Nick Hubble – Capital and Conflict (Great Britain) –
Today’s Capital & Conflict takes an historical turn. It sets the scene for the most profitable industry in the modern era. And probably the most profitable investment opportunity.
It all started with 300 dogs, and one pharmacologist, who got the wrong injection. Two died – the dogs, not the pharmacologist who injected them and himself. You can make money as a result.
Don’t worry, there’s no animal cruelty involved. This is about an investment style I call Policy Profiteering. I hope to found a newsletter dedicated to it someday – The Policy Profiteer. Here’s how it works:
Every government policy has unintended consequences. In my opinion, those consequences always outweigh the benefit of the policy. But that’s not the point of policy profiteering. Instead, this investment style is about using the predictable unintended consequences of government policy to make money.
The easiest example is smuggling. When governments ban free trade, it creates an entire industry. In Moldova, the cheapest country in Europe according to their own tourism ad, there are huge numbers of Land Rovers all around the border with other countries. That’s because smuggling is big business. If you’re lucky enough to own a flat piece of land on the border, your driveway is paved in gold. Nobody else in the country can afford the snazzy car. Except the politicians and border guards who take their cut too.
So if the Brexit negotiations go bad, you know what to do. Buy a British beach cove on the East coast. And a boat with a dry hold. And send your kids for a career in the Navy or Coast Guard to facilitate the bribes.
Another example of policy profiteering is the heavy regulation of medicinal drugs. It costs so much money to bring a drug to market these days that small pharmaceutical companies simply cannot compete. They just aim to be bought out by the big boys. These acquisitions are a big investment opportunity.
A fascinating example is the Eurozone itself. Having the same interest rate for Germany and Greece is a terrible idea. It’s either too high or two low for one of the two. That creates an opportunity to invest, and a region to avoid.
In the early 2000s, rates were too low for Greece, causing an artificial boom. These days, rates are too low for Germany, creating the housing bubble that Germany missed out on in the 2000s. I’m making an effort to visit my property investing German grandmother a lot lately.
But the best Policy Profiteering example from history is alcohol.
Booze stocks of 1933
What if you had invested in American brewers, distillers and vineyards in 1932? That’s one year before Prohibition ended in America. Companies were giving their inventory away to avoid being caught selling it.
I couldn’t find any listed shares of beverage companies back then. But you can imagine what happened. A very big industry went from the black market to being in reach of everyone overnight. Investors made a lot of money.
The same opportunity presents itself to you again today. It’s a remarkably similar situation. Once again you can buy in before the mad rush and boom begin – before legalisation.
Today’s Policy Profiteering opportunity is brought to you by 300 dogs and one crazy pharmacologist. The date is 1937. The place is America’s Congress…
How weed became illegal
The congressional hearings for the Marijuana Tax act of 1937 lasted one hour. Similar hearings on other issues lasted days. But because they were so short in this case, the extraordinary events are easy to summarise.
During the hearings, the Mexican word for cannabis, marihuana, was used to avoid giving away what the drug actually is. American doctors prescribed cannabis and American farmers produced it. Not to mention its sister crop hemp being an important part of America’s agriculture.
Medical evidence against marijuana was a bit scarce. First a university pharmacologist claimed he had injected the active ingredient of marijuana into the brains of 300 dogs. And himself too, for good measure. Two of the dogs died. Thus, the drug is dangerous, he told the Congressmen.
The thing is, the active ingredient in marijuana wasn’t identified or extracted until years later in Holland. Nobody is quite sure just what he injected.
Next up in the hearings was the lawyer for the American Medical Association. He told the hearing that “The American Medical Association knows of no evidence that marijuana is a dangerous drug”.
The politicians on the panel told him to get stuffed: “Doctor, if you can’t say something good about what we are trying to do, why don’t you go home?” And, “Doctor, if you haven’t got something better to say than that, we are sick of hearing you.”
When the bill made it to a Congressional vote, one representative asked what the law was about. Speaker Rayburn told him, “I don’t know. It has something to do with something called marihuana. I think it’s a narcotic of some kind.” The representative asked if the American Medical Association supported the law. A politician who was actually in the original hearings lied, saying that “They supported this bill 100 percent!”
The bill required cannabis growers to pay taxes and get a license. But the licenses were simply refused when American farmers applied. The hemp crop became entangled in the law too.
The rest, as they say, is history. Over the next 90 years, 20 million Americans went to prison. The war on drugs and the strain on judicial systems around the world are a complete disaster.
In the UK, the story is the same sort of bizarre nonsense. As part of the 1925 Geneva International Convention on Narcotics Control, countries agreed to ban marijuana through the League of Nations. But when the British parliament passed the law locally, there was no mention of marijuana. Just of coco leaves and their role in making cocaine. Even more bizarre, Egypt and Turkey were the ones who pushed for marijuana to be included based on their interpretation of Islamic law.
The point is that the crusade against marijuana has been a shemozzle from the start. But things are changing…
Why marijuana will be legalised
Marijuana will be legal soon. The reason is simple. History makes it obvious.
Before the prohibition of alcohol, taxes on the stuff provided the American government with 40% of its revenue! That’s why the teetotallers were big supporters of the newly introduced income tax. They had to figure out a way to replace all the revenue the government would lose from Prohibition.
But in 1933 the Great Depression was raging. Tax revenue plunged. And so Prohibition was repealed to bring back alcohol tax revenue. In other words, it’s about the money.
In January 2017, the state of Colorado made $3.5 million from marijuana taxes. It expects to save around $20 million in court costs.
Take a look around the world. Can you think of any governments in desperate need of revenue?
All of them. Legalising marijuana is an easy option that the voters support.
The legalisation of marijuana in America is closely following the end of alcohol prohibition. State after state is refusing to enforce and comply with federal laws, just as they did with alcohol.
But even if legalisation is inevitable, things are looking uncertain in the short term. President Trump has spoken out against the states pursuing recreational marijuana legalisation. While the Federal Government stands in the way, pot businesses in Colorado are facing some odd challenges. For example, they’re forced to use cash because the banking system is federally regulated and won’t accept their businesses directly.
But it’s times like this that you need to buy. It’s already possible for you to invest in marijuana stocks easily on the American stock exchanges. Hence the focus on America today.
Eoin Treacy has put together a report on exactly which stocks to buy. He’s calling it the Green Rush.
Until next time,
Editor, Capital & Conflict