Although New Orleans was known for being a party town, it apparently wanted the parties to remain based on alcohol, and not the new hippie drugs that were becoming popular at the time. The city of jazz-based debauchery was starting to look a bit too much like San Francisco for the police's liking. That Rolling Stone article said that the "New Orleans police seem to fear that their good town will become the next Haight-Ashbury." They were cracking down in order to keep the long-haired freaky people from feeling welcome there.
After the ordeal, even Houston, Texas — as they sang in "Truckin'" — was "too close to New Orleans" for The Grateful Dead. But they didn't pack up and hit the road right away. Hart ended up using the $37,500 the band had earned from their gig to bail out all 19 members of the touring party who had been arrested. The Dead stayed to play their second scheduled show and added another to raise funds for their legal fees and to help out other musicians who had similarly become victims of the country's war on drugs.
But New Orleans wasn't the only town with a certain reputation that was unwelcoming to the Dead. They had already been busted for drugs in their hometown hippie hideaway, San Francisco's Haight-Ashbury neighborhood, three years earlier.