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Where there's smoke...

One of my favorite crime fiction writers and chronicler of the ongoing War on Drugs, Don Winslow recently wrote about the externalities of cannabis decriminalization. He theorizes "de facto street legalization" and full legalization in several states has indirectly blossomed a heroin resurgence. It is simple economics: less demand for illegally produced cannabis has forced Mexican cartels to shift production to alternative products (i.e. opiates) thus lowering their wholesale costs and increasing demand.


"We wanted legal weed, and for the most part, we got it. Four states have legalized it outright, others have decriminalized it, and in many jurisdictions police refuse to enforce the laws that are on the books, creating a de facto street legalization."


It's estimated the Mexican cartels experienced a near 40% drop in marijuana sales in one year alone. Being the businessmen they are, they did what any other retailer would do: switched products. By increasing production by 70% and with higher quality standards, the new heroin product was up to 90% pure, more potent than ever seen before. Compounding the problem, Winslow finds, "[The third move] was classic market economics—they dropped the price. A kilo of heroin went for as much as $200,000 in New York City a few years ago, cost $80,000 in 2013, and now has dropped to around $50,000. More of a better product for less money: You can't beat it." This resulted in heroin overdoses nearly tripling in four years.

The DEA itself tells half the story. Their publicly available data on drug seizures shows the steep decline in seized marijuana shipments and a sharp increase in heroin and methamphetamines.

However, unlike methamphetamines, heroin already had a wide-ranging customer base with opioids (i.e. analgesic painkillers) being the most addictive and abused drugs across demographics in the US. Over the past 16 years, there have been ~190K opioid analgesic related overdose cases (compare this to ~70K cocaine overdoses in the same time span).


"American drug and law-enforcement officials, concerned about the dramatic surge in overdose deaths from pharmaceutical opioids, cracked down on both legal and illegal distribution, opening the door for Mexican heroin, which sold for five to ten bucks a dose. But pill users were not accustomed to the potency of this new heroin. Even heroin addicts were taken by surprise."


One of the most telling findings is how clear the correlation is over the past five years between the drop in marijuana seizures (a direct result of less marijuana shipments) and the increase in heroin overdose (a direct result of potent and cheap mass-produce products).

The trend above shows the linear relationship between the two. The shaded dots represent previous years. So, why the 2008 jump in seizures of marijuana prior to the precipitous fall in 2010? I hypothesize two possibilities. A) As growing fields and production facilities switched products — or cleared space — they had a massive surplus of cannabis which they sent over the border. Or, B) this represents the last attempt to meet revenue goals; with cannabis per kg not as valuable they pushed more and more product to make up for lower margins.

When the fall does occur, we begin to see a near perfect correlation between heroin overdoses and decreasing cannabis seizures. While I do not mean to imply causation, I reason heroin related fatalities are a symptom of an externality associated with decriminalized cannabis. The illicit drug trade is a business with a fixed set of products and they adapt to fundamental economic principles. The question is why are we so ill-prepared to adjust and recover from these predictable outcomes.

Sources: National Center on Health Statistics, CDC WONDER, DEA

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