Does legal marijuana in the US really mean trouble for Mexican drug cartels?

A look at the numbers.

It has long been a popular argument among campaigners for reform of America's marijuana laws that legalization would strike a major blow against the violent Mexican drug gangs that have brought so much misery to parts of that country and, increasingly, along the US border.

The logic is simple. Marijuana smuggling is a major earner for drug gangs, so a legal crop in the US would have a dramatic impact on their operations, lowering the amount of money available to them to bribe cops and hire killers south of the border.

Fairly typical of the tone of such reporting was a nice piece for the Monitor earlier this month by Sara Miller Llana, titled "Biggest blow to Mexican drug cartels? It could be on your state ballot."

The piece summarizes a paper from a Mexican think tank that argued legalization in any of the three US states considering legalizing recreational use of the drug – Oregon, Washington, and Colorado – could do major damage to organized crime south of the border:

A “yes” for any state would have huge implications for the US, but the referendums would also have ramifications south of the border. A new study released by the think tank Mexican Competitiveness Institute (IMCO) shows that if the referendums do pass, proceeds for Mexican drug trafficking organizations could be cut by up to 30 percent, depending on which state goes forward with the referendum. (Read the report here in Spanish.)

“The possible legalization of marijuana at the state level in the US could provoke a considerable loss in proceeds of drug trafficking for Mexican criminal organizations,” the report concludes. In fact, it says, ballot initiatives Tuesday could represent the biggest blow to Mexican criminal syndicates in decades.

Well, yes, it could. But with Washington and Colorado now having passed their measures (voters rejected legalization in Oregon), the theory of "more legal pot = less drug violence in Mexico" is about to be put to the test of experience, with a whole host of assumptions made about its salutary effect coming up against facts.

Color me skeptical. While any student of American history knows that Prohibition creates the opportunity for big profits for criminal syndicates, and violence always follows that, the prediction of a big hit in the cartel pocketbook relies on a set of uncertain assumptions: That marijuana production in Washington and Colorado will surge; that this additional supply, without the expense and danger of crossing an international border, will be cheaper and bleed out into the 48 other states, displacing Mexican imports; and that the malign influence of drug gangs on Mexican society will therefore be reduced.

The Mexican think tank estimates that $6 billion a year is derived from marijuana exports from Mexico. Is this estimate accurate? Hard to say. It's not as if we can crunch the numbers from excise tax rolls. But let's assume that's a fairly accurate picture – what portion does that represent of cartel income? Well, nobody knows. 

The US Justice Department has estimated that drug shipments from Mexico are worth a total of $18 billion to $39 billion a year, a staggeringly wide range that shows how hard it is to quantify the economics of the overall trade. Is the $6 billion assumption one-third of overall illegal drug shipments? Or is it one-sixth? Or some other number entirely?

Then there are the assumptions of what legalization will cost the drug gangs. The think tank suggests that roughly $2.7 billion in cartel income will be lost as a result of legalization in Colorado and Washington, as new legal production comes on line. But Washington is already one of the top 10 producers of marijuana in the US (as is Oregon).

While surely some additional acreage will come on line in response to legalization, the Feds will be watching closely for evidence that Washington state's marijuana is flooding its neighbors, and growers will still face the risk of seizure of property under federal laws by the Drug Enforcement Administration (DEA). Any businessman thinking about a major marijuana operation in Washington or Colorado, particularly one that will rely on markets where the drug is still deemed illegal, will think long and hard about how much capital to risk. The Obama administration has been fairly aggressive in going after major pot businesses in states that already have legalized medical marijuana.

Finally, there is the fact that cocaine and heroin are far more profitable ounce for ounce for drug traffickers than marijuana. A kilogram of Mexican pot wholesales for about $1,200 in the US. Meanwhile, drug gangs are thought to buy a kilogram of cocaine in South America for about $2,000, and the wholesale value of that kilogram is about $30,000 by the time it makes it to the other side of the Rio Grande (and ends up retailing for as much as $100,000). There are enormous expenses in transporting the drugs compared to legal goods, what with bribes, violence, "taxes" charged by other gangs to cross their territory, the loss of product to seizures, and the fuss of smuggling across the border.

But within that 15-fold markup, there's a lot of pure profit, surely enough that it could make sense for Mexican drug gangs to try to make up for lost revenue with a volume strategy: Cut their profit margins on the US side of the border to stimulate demand, and increase overall profits (potentially leading to an increase in the use of a far more dangerous drug). And a kilogram is still a kilogram. Moving a high-value good per weight makes a lot more sense than moving a low-value one, when the risk of seizure and prosecution is about the same.

Don't get me wrong. I dearly hope that lives are saved, in Mexico and the US, because of the current, uncertain legalization experiments about to begin in Washington and Colorado. A total end to marijuana prohibition in the US would kill stone-dead illegal marijuana imports, much as it killed illegal liquor imports from Canada after the 18th Amendment was repealed in 1933.

But the US is a long, long way from that. And the thirst for illegal profits is never slaked. Sadly, the grim toll of Mexico's war with drug gangs (with an estimated 55,000 people killed in the last six years) is likely to lurch on.