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Cannabis Investors Applaud the Demise of Corrections Corporation of America (NYSE: CXW)

Bullish on Slavery? Buy Corrections Corporation of America

Written by Jeff Siegel
Posted August 23, 2016

ppsonI don’t usually short stocks.

I just don’t like the idea of betting on a company to fail. It just seems like a really shitty thing to do.

Of course, this is just my opinion, and I fault no investor for taking advantage of a shorting opportunity. My personal beliefs are relevant only for me.

That being said, last week, I took great joy in watching shares of one private prison company tank.

After it was reported that the Justice Department would no longer renew contracts with private prison companies, shares of Corrections Corporation of America (NYSE: CXW) plummeted.

This couldn’t have happened to a company more deserving of bad news.

Let me Explain ...

Back in 2012, law officials stormed Vista Grande High School in Casa Grande, Arizona. Fully-armed, they ordered the entire school on lockdown and began a major sweep for illegal drugs.

Drug-sniffing dogs searched lockers, backpacks, and even students, while kids stood by nervously, waiting to be interrogated by police.

But as it turned out, some of the “police” weren't police at all...

They were nothing more than employees of a private prison company wearing uniforms that could easily be mistaken for law enforcement officials. And apparently, using prison employees to assist in these types of raids is nothing new. It's actually been going on for years.

It's been heavily criticized as illegal and a violation of civil rights — and it begs the question, Why would a private prison even want to be involved in these types of operations, anyway?

I’ll give you 1.7 billion reasons.

You see, on the day of the “drug raid,” Corrections Corporation of America (CCA), the for-profit prison company that sent employees to Vista Grande High School dressed similarly to police officers, added three units of inventory — i.e. processed and warehoused three students, two for the equivalent of one marijuana cigarette.

And with the processing and warehousing of those “violent” criminals, CCA got a few more bucks from Uncle Sam.

What you have to understand is that the company makes money on every prisoner and detainee it warehouses. And all revenues are derived from government contracts that pay an actual per-prisoner rate. This has resulted in annual revenues of $1.7 billion for CCA.

That's 1.7 billion tax payer dollars — a nice score when you have friends in the right places.

But think about that for a second...

CCA makes money when people are arrested and warehoused. It doesn't matter if they're guilty or not. As long as they can get someone in the system, they get paid.

So, is it any wonder the company has been more than willing to “assist” real law enforcement in these types of raids?

And how is it that employees of a private prison can even be involved in arresting anyone?

Well, as it turns out, in Arizona the “administrative code” exempts private prison contractors from obtaining the certification required to take on the duties of a peace officer. Not coincidentally, CCA is the largest non-government employer in Pinal County, AZ

Of course, CCA and other private prison companies are simply playing the game the government created. In other words, if you got the cash, you can do pretty much anything — even impersonate a police officer.

Investing in Slavery, Investing in the War on Drugs

The pay to play game isn't new. And private prison companies aren't barred from the halls of Congress.

In fact, just last year the Justice Policy Institute released a report uncovering the political strategies of private prison companies, which essentially involved lobbying for harsher policies and longer sentences.

According to the report, the private prison industry employed three strategies to influence policy: lobbying, direct campaign contributions, and networking.

The three largest private prison companies contributed $835,514 to federal candidates and more than $6 million to state politicians.

The return on that investment: The Federal Bureau of Prisons has paid private companies with access to politicians $5.1 billion for 13 contracts of varying lengths.

But last week, the Justice Department pulled the plug, announcing that it would no longer use private prisons. As a result, shareholders of CCA got burned.

cxwhart

While I certainly don’t wish for anyone to lose money in the stock market, the bottom line is that you reap what you sow.

Investing in CCA is the equivalent of investing in everything from slavery to the war on drugs.

So no, I feel not an ounce of sorrow for those who lost a ton of money on CCA. And I actually hope this recent episode will deter other investors from ponying up for a piece of the private prison industry.

Of course, I realize that the words on this page will have no impact on the stock or the company. In fact, despite my pleasure in hearing that the DOJ will no longer award contracts to CCA, this doesn’t mean companies like CCA are done.

Truth is, while the DOJ will no longer award new contracts to CCA, the ones in place cannot be canceled. So that means CCA, and other private prison companies have plenty of time to strategize, lobby, and bribe in order to keep that filthy lucre flowing.

It should also be noted that much of CCA’s revenue comes from incarcerating undocumented immigrants. Only about 7 percent comes from private prisons serving the Bureau of Prisons.

I actually expect to see shares of CCA steadily rebound as U.S. Immigration and Customs still seems to be more than happy to funnel your tax dollars into CCA’s coffers.

So if private prisons really piss you off, and you would love nothing more than to profit from their demise, I would suggest letting professional short sellers short the stock while you invest in things that make it harder for them to do business.

One of those would be legal cannabis.

With the legalization of cannabis, private prison companies lose business. It’s that simple and it’s why they’ve worked so hard to continue the war on drugs.

They’ve already lost some now that recreational cannabis is legal in Colorado, Washington, and Oregon. But they’re going to lose even more once California legalizes. That’s going to be a huge opportunity for socially-responsible investors, and a huge problem for private prison companies operating in the Golden State.

The bottom line is that private prison companies are run by sick individuals that have no interest in justice, but every interest in keeping the war on drugs alive. More than a trillion tax dollars have been spent fighting this war, and millions of innocent people have died.

That blood and treasure has been spilled because of unjust cannabis laws, the politicians that keep them in place, and the companies that profit from them.

If you don’t mind supporting these types of companies, then you might do well trading CCA right now. But as for me, I’ll continue to wish for the bankruptcy of CCA, while investing – and making a ton of money – in the legal cannabis space.


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