State Ballot Initiatives Legalizing Marijuana May Cut Into Profits of Mexican Drug Cartels

Residents of Colorado and Washington voted yesterday to legalize marijuana for recreational use.

That move might eventually squeeze the profit margins of Mexican drug cartels.

The cross-border trafficking of marijuana is big business for drug cartels based in Mexico, earning them as much as $2 billion every year.

Those revenues are likely to remain strong, at least in the short-term.

And, the US Justice Department could sue Colorado and Washington and block the laws entirely, protecting the drug cartels’ US markets.

Beau Kilmer has looked into how marijuana legalization in the US might affect drug trafficking revenues in Mexico.

He co-directs the Drug Policy Research Center at the Rand Corporation.

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Aaron Schachter: Yesterday voters in Colorado and Washington State approved measures allowing the recreational use of marijuana. Their counterparts in Oregon said no to legalizing pot. The ballot questions in those three states were of interest in Mexico. That’s because even limited moves toward legalization in the US could hit Mexico’s drug cartels. Beau Kilmer has looked into how marijuana legalization here might affect drug trafficking revenues in Mexico. He co-directs the Drug Policy Research Center at the Rand Corporation. Kilmer says the yes votes in Colorado and Washington were unprecedented.

Beau Kilmer: What happened last night in Colorado and Washington really is groundbreaking. No modern jurisdiction has ever removed the prohibition on production, distribution, and possession of marijuana for non-medical purposes. Not even Holland.

Schachter: So Beau Kilmer, how do you begin to measure what this might mean in Mexico if a few states here in the US start to legalize marijuana?

Kilmer: Well, it’s hard to figure out how much Mexican marijuana is actually consumed in the United States. Our best estimates range from about 40 to 67 percent. It’s probably more than half. Now with Colorado and Washington legalizing, when production is allowed there, and if it only serves the markets in Colorado and Washington, it won’t have much of an impact at all on the revenues for the drug trafficking organizations. However, if legal production in Colorado and Washington ends up supplying the rest of the country, that’s when the Mexican drug trafficking organizations could lose $2 billion a year. However, that depends largely on how the federal government responds.

Schachter: Right.

Kilmer: That’s assuming that the federal government just allows this to happen and doesn’t get involved, and that doesn’t seem very likely.

Schachter: Right. Even if the federal government allows this to happen, can you imagine a scenario where marijuana is trucked around the country from Colorado and Washington?

Kilmer: Oh, definitely. I mean, right now.

Schachter: Really? Moved across state lines like that?

Kilmer: Oh, very much so. One of the big things you have to realize with legalizing marijuana production, is that you end up dramatically reducing the production costs. Right now, when someone buys marijuana, methamphetamine, or heroin, a lot of what they’re doing is compensating the drug dealer and everyone else along that supply chain for their risk of arrest and risk of incarceration. You realize that goes away with legalization. And then, if you have commercial production, you’d also expect there to be economies of scale, changes in technology. So in a report we did in 2010 looking at marijuana legalization in California, at that time an ounce of high quality, high potency marijuana in California was running about $300 an ounce. Depending on the mode of production, you could see those costs, those production costs, just plummet. And even if you applied taxes and fees, there’s no way that you’re going to be able to keep it at its black market price. That’s why the Colorado marijuana could be more competitive in other states.

Schachter: Have you looked at all on what impact this limited legalization here in the US might have on the violence in Mexico between the drug gangs?

Kilmer: Well, so much of it actually ends up depending on how much their revenues go down. If Washington and Colorado, if those legal regimes are only supplying users in those states, there’s still going to be a lot of the market available for the Mexican drug trafficking organizations. So the only situation where we think that legalization will really hurt the Mexican drug trafficking organizations is if it got to the point to where the federal government didn’t get involved and domestically grown marijuana was feeding most of the market. But even then it’s really hard to predict what would happen to the violence. Because you realize that these drug trafficking organizations have portfolios. They’re not just trafficking marijuana. Some are trafficking cocaine, heroin, methamphetamine, there’s human trafficking, there’s extortion. So marijuana is only one small piece of the revenues coming in to these drug trafficking organizations.

Schachter: Just a part of their business venture.

Kilmer: Yes.

Schachter: Beau Kilmer co-directs the Drug Policy Research Center at the Rand Corporation. He talked with us about how marijuana legalization in the US might affect drug trafficking revenues in Mexico. Beau, thank you.

Kilmer: Thanks very much, Aaron.

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