After the United States entered World War I in 1917, President Woodrow Wilson established a wartime prohibition against the manufacture of alcohol in an effort to save grain, which was needed for the food supply. Shortly thereafter, the 18th Amendment to the U.S. Constitution was ratified, banning the manufacture, transportation and sale of intoxicating liquors.
After the conclusion of the Great War, the “Roaring ’20s” economy expanded rapidly. The nation’s wealth more than doubled between 1920 and 1929. The New York Stock Exchange was the scene of uncontrolled conjecture. Investments were not just for the wealthy — everyone from janitors to chimney sweeps emptied their pockets into the stock market. In response, the stock market rapidly evolved and reached a peak in 1929.
Prohibition and the Depression
On October 24, 1929, the stock market crashed, sending Wall Street into a state of chaos and washing out millions of investors. Nervous investors sold overpriced stock shares, and 12.9 million shares were traded, resulting in what is known as “Black Thursday.”
For several years following Black Thursday, consumer spending and investment dwindled, and industrial output declined rapidly. Failing companies laid off workers en masse. By 1933, more than 15 million Americans were unemployed — a whopping 25% of the U.S. population.
President Herbert Hoover, who took office in 1929, called Prohibition “the great social and economic experiment, noble in motive and far reaching in purpose.” He additionally took the position that the government was not responsible for creating jobs and providing economic relief — a position that cost him a second term as president. While the U.S. economy stalled amid the Great Depression, the potential to create jobs and revenue streams through the legalization of alcohol became appealing. Franklin D. Roosevelt embraced the idea of lawful booze during his campaign for president against Hoover, taking the position that legal beer alone had the ability to increase annual federal revenue by hundreds of millions of dollars.
In 1932, Roosevelt easily won victory over Hoover on a platform calling for Prohibition’s repeal. In 1933, Congress adopted a resolution proposing a 21st Amendment to the Constitution, which repealed the 18th Amendment and ended the Prohibition era.
While Hoover sulked in his failed economic experiment, some say FDR toasted the end of the Prohibition era with a dirty martini, his alleged drink of choice.
Despite the optimistic predictions of the pro-alcohol “wet campers,” the repeal of Prohibition did not end the Great Depression, though it did provide significant funding for the New Deal. With that, alcohol and other excise taxes brought in $1.3 billion in 1934.
Fast forward to Q1 of the year 2020, where COVID-19 has made for the worst quarter in stock-market history. Pre-pandemic, the unemployment rate was 3.5%, but because of the coronavirus pandemic, experts project that number will rise to around 15% by 2021. Experts are predicting a global recession will follow in the wake of the coronavirus pandemic, and history begs the question of whether legal cannabis will be bottled as the solution to the economic downturn.
Currently, the legal alcohol industry provides for millions of jobs around the world. It brings in billions from tax revenue and is even an “essential business” under most “stay-at-home” orders. What was once viewed by many as the “demon’s drink” now provides for one of the select few reasons people are allowed to leave their homes. Cannabis, too, sits among the list of “essentials” in most states that have legalized the plant in some form.
Cannabis presents a parallel opportunity today to that of alcohol in the 1930s. Its economic potential has already been demonstrated in legal markets around the globe. Colorado alone has reported $1,261,037,812 in total cannabis-related revenue since 2014. Worldwide, legal cannabis is expected to be worth $57 billion in the next decade.
According to studies conducted by the United Nations, 188 million people use marijuana worldwide — about 2.5% of the planet’s population. There is undeniable market potential, and what was once compared to heroin in terms of health risk has now paved its way as a generally accepted recreational activity.
Favorable social views of cannabis and legalization are at an all-time high. The momentum toward legalization in the United States has been steady over the last decade, and various political figures have pushed forward landmark legislation aimed at opening the doors to a legitimate cannabis industry.
With elections around the corner, presidential candidates are looking for new revenue sources and original ideas on how to attract more voters. Will the United States see a candidate borrow a move out of FDR’s playbook? Will the global coronavirus pandemic pave the way for a viable cannabis New Deal strategy?
As Franklin D. Roosevelt said in 1936, “This generation of Americans has a rendezvous with destiny.”
Charles Feldmann is a partner at Hoban Law Group and the CEO of Gateway Proven Strategies (GPS.Global). He serves as a trusted adviser for the cannabis industry’s largest and most profitable businesses on an international scale. His full bio can be found at: gps.global/charles-feldmann-ceo-co-founder.
Lilly Lentz is an experienced cannabis industry attorney at Feldmann Nagel Cantafio, PLLC.