Prohibition 2.0: Marijuana Mimics Alcohol

NEW YORK (TheStreet) -- History doesn't repeat itself but it does rhyme, said Mark Twain. When you compare the prohibition of alcohol to the prohibition of marijuana, the similarities are striking.

Tax Windfall

Before alcohol could be prohibited, the temperance society knew it had to address the tax issue. Alcohol tax generated 40% of the government's budget and that was the "Drys" biggest challenge -- replace the alcohol revenue. The 16th amendment created the federal income tax in 1913 and that was the first step to changing the revenue stream for the government. So you can thank the tee totalers for the income tax we have today. Income taxes far surpassed the liquor taxes and so the road became clear to pass a prohibition against alcohol manufacture and sales. In 1919, the 18th Amendment or "Prohibition" was passed.

Everything was good during the roaring twenties, but then the Depression hit and tax revenue began falling. By 1933, tax revenue had dropped 60% from 1930. The 21st amendment in 1933 repealed Prohibition because the government needed the alcohol taxes. Wealthy patrons like Pierre DuPont and Andrew Mellon backed the repeal of prohibition in hopes that new alcohol tax revenue would ward off higher income taxes. Instead they were hit with a double whammy: Their booze was taxed and income tax percentages rose even higher. These gentlemen also figure into marijuana prohibition, but more on that later.

Raising taxes are the easiest way to bring money into a state's budget. Sin taxes have always been the best choice, but with fewer people are smoking, tobacco taxes aren't as effective as they once were. So, why not tax wacky tabacky?

As Colorado reports the tax revenue from marijuana, many states are green with envy. In January, Colorado received $2 million in tax dollars from recreational marijuana and $3.5 million in pot related taxes. Summer is expected to be even bigger, with tourists arriving to be able smoke pot legally. At this rate they could reap $40 million for the year. The initial money is to be spent for school construction; after that the state has yet to decide. It's no wonder cash-starved states are eyeing the rollback of marijuana prohibition. Washington is the next state to legalize recreational marijuana, with the first retail licenses to be issued no later than the first week of July.

Excessive Punishment

Another similarity between Prohibition and the marijuana ban is the excessive punishments under the law. Alcohol prohibition resulted in crowded courts with many low level people being thrown in jail. The courts were so tied up with booze lawbreakers that plea bargaining as we know it today was created to deal with the backed up courts. Overzealous agents killed people that possessed alcohol in their own homes causing many to wonder if things had gone too far. Wealthy people could drink and remain untouched, but poor people were thrown in jail.

It is well known that the number of people in prison due to marijuana busts is higher than any other drug. It primarily affects the poor and minorities, even though a larger percentage of marijuana smokers tend to be white. The courts are clogged and cities that consider legalizing even medicinal marijuana cite the money they will save in criminal costs. Colorado and Washington both expect to save over $20 million in court costs.

States Acted First

States like Maryland resisted Prohibition due to a large Catholic population. Maryland had no state enforcement law for Prohibition. Michigan's alcohol trade was second only in commerce to the auto industry in 1927. Urban cities like New York openly flaunted its law breaking with numerous speakeasies and clubs in Harlem. Connecticut, Rhode Island and Montana did not even ratify the 18th Amendment. Montana did not enforce the law within state lines. Other states began voting to not enforce prohibition, forcing politicians to listen to what the people wanted.

The same efforts are being repeated for marijuana. Twenty one states have legalized medicinal marijuana, while two have legalized recreational marijuana. More states are expected to join them with Alaska voting on a legalization initiative in on August 19th and Florida voting on medicinal marijuana in November. Politicians in Washington expect that marijuana will be legalized on a federal level, but not until 2020. In the meantime, states are not wasting any time waiting for the federal government.

Law Is Ignored

Even the President served alcohol at the White House during Prohibition. President Harding frequently served alcohol to guests including Andrew Mellon, whose department was responsible for enforcing the 18th Amendment. Many loopholes in the law were designed and well used, such as medical prescriptions for alcohol. Alcohol made from fruit was OK as well, making hard apple cider and homemade wine legal. This led to the popularity of Italian restaurants, where the food was served in houses accompanied with homemade wine. Religious wine was also exempted, making Georges de Latour and his Beaulieu Vineyards very profitable. Speakeasies proliferated. Fortunes were created. Walgreens (WAG) filled prescriptions for medicinal alcohol causing the company to expand from 20 stores in 1920 to 525 stores within 10 years.

Marijuana is the most commonly used illegal drug according to the drug policy alliance, it is the most popular and easily accessible illegal drug in the U.S. Fifty percent of all drug arrests are for marijuana according to the FBI statistics for 2012. The FBI statistics also show that every 42 seconds in 2012, an arrest for marijuana is made. A recent government study said that over 83 million Americans have tried marijuana at least once. The National Institute on Drug Abuse said the number of people using marijuana has increased since 2007. It is endorsed by celebrities like Willie Nelson, Rapper Snoop Dog, travel guru Rick Steves and even Rush Limbaugh.

They Make Nice Neighbors

Al Capone was a legendary bootlegger and made millions trading in illegal alcohol. He also started one of the first soup kitchens in the country in Chicago. As the Depression took hold, Capone's soup kitchen served over 120,000 meals. On Thanksgiving Day in 1930, he fed more than 5,000 hungry people. Since most people drank anyway, they looked more kindly on Capone than they did the government, which seemed to ignore the plight of the poor man and instead picked on them for violating prohibition. It isn't unusual for crime bosses to take care of the little guy.

During the wildfires and then floods in Colorado, it was the dispensaries that supposedly stepped up to help fund rebuilding. The story was told to me by various folks at the Cannabis Career Institute, although we can't confirm the accounts. Portland and New Mexico dispensaries have held toy and food drives. On a personal note, when I lived on 16th street in Manhattan and a store front for pot opened up down the street, neighbors were happy. Their security kept cars from getting broken into overnight. The street was sad to see them go.

Which brings us to the switch from alcohol prohibition to marijuana prohibition. Our wealthy gentlemen mentioned earlier, Mssrs. Mellon and Du Pont, were instrumental in marijuana prohibition. Andrew Mellon appointed his future son-in-law Harry Anslinger as the head of the new Federal Bureau of Narcotics. With the loss of alcohol as his department's main function, he needed a new illegal substance to focus his energies on and save his job and his department. That new focus became marijuana. Mellon Bank was also the financial backer for DuPont, who benefited from his new synthetic products being substituted for hemp products. If hemp was removed from the picture, then DuPont's products would rise in sales.

It wasn't until long after alcohol prohibition was repealed that marijuana prohibition began. Before the pot prohibition, cannabis had been used in America for at least one hundred years as a medicinal product. Hemp had been used as a fabric, rope and even a fuel source. The Marihuana Tax Act of 1937, which made legal marijuana use prohibitively expensive, was ruled unconstitutional by the Supreme Court and overturned in 1969. It was shortly thereafter, in 1970, that the Controlled Substance Act was passed, establishing the modern-day marijuana prohibition.

-- Written by Debra Borchardt in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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