Catnip is a plant from the mint family that has a almost narcotic effect on cats, by that I mean they pretty much get high when they sniff or roll in it. It would be comparable to a person using marijuana and 'mellowing out'.
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Cats like catnip because the effect that smelling it gives them makes them feel good. It acts as a natural high for your kitty, that lasts about 5 to 10 minutes. You can find more information here: http://www.... cat-world. com. au/all-about-catnip