Today Colorado became the first state in the union to allow retail recreational marijuana sales. The Internet is awash with stories documenting a moment that many may look back on as a watershed. I seek here to address what many have pondered: What impact, if any, will Colorado’s legalization have on organized crime in Mexico? Mexico has suffered from more than 100,000 drug related deaths since 2006. While the pace of homicides appears to be slowing, according to official government statistics, kidnappings and cases of extortion are rising. Could legalization help to reduce drug-related violence in Mexico? Or have the cartels diversified too far into other drugs and criminal activities for it to matter?
I would argue that in the short term, Colorado’s legalization will probably have a negligible impact on drug-related violence in Mexico, given the size of the market and Colorado’s carefully written marijuana legislation and regulations. But it represents a model for other states that could have a massive impact on cartel profits and thereby reduce drug violence in Mexico. The Colorado and Washington state legalization efforts represent carefully tailored first steps toward the broader legalization of marijuana that could significantly impact drug-related violence in Mexico.
Markets are complex. We have to differentiate between short, medium and long-term effects. Further we have to think about two important factors for Mexico: the profits of cartels and the strength of state institutions. Many speciously bifurcate these issues. I argue that they cannot be separated.
Mexico’s cartels have significantly diversified their operations. Marijuana is generally agreed to represent20 percent to 30 percent of cartel profits. This varies by cartel, with trafficking-oriented groups such as theSinaloa cartel having higher profits from marijuana than more territorial groups such as los Zetas. This is not only due to the trafficking of other drugs such as heroin, cocaine, and methamphetamine, but also due to the cartels’ expansion into illicit activities such as kidnapping, illegal tolls, extortion, etc. Thus the legalization of marijuana in a single state can only cut into cartel profits. Even national marijuana legalization could not wipe them out.
Alejandro Hope and Eduardo Clarke wrote an excellent report for Mexico’s Competiveness Institute that argued that if Oregon, Colorado and Washington (the states with 2012 marijuana initiatives) legalized marijuana, it would cut into Mexican cartel profits by 30 percent; the Sinaloa cartel would be the most heavily impacted. The authors made important assumptions. One was that marijuana produced in the legal market of these states would likely be trafficked outside these states and still undercut the illegal marijuana market. I agree with their general findings but want to point out some issues with those assumptions. First, the federal government has largely allowed Colorado to legalize marijuana—despite the contravention of federal law—provided it prevents marijuana from being trafficked outside the state and that marijuana does not fall into the hands of minors or does not benefit organized crime. Second, and as a result of the first, the states of Colorado and Washington have very carefully regulated their markets, limiting the amounts nonresidents can buy, creating stiff penalties for those possessing large quantities of marijuana, stepping up enforcement for trafficking outside of the state, and stepping up public awareness efforts about the illegality of trafficking outside the state. Third, the federal government has also made clear it will be stepping up its efforts to keep Colorado marijuana in Colorado. Given that Colorado is the test case, enforcement by both state and federal entities to prevent marijuana from leaving the state may be artificially and unsustainably high over the first year or two. Fourth, Colorado’s marijuana taxes are very high and its vertically integrated market structure—70 percent of marijuana sold in a retail establishment must be cultivated by that business—will keep the price up and limit the ability of legal marijuana to undercut the black market.
In terms of the impact on Mexican cartels in the short term, we might see a spike in other extortion-related crimes as profit starvation sets in for certain cells in illicit networks. Attributing this to changing market dynamics in the United States will be difficult, given that violent black market forces (rival cartels) may be a much more important confounding variable. These illicit networks may further diversify into territorial extortionist activities, but over the long term will be wiped out by civil society and the state as these crimes draw a powerful backlash. I documented this process in Tijuana in my 2011 doctoral dissertation.
The real benefits of legalization will be seen in the medium- and long-term. By cutting into Mexican cartel profits, other cartel activities and power could be reduced. We know that cartel profits can be redistributed to local cells to maintain territorial control. The ability to weaken or reduce these payments could limit their activities and capital investments in kidnapping and extortion franchises.
Finally, reducing cartel profits could help Mexico strengthen its institutions. Building effective police and security institutions takes decades. Decades can stretch into centuries if those agencies are constantly rejiggered and re-corrupted by highly profitable and sophisticated organized criminal networks. Reducing illicit profits could have an important and salubrious effect on the ability of Mexico to strengthen its security apparatus.
Colorado’s legalization of marijuana will have a negligible impact on drug-related violence in Mexico because Colorado is too small a market, and enforcement on marijuana leaving the state will be artificially tight for the first year or two. As other states legalize — Washington is set to fully implement its voter-approved initiative later this year and states like California and Washington appear poised to do so in the coming years — we will see a larger impact. If a state such as Texas were to legalize, we would see a rapid and much greater impact due to the state’s size, geographic proximity to Mexico, and penchant for limited regulation of big business. It is Colorado’s leadership role in this broader trend that could have a real impact over the long term on cartel profits and violence in Mexico.