Mood and Tax Revenues


It should be pointed out that Bob Prechter & Co. predicted that this would happen. As they have never tired to stress, during periods of a declining or bearish social mood, polarization in society increases. This means inter alia that both the forces of authoritarianism and the forces of freedom gain support. This is how it is possible that a country that has just thrown habeas corpus overboard and allows its domestic spy agencies to snoop on everyone without a court order (which is fatally reminiscent of the Stasi and the Gestapo, both of whom would pale with envy in view of all the modern gadgetry today's domestic spies have at their fingertips) concurrently sees a wave of drug prohibition repeals. 


There is of course another very practical reason behind the sudden urge to legalize dope, and this is a parallel to the repeal of the 18th amendment (alcohol prohibition) in the 1930's. It opens up a vast new source of tax revenue for the states and municipalities. An entire huge branch of business – one of the biggest in the US by turnover (an estimated 10% of GDP) – suddenly emerges from the shadow economy and can be regulated and taxed. It would be preferable if it weren't, but this provides a powerful incentive for politicians to regard legalization initiatives with increasing favor. After all, tax revenues have suffered greatly due to the big bust, and this offers a way out that doesn't involve having to resort to unpopular property or income tax increases. If anything, it is quite surprising that California didn't take the lead in this case, as it is both home to by far the biggest marijuana industry in the US  as well as proud possessor of the biggest budgetary mess of any state.


It also has a former governor who seemed to enjoy the odd joint or two way back when (of  course he probably didn't inhale – somehow US politicians are the only marijuana consumers in the world who have consistently failed to do that).


 


 

The governator in his youth, trying his best not to inhale.

(Photo via seanhyson.com)

 



 


Back in the Great Depression there were budding tax revolts in many regions in the US, which were headed off at the pass by the repeal of alcohol prohibition due to the additional tax revenues the re-legalization of booze created for local governments.


A strong sign that cannabis has arrived as a legitimate, if still slightly dubious business in the US has recently been pointed out to us by friend. A number of penny stocks involved in the business are trading on the pink sheets. We show a few of the charts below. As an aside, this is not meant to be an endorsement of these stocks – we have no idea if they have any investment merit whatsoever. As is often the case, some of the stock symbols are quite funny though.

 



 

HEMP Inc, a pink sheet stock- but it calls itself an 'industry giant' – click for better resolution.

 


 

CBIS, 'Cannabis Science', another one – click for better resolution.

 



 

MJNA (Medical Marijuana Inc.) – click for better resolution.

 



 


PHOT (Growlife Inc) – this one's Nasdaq listed and sells the lighting for indoor growers – click for better resolution.

 



 


Rapid Fire Marketing – a distributor of vapor inhalers and 'consultant to the medical marijuana business' – click for better resolution.

 


 


It should be added that all of these are of course tiny micro-caps with very little publicly available information and sporting appallingly large stock floats (which is a hint that selling new stock is one of their greatest strengths). However, who knows, if one were to buy a basket of them one might really end up owning a stake in a future 'industry giant'.


 

Addendum: EWI Free Week


For readers interested in EWI's work, there is currently a 'free week' at EWI which lasts until November 19. EWI can be reached via the link on the right hand side. Access to several services that are normally reserved for subscribers is provided for a limited time for free. One has to register with Club EWI though, which is however free of charge as well.


Disclosure: we are an affiliate.


 


 


 


Charts via StockCharts.com



 

 

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7 Responses to “Prohibition: Up In Smoke?”

  • avdhuman:

    As a libertarian I would like to see all drugs legalized. In “Defending the Undefendable” Walter Block talks about how crime would go down if drugs were legalized and regulated by the free market. Its an excellent book.

    http://thebasicsofliving.com/gold-vs-debt-based-fiat-system/

  • JasonEmery:

    As a Libertarian, I’m glad to see the government’s power reduced. However, considering there are already many legal ways to get ‘high’, one has to wonder if we really need this. People turn to alcohol and drugs when they are spiritually bankrupt. This infatuation with marijuana is a bad sign, for America.

    • Namor:

      As a libertarian you should not question if people really need this, they want it it is their problem.

      Personally, living in a statist prohibitionist country, I am very glad to see that there are still some places on this planet where people get to choose for themselves.

      Freedom of choice is always a good sign.

      • JasonEmery:

        “As a libertarian you should not question if people really need this, they want it it is their problem.”

        Absurd. As a Libertarian, I’m against the govt. telling people how to live their lives, especially while they are on their own (or rented) private property.

        But I certainly have the right to warn people that drugs, including the drug alcohol, are the opiates of the masses. (not religion, as Marx said) People are free to ignore me, or listen, as they choose.

        Actually, our repressive regime wants the world to get, and stay, doped and/or liquored up. We’ve occupied the world’s largest producer of Opium Poppies, Afghanistan, for over a decade, and Opium production has actually increased there!!!

  • jimmyjames:

    A strong sign that cannabis has arrived as a legitimate, if still slightly dubious business in the US has recently been pointed out to us by friend.

    ************

    I seen that (:

  • RedQueenRace:

    While I support the legalization of weed I have never found the cartel and tax arguments to be good ones.

    I think the belief that the Mexican violence will be reduced is not well-founded. We aren’t talking about the sort of folks that will leave their current “employment” to go to college or who will flip burgers or sell cars. It’s likely they will add new lines of illegal activities and/or expand existing ones.

    If it does turn out that their revenues are decreased then I expect intense fighting in an effort to maintain each outfit’s share of a decreasing pie.

    New tax revenues will definitely be available but I think the numbers are considerably overstated. The huge dollar numbers are a result of it being illegal. Once it is legal prices will likely drop substantially. If not, folks may well just grow their own or buy in a less formal market.

    • I also don’t believe the tax argument is a good one. For one thing, marijuana is easy to grow. It might not be easy to grow the chronic stuff you hear about, but basic dope is pretty easy to grow. Maybe there are a few rock stars that don’t mind paying the massive prices, but the bulk of this stuff is used by the middle and lower classes. This isn’t alcohol or pharaceutical drugs, where you need a process. It is a weed that grows in a few months. Going to be hard for the state to tax and hard for Wall Street to capitalize.

      Another aside. I know the Colorado law allows so many plants per person. The problem is going to be keeping someone else from stealing your plants, if you desire to grow and use the stuff. There is nothing complicated about planting them in the flower bed, keeping them trimmed down and waiting. Cost? Next to free. Know just a little and about anyone can grow some pretty good dope. Result? The market will go to pot.

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