Privacy & Security

Drugs Are Winning the War on (Some) Drugs

  • author Mark Nestmann
  • calendar December 8, 2020

As COVID-19 spread throughout America last spring, many previously solid investments were devastated.

But winners emerged among the losers as the crisis unfolded. One market that shot to the top was marijuana – more properly known as cannabis. With millions of people stuck at home, legal cannabis sales soared across North America. On March 16, dispensary sales in California climbed nearly 160% compared to the same day in 2019. Also on March 16, Washington recorded a 100% increase in purchases. Colorado sales rose 46% compared to the previous year.

Then came November 3, Election Day. Across the country, voters delivered a crushing blow to the War on (Some) Drugs. Four more states approved full legalization of cannabis for medical and recreational use. Arizona’s proposition won with 60% approval, while 57% of Montana voters supported that state’s initiative. Two-thirds (67%) of New Jersey voters came out in favor of recreational cannabis sales. South Dakota’s legalization initiative passed with 54% backing. Meanwhile, an overwhelming 79% of voters in Mississippi endorsed medical cannabis.

Voters authorized even more sweeping drug law reforms in Oregon and Washington D.C. Oregon became the first state to remove criminal penalties for possession of small quantities of psychedelic drugs along with hard drugs, including heroin. Voters passed the measure by a 58%-42% margin. In a separate initiative, Oregon voters approved the Psilocybin Program Initiative. It will create a program permitting licensed service providers to administer the hallucinogenic mushroom to adults.

In Washington, D.C., an overwhelming majority of voters (76%) chose to decriminalize psychedelic plants and fungi. Under the new legislation, law enforcement authorities are to treat the use, possession, and cultivation of these organisms as their lowest priority.

These initiatives enjoyed bipartisan support, with red states like South Dakota joining blue ones such as Oregon in opting for wholesale reforms of drug laws. In all, 36 states now recognize cannabis as a medicine. Fifteen states (along with the District of Columbia and Puerto Rico) have removed criminal penalties for its recreational use. Eleven more states allow the use of "low THC, high cannabidiol (CBD)" products for medical reasons. Only three states – Kansas, Nebraska, and Idaho – retain zero tolerance cannabis laws.

This remarkable chart from the National Conference of State Legislatures charts the momentum toward cannabis decriminalization or outright legalization.

As of January 1, 2021, when most of these initiatives take effect, one in three Americans – more than 110 million in all – will live in states with legal recreational cannabis. And 90% of Americans believe cannabis should be legal for medicinal and/or recreational use.

Many drugs criminalized under our current legal system have been used as medicine since ancient times. The early Egyptians used cannabis to treat hemorrhoids and sore eyes. In South America, coca has been used medicinally for over 4,000 years. As recently as the late 19th century, your great-grandparents could buy morphine over the counter at any pharmacy. And if they didn’t live near a pharmacy, they could buy heroin – and even syringes to inject it with – out of a Sears catalog.

Admittedly, some people became addicted to these substances. By 1900, between 2% and 5% of Americans were addicted to drugs, primarily morphine.

America’s War on (Some) Drugs began in 1914, when Congress restricted opiate marketing. From its very outset, the prohibitional campaign was based on racial stereotypes. Advocates for opiate restrictions spoke of “drug-crazed, sex-mad Negroes” and “Chinamen” seducing white women with opium.

As decades passed, the War on (Some) Drugs escalated. 1970 marked a milestone as Congress enacted a law giving federal prosecutors the right to confiscate property belonging to anyone convicted of drug trafficking in a process called criminal forfeiture.

Eight years later, Congress gave prosecutors the ability to seize the property of anyone suspected of involvement in the drug trade through civil forfeiture proceedings. (Executives at Purdue, Bayer and the rest of big pharma don't count here, of course). And to lure state and local governments into its anti-drug agenda, Uncle Sam began giving police billions of dollars’ worth of surplus military hardware, along with billions more in direct federal grants.

In the 1990s, the War on (Some) Drugs became increasingly militarized. By 1992, often using surplus military equipment donated by the federal government, police were conducting 40,000 paramilitary-style SWAT raids each year. Most of them were for narcotics offenses.

Prisons filled up with nonviolent drug offenders: from around 50,000 in 1980 to over 400,000 by 1997. Today, nearly one-fifth of inmates in America’s state prisons are there after being convicted of a drug-related offense. And drug offenders represent about half of all inmates in federal prisons. Blacks are nearly six times as likely as whites to be imprisoned for a drug offense.

Since 1971, Uncle Sam has spent more than $1 trillion in the War on (Some) Drugs. State, local, and county governments have spent billions more. And the result? More than a century after the war began, the percentage of Americans addicted to drugs is about the same as it was in 1900.

Sadly, state efforts to reform drug laws are far ahead of those at the federal level. But Uncle Sam is beginning to catch up. On December 4, the House of Representatives approved the Marijuana Opportunity Reinvestment and Expungement (MORE) Act. The proposal would remove cannabis as a “Schedule 1” drug (no legitimate medical use) under the Controlled Substances Act and eliminate federal criminal penalties for growing, distributing, or possessing it. The law would also establish "an automatic process" for expunging the records of those convicted of federal marijuana crimes and authorize resentencing of federal prisoners serving time for such offenses. But the bill faces overwhelming Republican opposition in the Senate. Even some Democrats question the political wisdom of pursuing cannabis reform before passing another COVID-19 relief bill.

Meanwhile, a growing number of countries, including Australia, Canada, Germany, Israel, Poland, Portugal, Thailand, and Uruguay have legalized cannabis for medical or recreational use. And that has spurred a massive investment boom. The global cannabis market was estimated to be worth $344 billion in 2018 (for both legal and illegal sales). Around 263 million people throughout the world have used some form of cannabis in the past year. The US market for legal cannabis already exceeds that for organic produce and was (as of 2017) about half the size of the market for firearms and ammunition. U.S. sales of legal cannabis came to $10 billion in 2018.

Going forward, these numbers are expected to increase rapidly. The global market for legal cannabis is projected to reach $73.6 billion by 2027, expanding at a rate exceeding 18% annually.

Members of our Nestmann Inner Circle Gold service recently received a comprehensive review of cannabis investments. We covered individual stocks, exchange-traded funds, and private partnerships that target the cannabis industry. We also discussed how to succeed as a “cannapreneur.”

If you could benefit from cutting-edge investment ideas like these, we invite you to try a risk-free subscription to Nestmann Inner Circle Gold. You can learn more about this service here.

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