I agree, but there's a qualitative difference here, in that the hippies that are the subject of this story don't tend to kill or even beat up people. I've never sold any weed, but I've known enough hippies to recognize that they're basically benign black market traders rather than organized criminals, and the fact that they are sidelined in a new market is a problem for them.

Lots of people (who were not hippies) were interested in buying weed, while hippies were happy to supply the willingness to take a moderate legal risk. However, non-hippies aren't all that interested in other things that hippies like, such as hemp weaving or handicrafts - at least, not to the extent of providing hippies with any sort of livable income. So the choice is to either supply other, more risky markets - in other states, or with 'harder' and potentially more dangerous drugs - or find some other kind of employment. But other kinds of employment aren't really compatible with being a hippie, and while I don't think that's a fantastic thing to aspire to I respect that some people would rather live simpler, non-materialistic lives, or part of their their lives, and this is increasingly hard to do in a society that fetishizes private property.

My gut feeling is that it hasn't happened yet because the total payoff (I'm talking money) is worse than the status quo.

The problem with substance consumption is that it's an asymmetric negotiation. The consumer is the weakest link (for obvious reasons), so the dealers have the upper hand. You don't even need to look at illegal drugs, just look at pharma industry for an example of that.

Legalization only benefits the consumer, who have access to a better product at a lower price and zero risk. Also, creates low wage jobs. To everyone else involved (and that's a lot of people: farmers, cooks, dealers, truck drivers, cops, politicians, even consumers who sell to friends), it's the most interesting that it stays illegal.

The tendency with weed legalization is for dealers to start moving a better high, not go bankrupt. The tendency of consumers is to look for a better high also. In the places where weed is legalized, you now have higher THC breeds and hash oil. It's a forever regulation struggle (are these harmful? can it still be classified as pot?).

My inner conspiracy theorist says the Mexican cartels are paying off US politicians to keep anti-drug laws.

It is a $30 billion dollar industry after all. [1]

[1] http://www.cfr.org/mexico/mexicos-drug-war/p13689

Legalizing weed will certainly affect organized crime in Mexico but it won't be significant. There are plenty of other drugs and other criminal activities from which organized crime gets income. Other important thing to consider is that Narco Culture is pretty strong in Mexico. This people will not stop being involved in criminal activities just because their income dropped. Moreover there will always be people willing to become involved in criminal activities, not to become rich but to make a living wage.

This is proving a point that a lot of pro legalization people have been saying for years.