The Economics of Prohibition and the Unintended Consequences

This Noble Experiment came with high expectations for the economy.

Supporters believed that by banning alcohol, neighborhoods would improve and rent would rise as saloonsshut down. It was also thought that business within other industries would beginto skyrocket as people would spend less money on alcohol and more on otherthings such as entertainment, clothing, household goods, and so on.

However, there was asteep decline in profits for nearly every industry across the board.Restaurants failed because they could no longer depend on legal liquor sales.Saloons, breweries, distilleries, and all their related business shut down aswell, causing the loss of thousands of jobs.

The Prohibition era costthe U.S. federal government approximately $11 billion in lost tax revenue andover $300 million[ii] just to enforce Prohibition laws.

Take Two Shots and Call Me in the Morning

However, not all was lost. Several famous breweries survived Prohibition by getting creative and taking advantage of the dairy, beverage, and mining industries.

You're likely familiar with Yeungling, Pabst Blue Ribbon, Coors, and Anheuser-Busch — all lasted throughout Prohibition[iii] simply by changing their  business models and using their business acumen and equipment on hand to their advantage.

And let's not forget the legal exception to the Prohibition for doctors and pharmacists, who were allowed to prescribe whiskey for various ailments ranging from anxiety to influenza[iv]. Seeing some parallels?

More importantly, while the ending of Prohibition didn't directly reverse the severe economic depression America was facing at the time, it was able to fund the majority of the New Deal as it supplied nearly half of the federal government's total revenue in 1934.

Cannabis Legalization and its Impact on Today's Economy

Between the Marijuana Tax laws of 1937 and Nixon's War on Drugs, there were some very obvious unintended consequences [v], which included exceeding costs to fund the war, as well as the disproportionate incarceration rate for people of color.

However, much like Capital P Prohibition, the legalization of cannabis and drug liberalization, in general, may be the key to digging ourselves out of yet another economic depression.

Since marijuana became legal for medical and recreational use and the 2018 Farm Bill passed (in favor of growing and harvesting hemp), nearly all 50 States have jumped on board, establishing industry projections of $130 billion in the U.S. by 2024. [vi]

Moreover, the legalization of cannabis has created a serious job boom. Approximately 321,000 full-time jobs were created in the U.S. alone (representing a record 32% increase in year-over-year growth! [vii]) and will continue to grow as more States begin to legalize both its medicinal and recreational use.

The End of an Era, the Beginning of New Marketing Angles

When Prohibition ended and alcohol became legal once again, it was a race to create new products and take over the market.

Prohibition didn't just change what Americans drank, but how they drank and who they drank with [viii].

Since Prohibition led to the introduction of homemade spirits and liquors from other countries being smuggled in, bartenders of speakeasies had to become creative with their mixers to mask the unwanted flavors. Additionally, the drinking scene in bars and saloons was no longer solely a boy’s club, as women partook in the enjoyment of cocktails behind bolted doors with secret passwords.

Spirit-forward cocktails became a craft and now both distilleries and breweries had women as an untapped portion of the market to appeal to. That meant crafting liquor that would appeal to demographic preferences of the fairer sex, while marketing alcohol more sophisticatedly to combat the stigma that had been attached to the concept of drinking by Prohibition supporters and the government.

Interestingly enough, the cannabis industry had a ton of work to do as well in terms of marketing to the general public. Once deemed Satan's lettuce and made guilty by association during the opioid crisis, the cannabis plant became a symbol that essentially represented deadbeats everywhere.

It took quadruple the number of advocates to convince the public and the government that the plant had a multitude of health and wellness benefits. Not surprisingly, the cannabis industry had to take a holistic approach in how they would market both THC and CBD.

Since the plant's legalization, the industry has been pouring all their efforts into educating the unknowing public about everything from the plant’s origins and religious affiliations to the strains that relieve certain ailments.

As we bring the two eras to the forefront, we can only conclude that two of the most stigmatized substances, present and past, are the very two things that have saved, and could save, a suffering economy. If there's anything we've learned from the end of each prohibition era, it's that politics must yield to that which can bring about new benefits and stabilize us financially.

[i] https://www.alcoholproblemsandsolutions.org/noble-experiment-of-prohibition-in-the-u-s/
[ii] https://www.pbs.org/kenburns/prohibition/unintended-consequences/
[iii] https://www.forbes.com/sites/katevinton/2015/11/04/how-breweries-like-coors-yuengling-and-anheuser-busch-survived-prohibition/?sh=3b3b82a7fabd
[iv] https://www.pbs.org/kenburns/prohibition/unintended-consequences/
[v] https://www.penalreform.org/resource/unintended-negative-consequences-war-drugs-mass-criminalisation-punitive/
[vi] https://mjbizdaily.com/chart-us-cannabis-industrys-economic-impact-could-hit-130-billion-by-2024/
[vii] https://www.businesswire.com/news/home/20210216005138/en/Report-Legal-Cannabis-Industry-Now-Supports-321000-Full-Time-American-Jobs-Doubling-in-Size-Since-2018
[viii] https://theconversation.com/how-prohibition-changed-the-way-americans-drink-100-years-ago-129854