Follow the Money: Drugs and Dollars

There is no doubt that most of the social ills related to drugs are not caused by the drugs, their use, or their users; but are instead caused by the black markets created by the drug laws. These include official corruption, violence among and between drug dealers and police, environemental harm, harm from impure drugs, and collateral damage to non-users.

The Black markets, in turn, are created by the extremely high prices caused by attempts to suppress supply while not stemming demand. The prohibition laws create high entry barriers to the market because most normal people will not risk long prison terms, death, or killing as part of the cost of doing business. Only the promise of extraordinarily high rewards will lure the unscrupluous outlaw into the market. Walgreens is chased out and Pablo Escobar is drawn in.

How much money are we talking about? Some figures from my earlier researches might give some ideas.

Marijuana is a plant product roughly comparable to tea or tobacco in its cost of growing, harvesting, and preparation (it is probably the cheapest of the three). Tea may be purchased in the form of tea bags for about $1 per ounce. A package of twenty cigarettes, weighing almost an ounce, sells for $4 - 5 (which is more than half taxes). Current street prices for marijuana range upward from $80 an ounce. The multiplier of the prohibition is between 50 and 100 times.

When Bayer was selling heroin legally (about 1900 - 1914 in the US, 1900 - 35 in the rest of the world), it sold heroin and aspirin at the same price. Today, aspirin retails for about $30 per kilogram (one hundred 300-mg tablets for $0.99), while heroin in the US wholesales for over $100,000 per kilogram.

MDMA (Ecstacy) can be manufactured in small batches for less than 10 cents a tablet, while it retails for $15 -25 a tablet. We don't know what it could be manufactured for in bulk because no pharm has ever had a chance to try.

Amphetaimes, as legal prescription drugs are manufactured for less than $10 per 1000 tablets; illegal methamphetamine is now selling for up to $100 an ounce.

Let's trace a kilogram of cocaine and watch the money.

Coca leaves contain about 1% cocaine, so a little over 200 kilograms of leaves are necessary for one kilogram of cocaine HCL. The farmer will receive about $1 per kilogram or less. The processor will add a few cents worth of gasoline and acid and a few dollars worth of labor for a kilogram of cocaine that he can sell at the production plant for about $2000. He's increased his investment by a factor of 10.

A distributor in Colombia will sell that Kilo to a transporter for about $5000 for transportation to the US. Originally Mexican cartels moved the coke for a percentage of the value, but about 30 years ago, they started buying it and moving it as their own venture.

The transporter, who risks shrinkage from customs siezures, etc (usually less than 10%), payoffs to Mexican and US police and customs, and defense against other smugglers, is able to sell the Kilo in Houston, for example, for about $10,000. The total flow of heroin from the Andes to the US adds over $30 Billion to the Mexican economy each year.

A Houston wholesaler will buy the Kilo for about $10,000 and divide it into about 35 ounce packages, which he sells for around $500 each, or around $17,000 per Kilo; and he can easily move 10 Kilos or more a week.

The ounceman, the lowest level in the scheme who is really a professional drug dealer, will divide his ounce into 8 "eightballs" of a little over 3 grams each. If the coke is cut, or diluted at this point, the ounce may yield 10 -12 eightballs, which will sell for about $150 each, or $1,200 or more per ounce. An ounce dealer can easily move five to ten or more ounces a week; and he will have assistants to do the actual delivery collection, and protection activities. They may actually be paid with product instead of cash.

The purchaser of the eightball is usually a user. He divides the 3-plus grams into 1/4 gram packages -- 12 to 15 of them, depending on how generous he is -- and sells about 10 of them for $20 each. He then has about 2 packages for his own use and about $50 to cover living expenses. These guys are not permanent, but drift in and out of the game. However, there are always new volunteers to take their place.

Multiply these numbers by several 100 tonnes (1000 Kilos) per year, and you can see how much money is involved. The analysis for heroin is about the same.

Ask yourself what would happen to this market if the heroin addict could get his supply from CVS for less than $5 a day or if marijuana cost the same as tobacco.

The bad guys would lose interest immediately.