If I remember moon sugar is part of the religion but people took that and refined it into the narcotic skooma. UESP says the Dunmer were the ones who refined skooma originally and that moonsugar is more potent for non-khajiit. So drug dealers from other lands take something they aren't physically adapted to consume, refine it, sell it, and malign khajiit as drug addicts for using it natively.

Like a teetotaler fainting at the fumes of a beer and calling you an alcoholic.

Semi related: in the USA, marijuana came with Mexican immigrants, so a lot of the criminalization stems from racism and xenophobia. The same applies to Brazil, since it was typical to find natives and blacks smoking it.

That aspect was lost on me. Nice catch.