Legalising marijuana: the view from Mexico | Hacker News Reader

Legalising marijuana: the view from Mexico

economist.com

If I were running a Mexican drug cartel, I'd be trying to ensure all the drugs I was importing into the US stayed illegal there. How would I do it? And can we detect them doing that? It would be fascinating if we could, and spam filtering showed me people often leave trails they don't realize they're leaving.

You might have heard the "Bootleggers and Baptists" phenomenon: http://en.wikipedia.org/wiki/Bootleggers_and_Baptists

Because of the massive profitability of illegal goods, there's a strong incentive to prevent them becoming legal again.

The weird mutually-fractal nature of states and organised crime is discussed very well here -- http://skepticlawyer.com.au/2012/11/08/coercive-competition/ -- where I picked up the Bootlegger and Baptist reference.

Neil Stephenson went a step further in The Baroque Cycle and had them be the same person, Drake Waterhouse.

You asked how a criminal organization would do it; so this gets a little dark:

- Go to both main cities where marijuana is legalized and make up fake scenes where marijuana seems to be responsible for some tragedy (like multiple fatal car accidents where there is marijuana all over the car). People love sensationalism and controversies.

- Another way is so to lobby for all the politicians who strongly oppose legalization (using a legal company as facade of course)

- Another way is to kill political leaders that are in favor of legalization and make it look like unrelated accidents/crimes (otherwise the movement gets sympathy by the victimization of the cause).

Their weak point is that they are not as organized as one may think; and their savageness sometimes lead them to do stupid things (like kidnapping hackers to steal credit cards); most of them are probably not tech savy so there may be many ways to intercept their communications.

Variation of second point: Kill political leaders who are against legalization, and make it clear it's because of their position on this issue. This would imply that pro-legalization people are willing to murder to get their way, and so in sympathy the public would vote against legalization. [Call this the 'anti-legalization martyr' play.]

They are able to kill with relative impunity in Mexico because the Govt isnt big enough or strong enough to stop them. If they killed an American politician, regardless of which side they are on, it would draw the focus of the US law enforcement agencies. This would cause them some very serious issues.

They have been careful to keep the violence south of the border and I think they are cognizant of the fact that killing south of the Rio Grande brings profit, killing north of the Rio Grande can bring ruin.

- Financially support the prison lobby (which is strongly opposed to drug legalization).

The smart cartels have certainly invested in the U.S. prison industry. Great hedge against their drug business. Not to mention phenomenal growth because of "war" on drugs.

Proly make money running the drug smuggling as loss-leader just to keep prisons full.

or...they could go to a big time lobbying firm and have the media do all that, but in a legal and more effective fashion. They may not be sophisticated enough to do something that simple, but it would be far more effective to pay experts to do the dirty work than handle it yourself.

edit: to answer PGs question, follow the money trail.

How would I do it? And can we detect them doing that?

Am I detecting a request for startup here?

Palantir[1] will probably get there first.

[1] - http://www.palantir.com/

How big & organized exactly are these cartels?

Are they big enough to really be thinking along lines like this?

I can't give you any numbers but they have pretty much torn the country apart.

Yeah. That's true I know they're big and have a huge effect locally, but scheming to influence lawmaking in another country is pretty big thinking. It's also forward thinking, worrying about your profits 5 years from now.

Here's some numbers for what has effectively become a civil war in Mexico: ~55,000 total deaths (16,000 in 2011 alone); nearly 60 journalists killed, over a thousand police and prosecutors killed, nearl a hundred politicians assassinated. Drug revenue in the tens of billions of dollars and somewhere around 100,000 soldiers fighting for the cartels (compared to about 250,000 total soldiers in the Mexican armed forces).

It's an unusual war because the cartels don't care about actually controlling territory too much, they just need to be able to operate, so there are rarely large scale battles between cartel and government soldiers, if the government moves in to some area in force the cartel can just melt away and then hit the government forces opportunistically. Although typically the cartels don't even do that, instead they kill civilians, police, children, and politicians in order to maintain a state of terror and get people to keep their heads down and ignore cartel activity.

Size information is hard to find, but they are organised and powerful.

(http://www.washingtonpost.com/world/national-security/us-cit...)

$20 billion "flowing back to Mexico".

> One Mexican national-security expert estimated that the [Sinaloa] cartel moves a kilo of cocaine over the U.S. border about every 10 minutes.

(https://en.wikipedia.org/wiki/Mexican_Drug_War#Sinaloa_Carte...)

> Mexico's most-wanted drug trafficker and whose estimated net worth of US$1 billion makes him the 1140th richest man in the world and the 55th most powerful, according to his Forbes magazine profile.

(https://en.wikipedia.org/wiki/Sinaloa_Cartel)

> The United States Intelligence Community considers the Sinaloa Cartel "the most powerful drug trafficking organization in the world" and in 2011, the Los Angeles Times called it as "Mexico's most powerful organized crime group."

(http://www.npr.org/templates/story/story.php?storyId=1031785...)

> Los Zetas — a paramilitary group that acts as enforcers for the Gulf Cartel, the organization of drug gangs that controls narcotrafficking on Mexico's east coast. Many of the Zetas are former Mexican soldiers who were trained to combat drug gangsters. Some of the gunmen are thought to have received training in the United States at the military School of the Americas.

[...]

> The Zetas were among the first criminal groups in Mexico to employ military tactics and heavy weapons, including 50 caliber machine guns, grenade launchers and even ground-to-air missiles.

I am very skeptical of statistics touted by so-called "security experts", spy agencies, or anti-drug organizations like the DEA. They aren't exactly impartial observers, and have every incentive to greatly exaggerate the scale of their opposition. The bigger and meaner their opposition looks, the better the case they can make for increased funding of and attention to their own business.

Unfortunately, the mainstream media usually quotes these biased sources as if they were speaking gospel truth, without a shred of criticism or doubt. These sources are virtually never held to account, asked to justify how they came up with their estimates, or have their estimating methodologies critically scruitinized.

One of the cartel leaders is on Forbe's list of billionaires. They're pretty big.

http://www.forbes.com/profile/joaquin-guzman-loera/

You probably wouldn't have comparative advantage in influencing US politics, given that you're a foreign cartel. So you'd presumably rely on powerful entities in the target country whose interests are reasonably aligned. Fortunately, it's a huge industry, so it's not hard. Natural allies may include the prison industry (which includes some prison manufacturing) and US banks. (http://www.chomsky.info/interviews/199804--.htm)

And not those with just an economic interest, but relatively political interests in imprisoning/disenfranchising hard-to-control parts of the population, and limiting free travel over the southern US border (due to things like NAFTA).

Well, at the end of the day they would want to make sure that they possessed a certain level of voter influence in the short term and long term.

In the short term, I would bet that the legalized outfits would be co-opted by the drug cartels and used to launder money, and then 'caught' within a year or so.

Since devout Christians (especially Evangelical) are their #1 ally, I would guess that numerous churches would start being built in these battleground states, and that the people who would be administering would be told about how future 'proceeds' into their personal and church funds would depend on their conversion rate of the local populace. Probably risky, and not likely to work all that well.

tl;dr legalized outfits are going to have overstated connections to criminal organizations and the people in the outer neighborhoods are going to try and won over with rhetoric about separating them from the sinful ways of their neighbors.

"legalized outfits would be co-opted by the drug cartels and used to launder money"

If you were looking to launder money, why would you pick a front that probably had some of the most intense government scrutiny of any business in the country?

Furthermore, do you see many legal aspirin manufacturers co-opted by illegal aspirin cartels? Beer manufacturers co-opted by illegal beer cartels?

Organized crime has been getting in to cigarette smuggling as high cigarette taxes have made legal cigarettes prohibitively expensive and created a black market for them. But this problem did not exist when cigarettes were plentiful and cheap.

We should learn the lesson here and keep legalized drugs plentiful and cheap, so that organized crime has no incentive to get involved and there's no demand for a black market.

The point of laundering money at legal marijuana outfit would be getting caught, showing the public that there is a permanent 'criminal nature' to drugs such as marijuana.

I'm not saying this makes any sort of business sense, it's just a way of influencing public perception.

Be interesting to look at the data from the 2010 Prop 19 'no' vote to see if anything along those lines could be inferred (e.g. strong no vote from areas with high cannabis possession / distribution arrests, suggesting vote buying).

I know correlation doesn't mean causation, but that doesn't mean the data point would not be interesting. Is that kind of data publicly available?

Some people here in HN tend to think that drug cartels run businesses, but they're wrong. Those guys are regular greedy criminals, some with sociopathic tendencies. That's why I don't think they'll even bother trying to go after the lost revenue with marijuana trafficking. What I think they'll do is to migrate their activities to other drugs or another types of crimes like kidnapping and human trafficking. That aligns much better with their values.

> Some people here in HN tend to think that drug cartels run businesses, but they're wrong.

If they weren't, they'd quickly got kicked out from the market by someone who was.

> Those guys are regular greedy criminals, some with sociopathic tendencies.

Like some enterpreneurs are much different.

You assume that because they're doing bad things (morally and/or legally), they're not thinking, but instead they are driven by their impulses. It's a silly assumption and I think disproved many times. Freakonomics comes to my mind as one example.

> Like some enterpreneurs are much different.

Speak for yourself. I'm not.

BTW, I didn't assume anything, I just read the news and talk to people that have been through the fear of losing their lives by these crooks hands.

I don't understand what you're trying to rationalize here, probably you've never had someone determined to take your life away for nothing.

Corporations have had entire armies and countries at their command (not to mention that there is no clear dividing line between corporations and the government). The lives lost due to turf wars waged by drug cartels are not even a drop in the ocean compared to the lives lost in real wars waged for profit.

Let's see. The current Mexican drug war seems to have taken about 50k lives.

The Nicaraguan counter-revolution backed by the CIA took an estimated 29K lives.

The two seem comparable. And the comparison in this case is reasonable because the Mexican war stepped up when mercenaries who had fought in Central America joined the cartels.

> If they weren't, they'd quickly got kicked out from the market by someone who was.

It's pretty naive to imagine that black market cartels are competing in anything like an idealized free market. In the lawless environments being talked about, a worse businessman can always beat a better competitor simply by being better at violence.

Gang warfare and mass killings are rife down their. This isn't some naive libertarian fantasy market where La Familia is just another scrappy silicon valley startup.

The abstract structure of a market seems to be the same, just the rules are different. Companies operating legally fight in courts, drug cartels fight on the streets with guns. In both cases, it's part of the rules the environment sets. So the competitor better at violence is a better competitor, by the rules of the market they operate in.

This is true for a small % of the people. But if those people move over to cocaine or kidnapping or human trafficking, they will at least be in a smaller market. Their sociopathic tendencies will effect less people.

Focus the distribution through organisations that seem very illegal and scary. Like outlaw biker gangs, or other gangs. Otherwise why should these gangs flaunt their anti-socialness so brazenly? It doesn't seem optimal. I think the brutality of criminal drug distribution might tend to a more cooperative equilibrium without the advantage of the benefits of illegality.

Easy. Trivial, even. I set up a small organization with one goal: Get kids to smoke weed.

Pick a handful of communities in the legal states: Wealthy, suburban districts that went blue, but narrowly. Send a couple of guys to each one with ten pounds of marijuana and ten thousand dollars in cash. Have them recruit some bored 21-year-old stoners, give them each twenty bucks for snacks and a dozen rolled joints, and have them hang out at the skate park or movie theater or wherever and just pass out free weed.

Those joints will inevitably wind up in the hands of teenagers and even young children. Ramp up the operation enough, and you've got a full-blown weed epidemic. Without any further prompting, parent groups will petition the state and federal government to intervene, and if not repeal the law then at least impose enough additional restrictions to keep an illegal operation cost-competitive with a legit one.

Of course, there are lots of ways this strategy could fail or even backfire.

I wonder what they did with alcohol to keep people from doing this same thing with it?

All of the young kids that want to drink do. It's not hard to obtain alcohol underage.

Though it is harder to obtain alcohol underage than marijuana.

Precisely because alcohol is legal and regulated, ironically.

How so? It's this simple, "Hey mister". . .

From my experience, in the early 00's, getting pot in a public school was as easy as handing a 20 to the guy everybody knew sold it. It was literally easier to buy pot than a can of cola, as our school didn't have soda machines.

Alcohol? You could get a few cans of beer or maybe half a bottle of vodka, but anything more than that required a degree of planning or connections. Fairly easy, but nowhere near as easy as pot.

If I were a Mexican drug cartel, I would use my existing connections/influence in Mexico to use Mexican media to attempt to paint the picture: "Mexico thinks legalization will lead to more violence".

Right now a powerful argument in favour of legalization in the states is that it will reduce drug related violence, since the cartels will be forced out. Try to make it seem that Mexico disagrees. You don't even need to counter the "legal => less violence" argument with logic or facts; just use FUD combined with the inherent additional credibility you will have in Mexican affairs by being from Mexico.

(I am strongly pro legalisation of cannabis. I think prohibition has caused a lot of harm. I do not take cannabis, and have only ever used it a few times when I was much much younger.)

Some people who want to keep cannabis illegal claim they are reducing harm - reducing harm to users, to those users' families, and to wider society.

I think there might be causal links between cannabis and mental health problems. And there are a bunch of self-medication and masking problems too. But even though I believe this I cannot understand how people do not see the much worse harm that prohibition causes.

In England there is a problem with criminal gangs using trafficked workers, keeping those people imprisoned in houses which are then turned into cannabis farms. If Bob wants to use cannabis it is more sensible for him to buy it from a criminal gang than to grow a few small plants purely for personal use because the crime he commits by growing it is much more serious.

Reading about the situation in Mexico is horrific.

> In Mexico relatively few people take drugs. But many are murdered as a result of the export business. About 60,000 have been killed by organised crime during the past six years.

Sixty thousand? That's a mind-boggling amount. (There's a tv programme in the UK at the moment about road safety, with lots of "how do we reduce road deaths?" About 2,000 people die each year in RTAs in the UK.)

Even stupid people should know there's a serious problem when they're told there is a criminal called "the Soupmaker" who dissolves victims in vats of sodium hydroxide.

(http://www.economist.com/blogs/americasview/2010/09/mexicos_...)

> another collaborator of Sinaloa's, Teodoro García, was captured in the coastal city of La Paz. He was accused of ordering his victims to be dissolved in barrels of acid by his henchman, known as “the soup-maker”.

I'm from Mexico, and I can tell you what is happening here is worrisome. The death toll during Calderon's presidency is way over the roof. He declared war to the cartel's like no one had ever dared to do. This caused a big uproar because know there's a real problem with trying to keep your safe route of drugs.

I'm also pro legislation (have never consumed anything) and the only thing that worries me more than what is happening right now is that maybe, with legislation, cartel's are going to jump to the next profitable illegal activity they can find (kidnapping, extorsion, whatever). I've lived in the same city all my life, and for the last 2 years, for the first time ever, I don't feel safe anymore. When I see soldiers driving around town with their hummer-esque vehicles, I can't find tranquility.

Reading this article gives me some peace, but I can't find any real assurance that this will stop any soon.

Why jump to something else that's illegal?

I would suspect with legalization the cartels would have an advantage as a legal drug seller since they already have the distribution network and systems in place.

There would also be less need for violence with the ability to take people to court for breaking contractual deals.

"Why jump to something else that's illegal?"

Because it's the prohibition that causes the absurd profit margins they are accustomed to. It's unlikely that they would accept an average profiting legal product rather than go after the next absurdly profitable illegal product. Also, their entire business is based around providing a prohibited product. They wouldn't likely be keen to completely change business models.

Is a likely possibility; but there its not a sure thing; remember that after the end of the alcohol prohibition in the USA the crime rate did dropped[0]. Also, the jobs opportunities that legalization creates may help this become the case.

[0]http://www.cato.org/publications/policy-analysis/alcohol-pro...

The market will get much smaller for people who want to sell cannabis because lots of consumers will grow it themselves.

Many cannabis dealer will also try to start larger growing operations. Same thing happened in the Netherlands.

Just this. It's called weed for something. Sure, growing high grade stuff it's expensive and hard, but that's not what most people are consuming anyway.

Actually, growing your own is still illegal in Washington. Colorado limits each person to 6 plants. Will be interesting to see how the difference effects the markets.

Actually, if either of these conditions are met, it's legal to grow in Washington:

  * Medical cannabis patient (limited to some small number of plants, like CO), or
  * State-licensed grower under I-502

> Why jump to something else that's illegal?

It's going to be difficult for many members of criminal gangs to move into mainstream employment. Violent murderers probably don't make great employees.

It's a shame that the less violent low-level offenders will also find it hard to escape the life of crime, and it'd be great if there was some Mexican legal cannabis co-operative that rehabilitated gang members.

The cartels don't have a distribution network that would scale to legal distribution. Catapulting bales of cannabis over the border isn't useful for legal businesses.

While their networks aren't much use for a legal business they are useful for more illegal business. People trafficking is a high profit business. Gun running is high profit business. Other drugs - heroin, cocaine, amphetamines, are all still illegal and unlikely to become legal any time soon.

It's clearly pushing them into a less optimal corner. If it were more optimal, they'd be doing it right now anyways.

Right, it's likely they're already in those markets (harder drugs, etc) in some way and are saturated: they can't pump more money out of them. Taking away marijuana revenue takes away a fixed amount of their income.

Cartels make far more money off "hard drugs" than they do off marijuana, and smuggling hard drugs is easier just due to size (a kilo of cocaine is tiny compared to a kilo of marijuana) and relative lack of tell-tale signs like odors (dogs can sniff out packaged cocaine and meth, humans can sniff out packaged marijuana). I served on a grand jury a couple of years ago and a DEA agent, testifying in a big meth smuggling indictment, said the local authorities had cracked down so efficiently on small, local meth labs that it opened a big door for cartels to become the suppliers. Violence and volume rose rather immediately. I think legalizing marijuana is probably a good step, and it will take >0 dollars from cartels, but I highly doubt it would be a serious impediment to them, the will continue with other drugs, local (to Mexico) activities like kidnapping and extortion, and branching out into other organized crime activities (fraud, loansharking, etc...)

Where are you sources?

The article says this:

"That makes it almost as important to their business as the cocaine trade, which is worth about $2.4 billion."

I get you. If I were a drug dealer or bootlegger, I'd be holding out for legalization also. But, and I may be completely wrong, let's think it out. Look at who you're employing. Likely school dropouts who have been taught violence is the appropriate counter-measure to problems. You've got a few notorious crews, a distribution network that knows how to void police, and many street level people.

Now, I'm changing my outfit the second it goes legit. I'm in storefronts, I've got catchy packaging, I've got customer incentive programs, and everyone will know my website and Twitter.

So, now that I'm shipping UPS and insuring your product, what happens to my former crew? The hardcore bunch that did my killing? The street gangs? The people who escaped police? They're the ones looking for a new grind. They're schooled in the ways of the evading cops, killing, and terror tactics. They're going to use the tools they have to make money. They may even be angry at their former employers who are now legitimately wealthy. And seeing how popular kidnapping has become in South America? No reason it couldn't catch on in Mexico as well, given the right circumstances.

The thugs would be ratting the drug lords out all over the place to get plea bargains.

The biggest winner in the war on drugs are criminal enterprises, just because of the profit margins. These are agricultural products that anyone could produce given some soil and modest investments. How could this sustain the lavish lifestyles the top of the cartels have gotten used to?

I'm not sure if you're serious, but there are a few problems with that.

First, there's a lot of crime that goes along with running a cartel. Selling marijuana may be legalized, but most of the cartel people have long criminal histories that aren't going away. Murder, torture, bribery, kidnapping and all that are still crimes.

Second, a good deal of a drug cartel's infrastructure is devoted to violence and smuggling. Obviously violence can't be part of a legitimate business. And unless they're trying to evade taxes, the smuggling stuff is just overhead compared to other shipping methods.

The best strategy I think is to simultaneously eliminate their revenue (legalizing drugs, and making sure US production of quality crops ramps up quickly, etc.) AND crack down on all their "legal-illegal interfaces" -- punish anyone in the police who helps them, anyone in the banking industry, etc.

At one time you're destroying their revenue side AND their cost side. Their "comparative advantage" is in senseless violence, so they're probably easier to challenge on other fronts, but at the end there may be a role for targeted killing of any organized nexuses remaining. But use economics to weaken them first.

It also seems insane to me that the whole Mexican drug industry is only a $5b/yr thing. It costs just the state of California more than that per year in law enforcement and prisons.

I'm also curious just how low the price per pound for "BC bud" quality could go, if it were totally licit and you had serious agribusiness stepping up. $440/pound quoted in the article is a bit below the Humboldt price for outdoor of decent quality, at least in relatively small quantities, but if it got grown like lettuce, it should be even cheaper than that. It would be kind of ironic replacing illegal Mexican ditchweed with US legal pot harvested by illegal/undocumented migrant workers (just like other crops..)

A benefit of legalization is that it allows the justice system to be used. When pot is illegal then the resolution to problems is violence. How do you report tampered product, broken contracts (of the business kind), theft etc?

Really? Only now people are working out that legalising pot destroys cartels? Not just that, the networks too.

Imagine if the tobacco companies sold it. Imagine if the gov told them to secretly stock up , and suddenly put it on the market at half the usual price. Imagine all those dealer holding stock that was on credit. Imagine not being able to sell it. A huge market crash. Game over.

All the gov do now is hold the prices high. They actually do control the market. A bit socialist, no? Why not let the worshipped capitalism deal with these cartels? If all western governments legalised, these evil cartels would be out of business.

Any one worked out how much tax revenue the governments could make? Or would people just grow their own?

Anyway, the best way to destroy these cartels over night (ish) is instant legalisation, and the tax raised can pay directly for rehab, etc. Or is the too communist?

I had the same reaction. It scares me to think that intelligent people are just now realizing the consequences of making a highly-demanded product illegal. Really, all drugs should be legalized and controlled. The problem is that we're not only facing religious drones who can't see past the end of their noses, but more importantly, we're up against big money. And big money has power. I'm talking not only the cartels but private prison owners. Do you think those guys want to see their customer(prisoner) numbers decrease? Or what about law enforcement and the drug agency? You think those guys want their funding cut? Because if you remove drug-crime control you remove the majority of their work. The convenient thing is that this drug-scare hysteria that has this nation by the balls is what keeps this endless cycle going. Those who benefit where the "righteous" mask of public protector or advocates for our children.

The calculations don't take into account the onerous taxes that are going to be imposed on legal marijuana, and probably at some point there are going to be limits on the THC levels that can legally be sold. Illegal weed is going to end up still competitive.

This is unfortunately quite likely. Witness the involvement of organized crime in cigarette smuggling as cigarette taxes have risen.

If we want to minimize the involvement of organized crime, not only does marijuana have to be legalized, but the taxes have to be low enough for black market alternatives not to be worth the trouble.

black market prices are so far out of whack with market value (apart from the value of getting something your govt. has declared illegal) that taxes would have to be ridiculously high to make prices even come close to street cost of equivalent drugs. Either that or street price collapses to legal price (perhaps minus taxes) and criminals are less incented to participate due to drastically reduced margins. High taxes really are only a concern for someone looking to buy wholesale, an individual user buying say 3.5-7 grams at a time would likely be paying, at most, a few dollars in taxes, which is hardly prohibitive since the same amount illegally costs ~40-80 dollars afaik (note: I don't dabble in illegal drugs but may have used some in high-school, so this cost knowledge is a little out of date, but I suspect not horribly off).

You're talking about current illegal drug prices. When taxes on legal drugs are high enough, criminals selling legal drugs on the black market could still make a tidy profit while undercutting the cost of legal drugs. Granted, those profits won't be nearly as obscene as those garnered now from the sale of illegal drugs, but profitable enough to stay in business.

Legal cigarette prices in the US are nowhere near the price of illegal drugs, but the taxes on them still provide enough incentive for organized crime to get involved in smuggling cigarettes and selling them on the black market, and enough incentive for cigarette users to buy black market cigarettes.

The same is likely to happen with legalized marijuana, unless the price (including taxes) is kept low enough to make buying black market marijuana not worth the trouble -- much like it's usually not worth the trouble to buy moonshine in the US, when there's plenty of relatively cheap, legal and safe alcohol available.

Yes, my primary point was that the current cost on the illegal market (which is what attracts criminal elements) is so ridiculously out of whack with the actual cost of production that taxes would have to be massively high to drive a black market similar to what exists when it is illegal. Will there be some people still getting it 'illegally'? Sure, as you pointed out there is a black market for cigarettes, but it pales in profit comparison to markets that are entirely illegal, and cartels aren't going to be attracted to nickel and dime markets when they have so many other ways to make money.

American organized crime may be involved in black market cigarettes, but that could also be viewed as a sign of them searching for new revenue streams as their old(er) ones get shut down or become less reliable. Organized crime also used to be involved in alcohol, not so much anymore yet it is still heavily taxed in most peoples eyes.

Further, I assume that legal providers would need some sort of approval/licensing from the state. Illegal providers would not pursue that. So while they would save money dodging the licensing/tax issues they likely could not cost compete with legal producers as they are taking a greater risk they would want to be compensated for (i.e. arrest). The illegal producers would then be doing a risky activity (they wouldn't be shielded by the legality if there are rules around production/supply that they aren't following) and incurring costs that legal producers would not incur. Whether those costs offset the licensing/tax issues is unclear, but I suspect they would.

I don't think your claim is preposterous (that taxes need to be kept in check), but I also am not convinced that taxes will be so high as to drive this kind of market. Time will tell since more states have recently introduced marijuana legalization (assuming the DEA doesn't go all gangbusters on said states).

Cigarette taxes? Please, in NY a pack of cigarettes costs $11. Say for argument's sake that's a $10 tax.

2.5g of marijuana on the street costs anywhere from $50 - $60! That would equate to a $50 tax on half a pack of marijuana cigs. That's what people are paying right now. If you add in the safety and convenience of picking up MJ cigs at a bodega on the corner I could see people paying far above the current price with no problem.

I know these are current street prices but I'm just trying to show you the already absurd markup. $11/pack for marijuana cigarettes is a $10 tax that no one would complain about and no cartel could compete with.

First, there are about 22 grams of tobacco in a typical pack of cigarettes. At the $11 per 2.5 grams price you quoted in your message, it would cost nearly $100 for a pack of legal marijuana with as much marijuana in it as a typical pack of cigarettes... with (again using your estimate) about $87 of that amount being tax -- tax that could go towards operational expenses and profit of a black market enterprise that could provide tax-free marijuana.

Second, cigarette smuggling does exist, and organized crime is heavily involved in it.[1]

Third, (as demonstrated in the above) legal marijuana does not have to cost as much as the current price of illegal marijuana to make a black market viable. It just has to cost enough to make the trouble of buying marijuana on the black market seem worthwhile for the consumer and the profit and risk worthwhile to the dealers. We can call this the "black market viability price point".

It's quite likely that this black market viability price point can be significantly below current illegal marijuana prices. But it's not yet clear how much above the cost of production legal marijuana can be taxed before it approaches the black market viability price point.

Alcohol legalization and taxation might be seen as a positive role model for how marijuana legalization and taxation could be carried out. Alcohol is now legal and taxed, but there isn't much (any?) of market for black market alcohol in the US.

[1] - https://en.wikipedia.org/wiki/Cigarette_smuggling

While you may be correct, though this is highly speculative, the reality is the stuff the Mexican cartels push is extremely low grade, and always has been. Thus it seems unlikely they'd be the ones to seize this opportunity... More likely it would continue as it stands today: boutique producers of high-grade, high-manual-cost indoor hydroponics. Legalizing allows everyone to grow in their own homes. It's not like tobacco which requires big fields and lot's of post-processing. One big plant is enough for one consumer for a year...

Why should the US marijuana have a higher THC content than the Mexican one? Can't Mexican plantations grow the stronger type? Or is there a difference in the agricultural process that influences the THC content?

I don't understand this part of the article.

Marijuana is sold by weight; this might have something to do with it.

Producing high-quality consumable marijuana is a bunch of work. You have to be careful to separate the female plants, prune low THC content leaves and stems from the flowering buds, etc; the cartels don't seem to put this much work into the cannabis they grow.

Cartel marijuana often has tons of leaves, stems, and seeds in it. It's earned the name "Mexican ditch weed."

The article links to IMCO. IMCO have a PDF. The claim appears to come from that PDF. They are saying that Mexico grows a different strain. I don't know why Mexico couldn't grow different cannabis.

(http://imco.org.mx/images/pdf/reporte-tecnico-legalizacion-m...)

They're using THC content as a weak metric to compare pricing. They admit the weaknesses of this approach.

And "less THC" isn't necessarily a bad thing. People still buy plenty of lager even though vodka and gin have a lot more alcohol.

May have something to do with the climatic requirements of different varieties of the plant, similar to how Gewürztraminer performs best in a cooler climate but Grenache needs a hot one.

Mexican cannabis is grown outdoor without much care, while most commercially grown cannabis is grown in greenhouses or for small growers under artificial light (or even in hydro setups).

Most people today do not go to their dealer and ask for the kinds of cannabis they have. They just take whatever is there.

Not sure why you think most people don't ask their dealer what kinds of cannabis they have, but even if it's just one kind, I assure you they know what kind it is. The difference between Mexican Sativa and home-grown Indica is extremely obvious at a glance and the price differential is 2-5x.

I would assume that it's very difficult to assess the quality of cannabis which puts sellers of high quality weed in a difficult position. See http://en.wikipedia.org/wiki/The_Market_for_Lemons

The cannabis market doesn't match Akerlof's conditions. Due to the high rate of repeat business and relative ease of evaluating quality post-transaction, reputation functions as an effective public quality assurance mechanism.

Forced reliance on word-of-mouth advertising is very important as well in avoiding the market for lemons problem, but I don't think Akerlof considered that.

It's actually very obvious.

its just like any other product. To make something good takes more time, care, and most of all MONEY. The shit that comes out of Mexico is low THC because it is grown in mass quantities, by people who don't give a shit, for the sole purpose of profit. The bud we smoke (at least around here) is grown by obsessive pot enthusiasts. These guys are no joke. Strains are carefully documented, growing conditions are optimized, and as a result they produce an amazing product. Really, this should be fairly obvious to everyone here. Apply it to software if it makes more sense to you that way.

As tempting as it is, every time I read about legalizing marijuana, I'm reminded that implementing that legalization would be an enormous headache ( http://steve-yegge.blogspot.com/2009/04/have-you-ever-legali... ). I believe that the War On Drugs is counterproductive and suspicious to the degree that it's outright evil, but fixing the situation is going to be very difficult and it serves no one well to ignore that difficulty.

I would have thought that the weed for the pacific northwest would come from BC.

I don't have any sources to cite, obviously, but from what I know of it, quite a lot is grown locally (i.e., in Washington state). It's maybe less risky than moving it over the Canada-US border, and Washington has been fairly soft on marijuana users for a while (medical marijuana for two decades[0], lowest priority for the Seattle police department since 2003[1]).

There have been ~illegal medical marijuana coops in Seattle for a long time now[2]. (IIRC, Washington's medical marijuana laws allowed patients to grow a few plants, but didn't allow for dispensaries[3]. Obviously federal law is different, which is what the DEA is acting on.) Those coops are largely stocked from locally grown plants. It wouldn't surprise me if some medical marijuana patients also sold into the grey/black market for some extra cash.

[0]: http://apps.leg.wa.gov/rcw/default.aspx?cite=69.51a&full...

[1]: http://clerk.ci.seattle.wa.us/~scripts/nph-brs.exe?d=CODE...

[2]: http://slog.thestranger.com/slog/archives/2011/11/15/feds-ra...

[3]: http://www.komonews.com/news/local/125532903.html

From my experience (back in the high school days, I don't dabble anymore, so this is somewhat dated but not massively so) most high-quality marijuana in Washington comes from north of the border. While Washington has been fairly lax on consumers (as you point out), they have not been lax on growers, and definitely not growers on industrial scales [0][1][2] (though 2 does say they are seeing more local growing). Also, smuggling from BC is fairly sophisticated and most smugglers are doing it in both directions and have some sophistication. They generally don't just try and drive it through a manned checkpoint. Helicopters have been known to be involved [3][4][5]. It is not uncommon for BC marijuana to be smuggled in to Washington and exchanged for cocaine that came to Washington from California, and came to California from Mexico. When I was on a grand jury a couple of years back we saw numerous indictments involving this kind of thing (i.e. smugglers from Canada bringing down pot/ecstasy and exchanging it for cocaine and heroin in Washington).

[0] http://www.wsp.wa.gov/crime/hotline.htm

[1] http://www.tri-cityherald.com/2011/08/23/1612457/3-jailed-in...

[2] http://www.king5.com/news/cities/renton/2-arrested-in-DEA-ra...

[3] http://www.ice.gov/news/releases/1211/121107seattle.htm

[4] http://www.amsterdammarijuanaseedbank.com/news/Helicopters.h...

[5] http://www.cbc.ca/news/canada/british-columbia/story/2009/03...

"In Mexico relatively few people take drugs. "

Really? Where are the stats to back this up?

"the president, has said that if Americans cannot bring themselves to stop buying drugs, they ought to consider “market alternatives”, by which he means legalisation. Vicente Fox and Ernesto Zedillo, the two previous presidents of Mexico, have reached the same conclusion."

So, the leaders of Mexico can't seem to stop corruption and blame the US.

"That would make it more expensive than imported Mexican pot. But home-grown marijuana is much better quality than the Mexican sort."

Which is why there will always be a market for Mexican pot. You would think that people wouldn't buy junk quality items...but Walmart is still a billion dollar business.

Legalizing it will just make it easier for the cartels to get over the borders with their product. The violence will not stop because the Mexican government can't get their shit together and police their own country.

The reason the end of prohibition in the US meant the end of gangster-owned territories is because you couldn't buy off any cop, official, or judge in the country.

"IMCO reckons. Exports of other drugs, from cocaine to methamphetamine, would become less competitive,"

Less competitive? Let's say the Cartels are all selling 3 main drugs: cocaine, MJ, and meth. MJ goes away. cocaine and meth are now more competitive than ever.

For being called "the economist", the sure don't understand how business works...

I feel like pot is like the hypnotoad on Futurama and I can't really trust the opinions of its users.

Historically speaking, there's not strong evidence of this. Despite bootleggers' existing alcohol production and distribution infrastructure at the end of prohibition in the US, they didn't end up as major players in the liquor market after prohibition was repealed, and it's pretty easy to see why: no sane consumer would choose to buy a product from a gangster in an alley when they could just as easily buy from a reputable liquor store down the street. This was all magnified by the fact that government regulation and corporate oversight ensured safer and higher-quality products at lower prices.

There's no reason to think the same thing wouldn't happen with pot: if you could buy it at the pharmacy, why would you go through a dealer? Maybe if there were huge discrepancies in cost because of high taxes, there might be an opportunity at the margins for some arbitrage, the same way there is for cigarette smuggling in Europe, but I'm skeptical, especially because most of the cost, today, of buying pot isn't paying for direct production costs (materials, fertilizer, electricity, etc.), but rather compensating the various players involved for the risk they assume in producing and distributing the product. This all goes away with legalization.

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