Will Mexican Cartels Survive Marijuana Legalization?

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Mexican authorities arrested alleged drug lord Joaquín “El Chapo” Guzmán over the weekend, the crown jewel bust in a crowded field of narco kingpins.

Would legal marijuana in the U.S. have put him out of businesses anyway?

Most experts say no — cartels have diverse streams of revenue, from sales of other drugs to human trafficking. But legalizing weed across the United States would take a bite out of cartel income.

Here’s why:

1. Mexico is the top marijuana exporter to the U.S.

A 2008 study by the RAND Corporation estimated that Mexican marijuana accounted for somewhere between 40 and 67 percent of the drug in the U.S.

The cartel grip on the U.S. market may not last for long. Pot can now be grown for recreational use in Colorado and Washington, and for medical use in 20 states. For the first time, American consumers can choose a legal product over the black market counterpart.

Beau Kilmer, the co-director of the RAND Drug Policy Research Center, says that a few states legalizing marijuana won’t eliminate the flow of the drug from down south, but a change in policy from the federal government would be a game changer.

“Our research also suggests that legalizing commercial marijuana production at the national level could drive out most of the marijuana imported from Mexico,” he wrote in a 2013 op-ed.

2. Marijuana makes up more than $1 billion of cartel income

Pot isn’t the main source of income for cartels. They make most of their cash from drugs like cocaine and heroin.

But marijuana accounts for 15 to 26 percent of the cartel haul, according to RAND’s 2008 data. That translates to an estimated $1.1 billion to $2 billion of gross income.

The drop in sales certainly wouldn’t end the existence of drug traffickers — they bring in an estimated $6 billion to $8 billion annually — but losing a fifth of one’s income would hurt any business.

On top of that, Kilmer says that marijuana likely makes up a higher percentage of the cartel take today than it did back in 2008. So taking away pot would sting even more.

3. Authorities could focus on other drugs

Marijuana made up 94 percent of the drugs seized by Border Patrol in the 2012 fiscal year, judging by weight.

If pot becomes legal in the U.S. and cartels are pushed out of the market, that would allow law-enforcement agencies to dedicate more resources to combat the trafficking of drugs like heroin and cocaine.

This scenario presupposes that marijuana will be cheap enough in the states to disincentivize continued smuggling from Mexico.

Eric Farnsworth, the vice president of the Council of the Americas and Americas Society, says that high taxes could preserve the illicit market.

“There will always be arbitrage opportunities even for a legal product,” he said. “Cigarettes are completely legal in the U.S. and worldwide, yet counterfeits and parallel imports to evade taxes are a major part of criminal enterprises and gangs.”

In the future, though, the legal market could overtake illegal sales. American buyers may be willing to pay more for legal weed and high tax rates could drop as states change their drug policies. That would make smuggling it across the border a waste of time.

The takeaway: Legal marijuana may not kill the cartels, but it would cut into their income.

Correction: An earlier version of this story said that marijuana makes up more than $1 billion of cartel “profits.” In fact, it makes up more than $1 billion in gross export income.