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How marijuana legalization will affect Mexico’s cartels, in charts

The decision by voters in Colorado and Washington state to legalize the recreational use of marijuana has "changed the rules of the game" for the administration of Mexican President-elect Enrique Peña Nieto in the U.S.-backed drug war, according to a report by the Washington Post's William Booth.

"Obviously, we can’t handle a product that is illegal in Mexico, trying to stop its transfer to the United States, when in the United States, at least in part of the United States, it now has a different status,” Nieto’s top adviser, Luis Videgaray, told a radio station Wednesday.

However, experts and studies note that legalization in two U.S. states -- even if the federal government allows it -- probably won't put Mexico's drug cartels out of business.

In the lead-up to the referenda in Mexico and Colorado, the Mexican Competitiveness Institute released a study estimating that Mexico’s cartels would lose $1.425 billion if the initiative passed in Colorado and $1.372 billion if Washington voted to legalize. The organization also predicted that drug trafficking revenues would fall 20 to 30 percent, and the Sinaloa cartel, which would be the most affected, would lose up to 50 percent. 

But that's a much more severe impact than the one predicted by the Rand Corp., which previously found that cartels would barely feel the pinch from legalization initiatives in the U.S. As Booth reported:

A 2010 Rand Corp. study estimated that legal marijuana use in California, a state that consumes about one-seventh of all the pot smoked in the United States, would cost the cartels 2 to 4 percent of their revenue. So losing consumers in states such as Washington and Colorado that have a smaller population might not affect the cartel bottom line by much.

It's hard to determine exactly how U.S. marijuana legalization would hurt the cartels, in part because we don't have perfect numbers on how drug traffickers profit from marijuana use in each of the 50 states.

The Rand authors looked at the hypothetical case of marijuana legalization in California, which was a proposition in the state at the time that didn't pass. When they tried to determine the impact that access to legalized marijuana in California would have on the cartels' market share, they found that marijuana exported by Mexican "DTOs" (or drug-trafficking organizations) dominates the New Mexico and Texas markets but doesn't saturate the California and more northern (Oregon and Washington) markets. 

So already, legalization in Washington and Colorado would not hit Mexican cartels in the way that the same measure in, say, Texas would.

They also found that in the worst-case scenario for the drug traffickers, legalization in California would mean Mexican marijuana would retain less than 9 to 15 percent of its original market share in the U.S. But if you factor in smuggling costs, excise taxes and the perceived potency of the product, the market share could remain as high as 33 to 38 percent.


Then there's the fact that cartels make their money from more than just marijuana -- drugs like cocaine and methamphetamines, as well as activities like human smuggling and kidnapping, make up a large chunk of their business models. And they've shown a remarkable ability to adapt as market forces and drug policies shift.

With non-drug activities in mind, Stanford University psychiatry professor Keith Humphreys, a former Senior Policy Advisor at the White House Office of National Drug Control Policy, developed a theoretical pie chart breaking down cartels' likely revenue streams:

Here, marijuana sales make up only 17 percent of sales, while the pricier cocaine makes up more than a third.

"It is clear for Mexican cartels that cocaine and heroin are the areas where in terms of export they earn the most," Martin Jelsma, an expert on drug policy in Latin America at the Transnational Institute in the Netherlands, told the Christian Science Monitor.

And if you side with the experts who think non-drug activities account for a majority of the cartels' revenues, marijuana sales shrink even further, to about 9 percent:

Of course, policymakers have floated even more dramatic ideas aimed at killing the cartels' pot-trafficking revenues. 

Earlier this year, Uruguay President José Mujica’s proposed not just legalizing pot but turning the state into the sole supplier, thereby replacing dealers.

State involvement would “spoil the market” for pot dealers, “because we will sell it a lot cheaper than what they’re selling it for on the black market,” Mujica told CNN.







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Olga Khazan · November 9, 2012

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