Dear Early Investor,
Since Richard Nixon kicked off the war on drugs in 1971, more than $1 trillion has been spent on the effort.
An estimated 45 million arrests have been made in the U.S.
And the result? Drugs are still widely available, and profits for the cartels have never been higher.
A primary consequence of the war on drugs is that America has the highest incarceration rate in the world. With only 5% of the Earth’s population, the U.S. holds 25% of all prisoners.
It’s all a stunning misuse of taxpayer dollars. It blocks important research that needs to happen. And the human cost is incalculable.
It’s simply no longer a justifiable battle. Especially once you recognize the political agendas that drive policy.
The Drug War’s Disturbing Roots
Back in 1994, writer Dan Baum interviewed Nixon’s domestic policy advisor, John Ehrlichman, about the war on drugs.
Ehrlichman was instrumental in launching the war. (He also spent time in jail for Watergate crimes.) And what he had to say is shocking. Here’s an excerpt from Baum’s recent article in Harper’s (emphasis mine).
“You want to know what this was really all about?” he asked with the bluntness of a man who, after public disgrace and a stretch in federal prison, had little left to protect. “The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the anti-war left and black people. You understand what I’m saying?
“We knew we couldn’t make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.”
I can’t imagine a much more damning indictment of the war on drugs. From the start, the whole “movement” was a political attack on certain segments of the population.
Thankfully, things are slowly turning around. States around the U.S. are legalizing marijuana at an increasing pace. And there’s a growing worldwide movement that favors treating drug users for addiction over locking them up.
The Washington Post‘s recent headline about the policy debate reads, “Top medical experts say we should decriminalize all drugs and maybe go even further.”
When society appears to be on the cusp of a change such as this, paying attention can pay dividends down the road. If the war on marijuana and other drugs truly is crumbling, the impacts will be more far-reaching than most expect.
For example, medical cannabis is already beginning to disrupt the pharmaceutical space. As I’ll explain, it has the potential to take significant market share.
Change = Opportunity
Because marijuana has been illegal for so long, it’s been very difficult for scientists to study.
The DEA (Drug Enforcement Administration) classifies marijuana as a Schedule 1 drug. In its world, it’s a drug with “no currently accepted medical use and a high potential for abuse.” It says it’s worse than heroin, crack and meth, which are all considered Schedule 2 drugs (with some legitimate medical applications).
Being a Schedule 1 drug makes it nearly impossible to get government funding to study the medical uses of cannabis in the U.S. But researchers are finding a way. Mostly overseas, or with rare special permission in the U.S., the science is ongoing and extremely promising.
The real problem is that cannabis is a drug with far too many medical applications.
We know there’s strong evidence for cannabis working for the following conditions:
- Depression
- Insomnia
- Nausea
- Severe epilepsy
- Pain
That’s a big chunk of the pharmaceutical industry’s bread and butter…
Not to mention, many of the pharmaceutical treatments for these conditions have nasty side effects.
Take severe epilepsy. A cannabinoid extracted from marijuana, called CBD, treats it very well.
The prescription answer to this condition is often heavy sedatives, like Xanax. And they give that stuff to kids, who eventually become addicted to it. (If you’re interested in learning more about CBD, watch this seven-minute CNN documentary.)
CBD works so well that shares of a pharmaceutical company called GW Pharmaceuticals (Nasdaq: GWPH) spiked almost 100% this month after announcing positive clinical results on a CBD drug. And it’s not a small company – it has a market cap of $1.72 billion.
Regular readers know I’m extremely bullish on the legal marijuana business. Obviously, the medical sector is especially interesting to me.
But to be honest, I haven’t figured out the best way to invest in the medical side. I’ve looked into a few stocks (like GW Pharmaceuticals). But I don’t know enough about how strong their patent protection is. Need to do more research.
I’ve also found a few startups doing breeding, which is important for medical applications due to the use of specialized strains to produce specific compounds for various conditions.
But I’m still on the hunt for great medical cannabis startup investments. If you have any ideas, email them to mailbag@earlyinvesting.com.
Have a great weekend.
Adam Sharp
Co-Founder, Early Investing