Is legal pot putting Mexican drug farmers out of business?

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The growing legalization of marijuana in the United States could be starting to put the pinch on one of the biggest exporters of weed through the years to this country: Mexican drug farmers.

A drop in south of the border sales is due to two factors: Growing legalization of a much-better product and a negative brand image of Mexican cannabis — sometimes referred to as "ditch weed," a reputation that has plagued it since the 1970s, say experts. While Mexican marijuana can be grown in mass quantities, its final potency is said to not compete with plants currently grown in controlled indoor conditions in the U.S. and Canada. The growth of the plant has been refined by innovators with different methods. fertilizers and techniques, according to Al Olson, managing editor of Marijuana.com, who has spoken with growers over the years.

"Consumers go by reputation," he told CNBC, stating that the risk of shipping subpar Mexican product into the country is not worth the trouble in the face of legalization. This is evidenced, he said, by a drop in the number of seizures at the border. In fact, there was a 23.6 percent decline in the total weight of marijuana seizures along the southwest border from 2013 to 2014, according to the DEA's 2015 National Drug Threat Assessment Summary. It claims that more than 900,000 kilograms of cannabis were seized along the southwest border alone.

"The reasons for this decline are not well defined and remain unclear; cartel intentions and the possible impact of domestic legalization initiatives are continuing intelligence gaps relative to the levels of Mexican marijuana entering the United States."

Nevertheless, some are rather skeptical about a major decline in the Mexican cannabis industry at the hands of northern producers in states like Colorado, Oregon and Washington. "We don't have real data, just some anecdotes (so far)," said Jonathan Caulkins a professor operations research and public policy at Carnegie Mellon University. "My sense is that there are a couple of offsetting effects and considerable uncertainty as of yet."

He continued: "Note less than 5 percent of the U.S. population lives in places that have legalized (pot) for nonmedical use."

Colorado has ramped up production, creating much more weed than residents actually need. That means some of those supplies are filtering out to other states on the black market. Still, it will still be some years before supplies from states where marijuana is legal will make up a large portion of the nation's black market supply, Caulkins said.

However, he is steadfast in the belief that national legalization will definitely put Mexican farmers out of business. And if Mexico goes the same way, marijuana becomes just another "agricultural commodity" like a head of lettuce in the grocery store, making it irrelevant where the product was grown.

Peter Reuter, a professor at the University of Maryland's School of Public Policy and department of criminology, agreed. "I would find it surprising if there was a big effect," he said. In addition, he called the leakage of medical marijuana use into the recreational world "modest."

On this matter, Olson jokingly referred to the legal states' black market export of marijuana as "The Wild West."

"Mexico is getting hit because the black market is being inundated with marijuana from these legal states."

If there was any cause for a drop, Reuter believes it would be a difference in potency between the plants grown in each country. He says that the illegal sale of marijuana runs on a bi-model market: the cheap "stuff" and the expensive "stuff," with Mexican product usually being less effective than its American counterpart. As the DEA report writes, "Mexican cartels are attempting to produce higher-quality marijuana to keep up with U.S. demand for high-quality marijuana."

However, Reuter also conceded that a lowering of taxes on domestic producers can be a blatant disadvantage to foreign ones.

"When legalization comes into any state, it's gonna shrink the black market ... there's less incentive for people to buy from the black market," said Sam Farley, a writer for The Hemp Connoisseur, a magazine devoted to everything marijuana.

Farley's thoughts seem to be echoed by a 2014 report by The New York Times, which states, "Criminal marijuana cases in Colorado plunged by 65 percent in 2013, the first full year of legalization for personal recreational use."


A more recent report by drugpolicy.org said, "Since 2010, marijuana possession charges (not including Denver) are down nearly 80 percent, marijuana cultivation charges also dropped nearly 80 percent, and marijuana distribution charges are down over 97 percent." Farley admits that legalization is a "complicated issue" and not even Colorado — which has made more than $100 million on marijuana taxes, licenses and purchases since legalization in 2012 — has it totally figured out yet.

Olson says that it's nearly impossible to provide data on this subject because, "There's no real data. A black market as big as this one, the people who have the data don't really want to share it."

He summed up the situation describing it as, "very complex — it's a commodity, but the laws have made it goofy."