Marijuana Legalization Won’t Crowd Out Cartels

Everyone agrees that drug cartels are terrible, violent organizations, which is probably why a recent Washington Post article describing a collapse in Mexican wholesale marijuana prices after 2012 has garnered so much attention. Advocates of cannabis legalization in the U.S. were quick to jump on the story as a victory over the cartels since Mexico decriminalized the drug in 2009. These advocates have long claimed that legalization would lead to a weakening of Mexico’s cartels and, with it, their stranglehold on the country. Unfortunately, this may be wishful thinking, as there are doubts about how much cannabis legalization can really hurt the cartels.

“Farmers in the storied ‘Golden Triangle’ region of Mexico’s Sinaloa state … say they are no longer planting the crop,” the heavily quoted Washington Post article reports about marijuana farming. “Its wholesale price has collapsed in the past five years, from $100 per kilogram to less than $25.” While a reader can easily misconstrue this quote as saying that less pot is being produced, thereby weakening the cartels, the article then goes on to describe how the farmers are instead planting opium poppies, which will supply the US heroin trade instead.

Indeed, recent months have seen a surge in reports of cartels moving into new forms of illegal activities. A few weeks ago, Mexican authorities in seized 68,000 tons of cartel-mined iron ore while en route to China. Last year, the Zetas cartel was revealed to have been involved in massive illegal coal mining operations. Around the same time,the Knights Templar cartel’s vast involvement in the avocado trade was exposed. And then came the revelation that the “lime crisis” every margarita-lover in the nation is freaking out about is, at least in part, being fueled by cartel involvement in the fruit’s trade.

Cartels’ movement into normally legal markets seems shocking to many, but the ideas are far from new. As far back as 1995, noted social scientists Diego Gambetta and Peter Reuter wrote about how cartels will seek out opportunity for profit any way they can, citing Cosa Nostra’s involvement in price fixing the concrete industry. Cartels act as catalysts of illicit entrepreneurship, giving individuals the ability to enter the darker side of legal markets. The lime trade is an excellent example. Exporting limes to the U.S. is a good, common, and legal trade. The Knights Templar thereby expropriated some lime farms while using their clout to regulate competition out of existence.

Cartels have proven extremely adaptable to outside pressure. When some government action can prove successful in the short-term, like the Coast Guard shutting down the Caribbean cocaine trade, the cartels will adapt. In the Caribbean case, it meant shifting supply routes overland via Mexico. When crackdowns occur in particular industries, the cartel will shift away from it. A notable example of this was the U.S.-based mafia’s avoidance of the heroin trade in the 1950s, ceding the trade to the Sicilian mob. The penalties for trafficking heroin were so stiff that they posed systemic risk to the mafia, and thus they avoided an otherwise lucrative market.

As such, cartels are becoming diversified networks of businesses, not simply reliant on the traditional drug trade for revenue. Back in 2011, Sylvia Longmire noted that this diversification would insulate cartels from economic and political shocks of legalization, just like having a diverse portfolio of stocks insulates investors from some risk.

No matter how low prices for some particular drug fall, the cartels will likely just shift to new activities. Thus, Mexican farmers’ move to opium production was all too predictable. At the same time, any time a cartel is forced to exit a trade, especially one with previously-high margins, it generally come out weaker than before. Put simply, legalizing cannabis in the U.S. will hurt the cartels, but it is unlikely that it will kill the cartels by any means.