Getting Rich off the Death of Prohibition

In today’s Money Morning…economic reasons why the war on drugs is unwinnable…it’s not often that you see the birth of a whole industry from nothing…and more…

Prohibition doesn’t work.

There are countless examples of that fact, and of the reasons why. The complete failure of the Western world’s lengthy, devastating war on marijuana is only the latest example.

Unfortunately, it’s rarely in the political classes’ interests to admit when they have been wrong. That could damage or even end their careers. It’s far more common for them to persist on a destructive path, long after it’s become clear that their objectives are impossible to achieve.

That might explain why so many trillions of dollars have been spent on a decades-long pot prohibition policy. A policy born out of ignorance, and no small amount of lies and racism. And which has resulted in destroyed lives, wasted resources, record numbers of people imprisoned for non-violent crimes…and which has seen no reduction in the use of the banned substance.

As Milton Friedman famously said in an interview titled ‘On Liberty and Drugs’, ‘See, if you look at the drug war from a purely economic point of view, the role of the government is to protect the drug cartel.

It’s a nice sound bite, but there’s really substance behind it. If you haven’t read or listened to the interview that quote is taken from, you can check out the full version “”. His economic arguments against prohibition are compelling.

But even if prohibition did work, despite every example of it so far having been a complete failure, the moral arguments against it are equally compelling. Friedman also touches on why the case for prohibiting drugs is, in principal, no different from the government legislating against overeating, or dangerous sports like skiing. And we hardly need anyone to explain that the violence and other criminal activity surrounding marijuana prohibition wouldn’t exist in a legalised system.

Look at alcohol in Australia. One of our country’s favourite pastimes and cultural touchstones. I’ll cheerfully admit that I’m fond of a beer with my mates on the weekend. Many Australians are.

Yes, there are many problems surrounding alcohol. And in the wrong environment, it can lead to addiction, and myriad social issues. But because alcohol is legal, users can seek help for those issues without stigmatising themselves as a criminal. And the vast majority of drinkers can enjoy it responsibly, with no repercussions aside from the occasional headache on a Sunday morning.

But if you really want to compare the negative side effects of alcohol and marijuana addiction, I’ll simply argue that, in a world with less drinking and more weed smoking, a lot of kids with angry, drunken fathers might have grown up with hungry, slightly confused fathers instead.

Luckily, we live in an era when we can watch the unravelling of marijuana prohibition in the Western world, and see the benefits that it brings. The legal recreational marijuana industry in many parts of the US is a perfect example of how legalisation can reduce or eliminate social ills — all while bringing in billions of dollars in retail sales, tourism, and related industries.

And if you’re worried that, as an investor, you missed the boat with US legalisation, don’t be. There’s still plenty of money to be made around the world in this emerging industry. Just this week, the country of my birth, Canada, has taken the plunge into full recreational weed legalisation.

Or, at least, I hope it has. Due to the Easter long weekend, I’m writing this article on Thursday, Melbourne time. By the time you read it, Canadian Prime Minister Justin Trudeau should have launched the landmark legislation, as planned. At time of writing it hasn’t happened yet, but it seems unlikely he’ll change his mind overnight.

Personally, I view this as a massive step forward.

I was born in the Canadian province of British Columbia, but lived out my teenage years in the Latrobe Valley, in rural Victoria, Australia. Anyone who knows much about those two parts of the world will know that marijuana prohibition is viewed with equal parts frustration and amusement by large parts of their populations.

Obviously I never touched the stuff. And I wouldn’t recommend that you do either; it’s still illegal in Australia, except for very limited medical uses. I wouldn’t want to see any of our loyal Money Morning readers locked up.

But from an investment point of view, the possibilities are exciting. Our own small-cap analyst, Sam Volkering, first looked at investing in medical marijuana opportunities here in Australia. But the dawning of legalisation in Canada has presented new opportunities, and Sam’s latest special report widens his sights to include that, too. You can read the details here.

It’s not often that you get to witness an entire industry being born from nothing. But due to decades of prohibition, this is one of the few examples of a desire from consumers, with no existing (legal) supply. The first generations of legal pot companies have an opportunity to meet that demand, with no entrenched competitors to stop them.

That fresh start is leading to some fascinating results, including high levels of employment for women in this burgeoning industry. As reported by Fortune,

‘[W]omen make up about 36% of leaders, including 63% of high-level positions at testing labs and half of leadership roles at infused products and processing companies.’

That’s compared to less than 5% of CEO roles and about a quarter of leadership roles across the US generally. In an industry with no existing corporate giants, the new companies being born aren’t beholden to outdated cultures and ageing ideas. What that will mean for the success of these new ventures remains to be seen. But it’s an exciting thing to watch.

To take a look at Sam’s research into this new industry, and how you could capture some of its tremendous gains, click here.

And for your editors’ takes on markets this week in Money Morning, read on…

The housing debate continues to rage in Australia. But as Greg pointed out Monday, it’s near impossible to get an unbiased opinion. As with most investments, it may be possible to be neutral, but everyone needs to live in a house or apartment. Whether you rent, pay a mortgage or own your home, if you live in Australia, you’ve got a large stake in housing. And that makes it hard to be detached.

Despite all the concern in recent weeks, auction clearance rates and prices show no signs of falling. Greg has argued in the past that the RBA and the Australian government can’t afford to allow house prices to fall. And, as he explained Monday, the current high prices and heated debate are the results of decades of overreliance on monetary policy. As long as that continues, the bubble could go on much longer than most people expect. You can read the details here.

The stock market gamely ignored the increasingly heated debate around housing, hitting its highest point since May 2015 on Monday. So on Tuesday, Greg discussed how much higher it could go from here, and why he argues that any correction will be just that; a correction, not the start of a crash. Greg argues that worrying about a crash now, when the ingredients necessary for one just don’t all exist, is pointless. Click here to read the details.

On Wednesday, Greg took a step back from the details, to look at a much wider arc of human progress. It’s easy to get caught up in the day to day of individual stocks and their moves. But we shouldn’t forget that it’s all part of a much larger story. And that story can guide us to some of the largest gains to be made. You can read more here.

Sam took aim this week at Tesla, the newest claimant to the crown of ‘America’s largest car manufacturer’. But, while the stock’s market cap may have gotten Tesla there, is it all an illusion? Sam crunches the numbers to compare Tesla to the other big names. And his conclusion about the best car company to invest in today may surprise you. Check it out here.

In the latest episode of the Financial Anarchists podcast, Dan is joined by Shae Russell to discuss where the weakness in Australia’s economy really lies, why the RBA is afraid to raise rates, how the housing boom is masking problems in the wider Aussie economy, and plenty more. Tune in here.

With the public holidays this week, your Money Morning editors are enjoying a break with their families. So there were no articles on Friday. We hope you’re enjoying the time off with your loved ones as well. You’ll hear from us again next week!

Until then,

Tyler Jefferson,
Editor, Money Weekend

Publisher’s Pick: Marijuana Mania’ This ground-breaking medical mega-trend has already spawned levels of wealth we haven’t seen since the tech boom of the early 2000s. Jaw-dropping stock gains like 1,380%, 1,102% and 13,627%! If you’ve got the guts — and a few coins in your pocket to play with — this mega-trend has the power to potentially nab you a ‘high-bagger’ gain of 1,233% by this time next year. But only if you act NOW… [More]

Numbers of Interest, as of Friday

Aussie Dollar to US Dollar: 75.84

Gold: US$1,288.7 (AU$1,699.15) per troy ounce

Silver: US$18.60 (AU$24.52) per troy ounce

Bitcoin: US$1,218.95 (AU$1,607.31)

West Texas Intermediate Crude Oil: US$53.11 per barrel

ASX 200: 5,889.90

Tyler Jefferson joined Fat Tail Investment Research in 2012. With a background in publishing, he started out as part of the team working behind the scenes with your Editors to bring you Money Morning each day.

When he joined, Tyler was Fat Tail Investment Research’s 12th employee. Today that number has grown to over 50, as more and more readers turn to Money Morning as their source for independent financial analysis and ideas.

Today as Managing Editor, Tyler still edits the articles you read each day. Along with that, he occasionally contributes to Money Morning with his own irreverent take on the most interesting news and opportunities for you.

Money Morning Australia