Recreational Pot Legalized in 2 states: The Effect In Mexico And Cartels
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November 08, 2012

The incoming Mexican government will be re-examining its policy on marijuana after recreational use was in two Western U.S. states on Tuesday. Luis Videgaray, head of President Pena Nieto’s transition team, explains how Colorado and Washington’s new stance on marijuana might affect international policy. Via, the AP:

"Obviously we can't handle a product that is illegal in Mexico, trying to stop its transfer to the United States, when in the United States, at least in part of the United States, it now has a different status," Videgaray said. "I believe this obliges us to think the relationship in regards to security ... This is an unforeseen element."

"These important modifications change somewhat the rules of the game in the relationship with the United States," Videgaray said. "I think that we have to carry out a review of our joint policies in regards to drug trafficking and security in general."

In less than three weeks, Mexican president elect Pena Nieto will visit The White House. It remains uncertain if he will pressure the U.S. to enforce federal law on the Western states.

But, some see legalization as an important step in undercutting Mexican drug cartels. An IMCO study (in Spanish), finds that the American pot business brings about $2 billion a year to Mexico’s drug cartels. This is an extremely valuable asset. In comparison, the cocaine trade totals $2.4 billion.

Last week, The Economist broke down how legalization might indirectly effect the cartel profit. It's not that cartels are losing their US clients, it's the threat of competition with a larger domestic marijuana trafficking-ring that is most serious.

The cost of growing marijuana legally is about $880 per kilo. Adding on a decent mark-up, plus the taxes that would be applied, it puts the wholesale price of Washington marijuana at just over $2,000 per kilo. The cost of illegally transporting the drug adds about $500 per kilo for every thousand kilometres that the drug is hauled, it calculates, based on the fact that pot gets pricier the further you get from the Mexican border. So smuggling legal Washington dope to New York, for instance, would add about $1,900 to the cost of a kilo, giving a total wholesale price not much below $4,000. That would make it more expensive than imported Mexican pot. But home-grown marijuana is much better quality than the Mexican sort.

But all that assumes the federal government in the U.S. would allow legalization to go forward, and would turn a blind eye to cross-state-border drug trafficking. Not likely.

Thus far the Justice Department has said marijuana remains a Schedule 1 controlled substance and that it is "reviewing the ballot initiatives." As Colorado Gov. John Hickenlooper puts it, "don't break out the Cheetos" just yet.