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Does American Legalization Challenge Mexican Cartels?

12 Jun Does American Legalization Challenge Mexican Cartels?

One of the ongoing rationalizations for the legalization of the drug trade in the United States has been to stop the associated crime that comes with prohibition. The drug trade across the Mexican border is one of the bloodiest on a regular basis.

What is the impact so far of American legalization of the drug highway across the Tex-Mex border?

This is a question that most for now are unwilling to prognosticate on simply because there just isn’t enough data. That said, it is clear that legalization north of the border is making a difference.  Last December, National Public Radio reported that the amount paid to Mexican growers—the source of the cartel supply—had dropped by as much as 60-70 percent in the last 2 years to $30-40 per kilo. And that was before three new American markets became legal by voter mandate in Oregon, Alaska and Washington, D.C., this past November.

At the same time, market gluts in several states, particularly Washington state, but also Colorado, dropped the price of marijuana domestically, at least temporarily and in legal state markets, by up to 70 percent. The legal business of marijuana is clearly producing a product that at minimum is price competitive to the recreational black market.

As Kris Krane, the CEO of 4Front Advisors said, “It is probably too early to tell what the impact has been of legalization on the overall drug trade. We do know that the black market has been shrinking in Colorado since legalization. But since marijuana is still illegal in the vast majority of the country, it can’t be expected to have made a significant dent in the drug trade coming from Mexico and other black markets.”

It is clear however, that legalization is also having a dramatic impact, at least locally, on violent crime of the home grown sort. While not all states can report that their murder rates dropped by half post-legalization, as it did in Colorado, clearly domestic crime statistics—directly related to the drug trade or not—are starting to tell a story that can be extrapolated beyond individual states.

That said, this is also a slow process, and advocates if not businesses are just as concerned about black or gray markets arising domestically from the imposition of unwieldy state licensing fees and sales taxes.  That in fact might be a larger problem for some years to come, particularly in states which heavily restrict the market in the name of “regulation.”

“The best way to eliminate the influence of organized crime—whether from Mexico or domestically—as advocates and the blooming legit business across the country continue to press, is for the federal government to reschedule pot,” said Marc Ross, a partner at Sichenzia Ross Friedman Ference LLP in New York, who works with the marijuana advocacy and business community internationally.

Krane is of a similar mindset, stating, “The only way to eliminate the criminal black market is to legalize nationally. Once that happens, commerce around this plant will shift from cartels and black markets to regulated markets, similar to alcohol.”

The bottom line? It makes both legal and business sense for the federal government to continue on a path to legalization. Everyone on the side of legalization agrees it is the best way to significantly impair the ability of the cartels to function. As Ross said, “It is beyond doubt that it is, and has always been, a federal priority to stop the cartels and curb the black market trafficking in marijuana.  It is also well accepted that marijuana, which has been a Schedule 1 drug for over 40 years, has only encouraged both those items, countering the federal goals. By changing the scheduling of marijuana [the federal government] will allow marijuana to be more regulated and decrease the outside influences the government is seeking to curb.”

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