Mexican marijuana traffickers: More puny than you think

Several contributors here just attended APPAM, the annual meeting of public policy researchers. I was a discussant for a series of RAND corporation papers by my long-time colleagues Jonathan Caulkins, Beau Kilmer, Rosalie Pacula, Brittany Bond, and Peter Reuter.

It’s never a good sign for a discussant when each paper arrives individually delineated into many chapters. I can’t do justice to their richness. You should check out the original sources here and here.

These voluminous papers ostensibly concerned California’s Proposition 19. They really provide a fantastic account of what we know about the American marijuana market, and the role of Mexican drug traffickers in serving it.

If you want to get a reasonable ballpark estimate of California marijuana consumption (maybe 500 tons/yr) or the feasibility of imposing a $50/oz tax across jurisdictions, these are the papers to read. These papers are not without humor, as when the authors seek to guesstimate the weight of a typical joint.

Such back-of-the envelope calculations are as inherently limited as they are unavoidable. Proposition 19 might plausibly have lowered marijuana’s market price by 75 or 80 percent. Equally plausible mathematical accounts of market demand derived from our current circumstances yield very different predictions of what such a large price drop would actually do to the number of users, the social harms associated with marijuana use, and the potential to raise money through taxing the product.In many areas, there are simply no data.

Richard Zeckhauser has said that the best tool of policy analysis is long division. The RAND team has taken that to heart. For example:

We calculated the risk a marijuana user faces of being arrested for possession. If calculated per joint consumed, the figure nationally is … one arrest for every 11,000–12,000 joints.

Other calculations are pretty amusing. Many of the numbers you hear from public officials or from partisans on both sides of the isle are clearly wrong. For example, supporters of Proposition 19 have* claimed that Mexican drug trafficking organizations (DTOs) earn 60% of their gross revenue from marijuana, and that these organizations obtain $20 billion in gross revenues from these activities.

The RAND team efficiently disposes of both numbers, and of closely-linked inflated estimates of U.S. marijuana consumption. The inflated consumption estimates are so large that they would require the identified group of past-month users to consume “one joint every two hours for every waking hour of the year.”

Maybe that’s what Democratic staffers have been doing since Tuesday. Generalized, it loses some plausibility. I’m baffled that such numbers are so readily promulgated and repeated by reputable media outlets. It turns out that Mexican marijuana traffickers have gross revenues of $1.5-2 billion, and that marijuana accounts for maybe one-quarter of these organizations’ gross revenues.

For those who are not marinated in such numbers, these are rather astonishing. From an economic perspective, the Mexican marijuana industry is much smaller than the hype on all sides might lead you to believe. An American firm with gross revenue of $2 billion would find itself alongside such titans as Fleetwood Enterprises, Boyd Gaming, and Alliance One International, around number 899 on the Fortune 1000 list. These are perfectly respectable companies. None to my knowledge has required a bailout. They are closer to “too small to notice” than “too big to fail” in the national scene. The entire world of Mexican heroin, cocaine, marijuana, and methamphetamine trafficking, if treated as a single firm, is hard-pressed to match the gross revenue of Wrigley’s gum and Dollar General.

*I should note that these supporters were relying on an official–but dicy–government figure here. h/t Matthew Meyer.

I’m struck that partisans on all sides (not to mention the news media) tend to hype the numbers, to make the marijuana industry seem bigger than it actually is. I don’t mean to underplay the large human consequences of Mexican drug trafficking and drug violence. In dollar terms, this industry is puny by American standards. It’s small by the standards of Mexico’s $1.5 trillion economy, as well.

These basic economic facts provide one reason for optimism in viewing that country’s awful current drug violence. Mexico is not Afghanistan—a country whose economy is genuinely drug-dependent. Eventually, these battles will settle down. Mexican drug smugglers won’t go away. There will always be Mexican drug smuggling into the United States. To survive, these smugglers will learn to behave more like the American Mafia and less like the narco-terrorists further south. Their mayhem is just too costly given what is at stake.

Comments

  1. Matthew Meyer says

    >supporters of Proposition 19 have claimed that Mexican drug trafficking organizations (DTOs) earn 60% of their gross revenue from marijuana

    Harold, you forgot to mention where the "supporters" got this figure: from the US government office charged with understanding the drug market.

  2. Mike L says

    Glad that the issue Matthew noted was quickly corrected. If the government is going to hype numbers, then activists are forced to respond by dealing with the same numbers, whether that is appropriate or not.

    There's another issue that shortly follows that one. Mr. Pollack wrote:

    "The inflated consumption estimates are so large that they would require the identified group of past-month users to consume 'one joint every two hours for every waking hour of the year.'”

    I haven't had the time yet to try to parse who said this where in the sources cited. Might be good to more specifically cite those. However, I suspect it relates to another problem with official statistics, which is "identified…users."

    Presuming this is data drawn from the long-running Michigan survey (IIRC) of household drug use, I believe it would be more appropriate to question some of this data also. If someone called me and asked whether or not I had consumed any drug in the last day/week/month/year/life, I doubt I would be at all forthcoming, whatever representations are made. I suspect the consumption rates being referred to are significantly affected by the fact that such surveys face under-reporting.

    I have no idea how much that might be, but if there are more users than being documented, that would certainly lower the per-user consumption. Based on personal experience, I believe that current usage rates that were quoted extensively in mainstream reporting as 13 to 14 million monthly US cannabis users more realistically represents twice that many.

    Regardless of all of the above, in connection with the big political news of the week on this issue, the defeat of Prop 19 by 53% yes to 46% no needs to send a signal to everyone that there needs to be some sort of better endgame than currently on offer by most politicians and newspaper editorial boards. You cannot have a functioning democracy when people are so fundamentally divided on a topic that promises the potential imprisonment of the slightly smaller half of the population. Continuation of illegality, whether it involves an ordinance violation or a prison term, leads to an inherent fracturing of the body politic.

    We already know how badly this has affected more conventional politics. On cannabis, anything short of reasonable legality on par with alcohol in the near future will lead places we don't want to go — and increasingly find we can't afford anyway.

    Furthermore, while California, Colorado, et all may be leading indicators, once that happens, it would be massively stupid of the federal government not to come to terms with the issue in a more positive manner, also.

    But elections like this week prove that there remains plenty of poorly understood policy that seems attractive to voters who it will otherwise, in fact, injure the interests of the voter in a direct way that, if they were fully aware of the implications of the venal prevarications of politicians, would wish they not done.

  3. Duffy Dusnt Give a F says

    I know where crack dealers live and refuse to help turn them in. I don't even do drugs!

  4. Anonymous says

    "Many of the numbers you hear from public officials or from partisans on both sides of the isle are clearly wrong."

    So California did finally separate from the mainland and start floating out to sea?

  5. says

    This "partisans on all sides" mantra related to drug policy, often proclaimed at the RBC, is actually rather offensive.

    In a true partisan debate, you'd have NORML et al on one side and Partnership for a Drug Free America et al on the other side, with the Government neutral providing data. Each side might, of course, cherry pick data that best suits their partisan viewpoint and observers would have to balance that when considering their arguments.

    In our world, however, we have the entire U.S. government as an active partisan player on the Drug Free America side. They are not only the controllers of the data, but are pushing an extreme partisan viewpoint. And they lie constantly. I'm not just talking about cherry-picking numbers or making exaggerated claims, but actively lying about matters of substance (I've even personally gotten them to admit it through a Data Quality Act petition and that's just the tip of the iceberg).

    Of course the partisans on the side of reform picked the best looking numbers to promote (particularly when they were provided by the government). They talked about 60% of cartels' income coming from marijuana because that's what the government said and nobody had come out with any numbers that were different. And they talked about the potential tax revenue from marijuana being $1.4 billion because that's what California’s State Board of Equalization said. Reformers didn't just pull it out of their asses, like the drug czar does.

    So this constant dunning of "partisans on both sides" being clearly wrong really does a great disservice to the truth of the dynamic.

    Shouldn't the U.S. Government be held to a higher standard of accuracy than the partisans on the other side? In fact, by equivocating the two by the use of the term "all/both sides," particularly when the U.S. Government has demonstrated a far lower integrity regarding data and facts than the reform side, the RBC seems to be saying that the Government should NOT be held as responsible for truth.

    And that's offensive.

  6. K says

    Observers have been offering those same breezy grounds for optimism — that the insurgency can't possibly be in the cartels' interest — for years. It will stop eventually, but in the meantime the possibility that they're fighting over punier rewards than we thought is cold comfort to the affected parties.

    In any event, the nativists who just won control the House have found that the violence is a positive boon politically, & are planning high-profile hearings as part of their campaign for transfer of the undocumented population. It'll be interesting to see whether anybody on the other side bothers to put up any resistance.

  7. Ryan says

    A condemnation by Guither is the ultimate proof that a website is intellectually honest — keep up the great work RBC!

  8. says

    The RAND team efficiently disposes of both numbers, and of closely-linked inflated estimates of U.S. marijuana consumption. The inflated consumption estimates are so large that they would require the identified group of past-month users to consume “one joint every two hours for every waking hour of the year.”

    Beyond what Pete has already mentioned (the under-reporting of actual usage rates), there's another aspect to this that I don't believe RAND took into account when making this claim. When Mexican DTO's send shipments across the border, they often get paid by middlemen for supply that later gets confiscated. I couldn't find anywhere in the RAND report where this is mentioned (but it's possible I glossed over it).

    Second, the RAND report only attempts to estimate the amount of money made through importing marijuana from Mexico, not what they make from illegal grows that they set up within the United States (which considering their reach across the U.S. could be much more than what's imported).

    From page 19:

    Mexican DTOs’ gross revenues from moving marijuana across the border into the United States and selling it to wholesalers is likely less than $2 billion, and our preferred estimate is closer to $1.5 billion. This figure does not include revenue from DTO production and distribution in the United States, which is extremely difficult to estimate with existing

    data.

    The reality is that RAND's study was another wild guess, just as every study before it. What I think most of us agree on is that Mexican DTO's have enough money to be well outside of the reach of Mexican law enforcement – whatever that figure is. And whatever the percentage of those profits are made from marijuana, they're profits that it makes no sense policy-wise for us to be handing them.

  9. says

    I would invite the credulous author of this piece to spend a few days in Chihuahua, or even the successfully militarized city of Tijuana and see if he still thinks that the narcotraffickers are “too small to notice.”

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