Mexican Marijuana: The Effects of Legalization on the Economy and the War on Drugs
Following in the footsteps of countries including Canada and Uruguay, Mexico’s lower house passed a bill on 10th March for the purpose of legalizing the recreational use of cannabis. President Andrés Manuel López Obrador, often referred to as AMLO, has cited undermining drug cartels as one of the key reasons behind his support for the proposal. Nevertheless, though, legalization is likely to prove an economic boon, its impact on crime is likely to be less substantial.
Mexico and Marijuana: The Recent History
Like many countries, Mexico banned the production and sale of cannabis in the 1920s. However, the path towards legalization began in 2015 when members of the Mexican Society of Responsible and Tolerant Self-Supply (SMART) succeeded in having Mexico’s Supreme Court declare the prohibition on the growth and recreational use of cannabis to be unconstitutional. Though this initial ruling applied only to the claimants, it opened the floodgates to many similar rulings which set the precedent for a change in national law. Given this precedent, in 2019 the Supreme Court ordered Congress to reform the law.
The reforms were originally scheduled for 2019 but due to numerous delays, including the onset of the COVID-19 pandemic, the Supreme Court extended the deadline for its order to the end of April 2021. Though the legalization bill was approved by Mexico’s Congress, it still requires approval from the Senate in order to become law. Consequently, it is likely that the bill will be voted on in the Senate before the 30th April deadline. Moreover, as President Obrador’s party MORENA and its allies hold a majority in the Senate, it is highly likely that the bill will become law.
The Economic Effects
The legal changes would establish Mexico as the world’s largest cannabis market by population size, ahead of Canada and Uruguay, with an annual demand worth at least $3.2 billion USD. Therefore, legalization theoretically has the potential to generate a significant number of new jobs and possibly generate hundreds of millions of pesos in taxes. However, the potential of legalization is likely to be tempered by low demand for the drug in Mexico, given statistics from 2016 indicating that only around 2.1% of 12-65 year olds had used cannabis in the previous year. These statistics suggest that in the short to medium term the legal cannabis market is unlikely to live up to the potential that Mexico’s population of 127.6 million implies; over the long term, however, consumption and the value of the market are likely to rise.
Critics of the legalization bill have also pointed out that it is likely to favour large agribusiness firms over smaller producers such as impoverished farmers and indigenous groups given high barriers to entry. For example, the bill requires commercial producers to adhere to strict regulations on the packaging of products containing cannabis and necessitates separate, annually renewed licenses for the production and sale of cannabis. It also requires the use of approved seeds and limits the level of Tetrahydrocannabinol (THC) which cannabis plants and products can contain. These regulations make it probable that, as has occurred in countries like Colombia, smaller domestic producers will be sidelined by large firms.
Cannabis and Crime
The aforementioned barriers to smaller producers suggest that cannabis legalization will not be as effective as it could be in reducing crime or ending Mexico’s war on drugs. Mexico’s drug war began in earnest in 2006 after then-President Felipe Calderón dispatched 6500 Mexican Army troops to Michoacán in an effort to dismantle criminal cartels in the state. Over 14 years later, the war still rages on across the country with no end in sight and little to show for it. What’s more, by being left out of the legal cannabis market, small producers may continue growing cannabis for the illegal market or, in the face of greater competition after legalization, grow opium poppies or engage in other illegal activity to make ends meet.
Similarly, the terms of the bill may continue to discourage some from growing cannabis legally. This is because the new law requires individuals and groups to register and face the possibility of inspection at any time, with refusal of an inspection being grounds for fines and the suspension of their license. Thus, to avoid privacy infringing inspections it is probable that some will not register, choosing to grow their own cannabis illegally. In addition, critics have warned that this requirement may put people at risk of extortion and other abuses by giving potentially corrupt authorities such power over private citizens.
The effect of legalization on Mexico’s criminal cartels is also likely to be subdued given that cartels have increasingly turned away from cannabis and towards methamphetamine and opioids such as fentanyl for revenue as a result of factors like the growth of the legal cannabis trade in Canada and part of the US. Cartel activity may actually increase due to legalization. For example, cartels may jump at the opportunity to engage in money laundering or investment in the legal market. They may also act as a damper on the growth of the legal cannabis market by threatening dispensaries, particularly those in cities like Guadalajara affected by gang violence.
This is not to say that legalization will have no positive impacts on crime. The changes are likely to help bring down the rate of charges and arrests for drug possession by increasing the amount of cannabis individuals are allowed to keep on their person. This change will benefit young people in particular given statistics which show that 80% of Mexican adolescents arrested for drug possession in 2018 were arrested for possessing cannabis. As a result, the changes are likely to help police focus on more serious crimes and keep young Mexicans out of prison.
The Big Picture
Ultimately, even if cannabis legalization does not prove to be a silver bullet for putting an end to Mexico’s drug cartels, it stands to reduce unnecessary criminal charges for drug possession and contribute to the creation of new jobs and economic growth over the medium to long term. Furthermore, the biggest impact of legalization is likely to be on the regional level. Mexican cannabis legalization will leave the United States sandwiched between two countries with legal marijuana, a situation which is likely to spur further debate on federal cannabis legalization in the US.
