Advertisement
News by VICE

How America's Legal Weed Is Changing the Black Market and Influencing Mexican Cartels

State-level marijuana legalization in the US has been hailed as a way to eliminate black markets and impede drug cartels. So far, both are still thriving — but that won't last forever.

by Keegan Hamilton
Aug 25 2015, 5:10pm

Imagen por Kirsten Luce/VICE News

Drive an hour east of Portland, Oregon, through the stunning Columbia River gorge, and you'll arrive in the idyllic town of Hood River. Tourists come to windsurf and fly kites in the stiff breeze that blows off the river, and to tour the "fruit loop," a circuit of wineries and fruit vendors supplied by the area's abundant orchards.

But there are no tours — at least not yet — that introduce visitors to the region's other signature crop: marijuana.

Tucked away in an industrial park warehouse is Otis Gardens, a 9,200-square-foot, state-of-the-art grow-op. In the midday heat, beads of sweat form on the stubbly head and face of owner Rob Acken as he opens the door to one of eight partitioned rooms, revealing several rows of enormous plants, each at least five feet tall with thick foliage and stalks like axe handles. The smell — earthy, dank, and vaguely sweet — hits first, followed by a cool rush of air conditioning. The temperature has cracked 100 degrees outside, but the grow rooms are kept at a steady 78 degrees.

Using his thumb and index finger, the 46-year-old Acken delicately pinches the tip of a bud with brown fibers and thick white crystals and brings it to his nose. A strain called Super Lemon Haze, it smells like lemon-scented furniture polish.

"These are happy plants," Acken says.

And these are mostly happy days for the legal weed industry, whose sales revenues grew from an estimated $1.5 billion in 2013 to $2.7 billion last year; one projection has them hitting $35 billion by 2020. All across Oregon, which legalized medical marijuana in 1998, people are attempting to carve out niches, hawking a dizzying array of weed sodas, candies, extracts, and other products. Oregonians overwhelmingly approved a ballot initiative last year that sanctioned pot sales to recreational users, making the state the next frontier of the so-called "green rush" that began in Colorado and Washington in 2012.

"It's an interesting time in the industry," Acken says. "Right now, everybody is still holding hands and singing songs. There's a lot of cooperation. I hope the competition doesn't kill that."

In many ways, Acken and his warehouse full of happy plants are living proof that legalization is working. He insists that he never grew for the black market, sticking to the letter of Oregon's medical marijuana law, but the risk of arrest was still very real. He says he got busted once when he was a 20-something college student in Florida, ending up in jail over four knee-high plants that he swears to this day belonged to his roommate.

Those worries are now mostly a thing of the past, however. Instead of a criminal, he's just another local farmer who wears Carhartt to work and takes pride in the quality of his crop.

"We're right out in the open," Acken says. "We're the first permitted facility in Hood River. We set up shop not hiding who we are. We know all our neighbors. There's a part of me that has a little lingering fear from years of having the threat of going to prison for gardening, but it's really a new day."

* * *

That new day hasn't dawned entirely. The hodgepodge of pot laws nationwide — 23 states plus Washington, DC now allow some form of medical marijuana — has created a situation ripe for exploitation. One of the great promises of marijuana legalization has been the concurrent elimination of the black market for weed, putting local dealers out of business and sticking it to Mexican cartels by cutting into their bottom line.

But while that may happen eventually, the black market in the United States is still thriving.

Growers, consumers, dealers, and others in the industry told VICE News about operators that undercut prices at state pot shops, and several sources described illicit operations that ship large quantities of weed across the country from states that have legalized pot to states that haven't. Mexican organized crime experts told us that cartels are still smuggling bricks of bud across the border, and are perhaps even improving the quality of their product to cater to the rising expectations of American stoners.

"You're not going to eliminate the black market overnight," Beau Kilmer, co-director of the RAND Drug Policy Research Center, told VICE News. "It's going to take some time, because essentially when you look at prices in the black market, whether it's marijuana or meth or cocaine, you're compensating drug dealers and everyone in the supply chain for the risk of arrest and incarceration. That goes away with legalization."

Plants at the Human Collective marijuana dispensary in Portland. (Photo by Kirsten Luce/VICE News)

Most experts agree with Kilmer, saying that in time, as more states repeal pot prohibition, the dynamics of the marijuana black market will begin to resemble those of America's tobacco and alcohol black markets. There are still people selling untaxed loose cigarettes and running moonshine even though the vast majority of consumers prefer going to the store to buy smokes and alcohol legally. Right now, it's extremely tempting for growers in legal states to export their product to prohibition states, where prices are far higher.

Sam Chapman, cofounder of New Economy Consulting, a firm that specializes in the marijuana industry, told VICE News it's widely known that a significant portion of the weed grown in Oregon and northern California gets exported to the East Coast.

"We've been seeing that product end up in Florida, end up in New York — places that don't have cannabis decriminalization and have very harsh punishments," he said. "When you have prohibition in other states, it drives the price up [there] because it's not regulated… I'd guess 80 percent of all product in Oregon is, unfortunately, leaving the state."

Related: Is the NYPD Overstating the Dangers of 'Weaponized' Marijuana?

Chapman's assessment is backed up by both figures from law enforcement and firsthand accounts from dealers and growers. In Idaho, which shares a border with both Washington and Oregon, marijuana seizures by state police skyrocketed from 131 pounds in 2011 to more than 700 pounds in each of the last two years. That trend is holding so far in 2015, according to Idaho State Police spokeswoman Teresa Baker.

"It's not necessarily people trafficking into Idaho, but it's going through Idaho," Baker told VICE News. "We've seen quite a lot of drugs going on to other states. Not just marijuana, but other drugs going to the Dakotas because there's a large demand over there with the oil fields… and then over to Minnesota. We had a big [marijuana] seizure that was coming from Washington state recently, and I believe it was going to Florida."

The owner of a Portland gardening store that specializes in outfitting weed grow-ops told VICE News that about 70 percent of his customers are buying gear with plans to grow for the black market. He said the bureaucratic hassle of getting into the legal market and the surprisingly high costs — as much as $215 in expenses per pound by one estimate — and intensive labor involved with growing high-quality weed incentivizes illicit, out-of-state sales, which provide higher returns on investment.

"They have bills to pay," said the owner, who spoke to us on the condition we not use his name. "It takes money to buy lights, fertilizer, packaging materials. You have to pay people to trim and plant it. When you need more money to get your next crop in, you're going to go back East. That's where the money is at…. I see that with everybody."

* * *

The term "legal weed" is something of a misnomer. Marijuana is still a Schedule I controlled substance under federal drug laws, meaning every person in America — regardless of what state they're in — could be arrested and prosecuted for growing, selling, or possessing pot. So far, the feds have opted for a laissez-faire approach to the quasi-legal system, allowing state markets to exist with minimal interference. A new US president could unilaterally reverse that policy, however, and at least one Republican candidate, New Jersey Governor Chris Christie, has already vowed to do just that if he is elected.

Even states that have legalized pot for recreational use have made it difficult or impossible for users to get high without running afoul of the law. Oregon's recreational law took effect on July 1, but there are currently no stores open that sell pot to the general public. Recently enacted legislation will allow the state's 310 medical dispensaries to start selling recreational weed — but not until October 1.

"The reality is, most Oregonians that smoke cannabis right now, many get it from the black market that exists," Matt Walstatter, the owner of Portland's Pure Green dispensary and a founding member of the Oregon Cannabis PAC, told VICE News. "What I think is silly is to incentivize the black market. If you create a situation where it's legal and the only place to buy it is the black market, that just makes it easier for them."

Oregon's law also allows counties where more than 55 percent of voters opposed the law to ban marijuana stores. That ended up being virtually the entire eastern half of the state, which is mostly rural and conservative. Unless people there are willing to grow their own (the law permits individuals to grow up to four plants) or drive several hours and cross a mountain range when pot shops finally open on the other side of the state, they won't be able to score weed legally.

"It's one of those good news, bad news things," Russ Belville, the president of Portland's chapter of the National Organization for the Reform of Marijuana Laws (NORML), told VICE News. "The good news is we're legal now, the bad news is that what we voted for isn't what we got. It's kind of a mockery of the democratic process."

A customer shops at the Pure Green marijuana dispensary in Portland. (Photo by Kirsten Luce/VICE News)

Alaska and Washington, DC are also stuck in a gray area where possessing and consuming pot recreationally is legal for adults, but legal purchases aren't possible. Dealers in the nation's capital have brazenly taken to advertising on Craigslist, stating that they aren't charging for weed, but giving it at as a "gift" or taking "donations" in a dubious attempt to adhere to the District's law.

It took more than a year of bureaucratic wrangling for Washington state to open its first recreational pot shop, and customers faced long lines and steep prices due to high taxes. The state now has 160 stores and counting, and the tax system was recently overhauled from a convoluted three-tier excise tax system to a single 37 percent tax levied on consumers. The change lowered prices slightly, but not quite enough to match those on the black market. Legal sales in Washington are now estimated at $1.4 million per day, and the state netted more than $70 million in weed tax revenue last year. Still, black market dealers said their lower prices and personal relationships with customers have allowed them to continue with business pretty much as usual.

"Right now with the way the tax structure is in Washington, the black market is going to thrive," a dealer in Vancouver, Washington, told VICE News. "There's always going to be a black market, because there are going to be [dealers] who have clientele bases, and people are used to them because it's convenient and familiar. It's like bartenders — you find one you like and you keep coming back."

Meanwhile, Nebraska and Oklahoma have sued Colorado, claiming that weed is spilling across Colorado's borders and straining their criminal justice systems. Attorney generals for those states claim that the federal Controlled Substances Act (CSA) trumps Colorado's law, an argument that, depending on the outcome, could potentially lead to all state-level legalization laws being struck down. The case is pending before the US Supreme Court, which has asked the federal government to file a brief explaining its position on the issue.

Nebraska Attorney General Doug Peterson declined an interview request from VICE News, but he said previously that his primary concern is the marijuana black market.

Watch VICE News go inside America's billion-dollar weed business.

"This is bringing in the cartels from Mexico," Peterson told Omaha's WOWT 6 News in May. "They think they sanctified the process and the cartels went away. They're coming in stronger. I recently heard today that the Russian cartels are here to compete for the market. It's a terrible social experiment."

Though there have long been rumblings that the Russian mafia and Latin American cartels collaborate to smuggle cocaine, there's no evidence to suggest they've started selling weed in Nebraska. By most accounts, strains of high-THC pot produced locally for the medical market (or illicitly by knowledgeable growers) long ago supplanted inferior Mexican "brick weed" as the product of choice for smokers in much of the US. There have been reports that cartel marijuana business has declined as a result, along with claims that the narcos have responded by pushing more meth and heroin.

In January, the Washington Post reported that the amount of weed seized by US authorities along the Mexican border has fallen 37 percent since 2011, while border seizures of heroin and meth are up threefold and fivefold, respectively, since 2009. The paper previously reported that the wholesale price of marijuana in the Golden Triangle, the drug-producing region in Mexico's Sierra Madre mountains, had plummeted; cartels that had been offering farmers $100 per kilogram began offering less than $25 over the past five years. A kilo of raw opium, meanwhile, was reportedly fetching $1,500, providing a strong incentive for impoverished campesinos to switch from growing pot to poppies.

But experts on organized crime in Latin America told VICE News that drawing a connection between marijuana and hard drug seizures is tenuous. The increase in heroin and meth seizures coincided with a US rise in opioid addiction linked to prescription pill abuse, and cartels came to dominate the meth business during that time after tighter restrictions on precursor ingredients shut down most labs in America.

"It is important to not confuse correlation with causation," cautioned Juan Carlos Garzón, a fellow at the Wilson Center who researches organized crime in the Americas. "There are about 600,000 regular heroin users and about 440,000 meth users in the US, but there are 10 to 20 million regular weed smokers. I don't think that it is realistic to state that cartels are going to entirely abandon the marijuana black market."

Alejandro Hope, security and justice editor at El Daily Post and a former Mexican intelligence official, said that in terms of cartel economics, "growing marijuana accounts for around a third of drug exports and significantly less in terms of revenue." (Garzón estimated that cartels make about a fifth of their profits from pot.) Hope told VICE News that US legal weed laws haven't had much impact south of the border, at least thus far.

"There's no strong evidence that marijuana exports have declined," Hope said. "The evidence that we have is subjective but not conclusive. Seizures at the border have declined, and eradication in Mexico has declined significantly. But having said that, it's unlikely that state-level legalization has had much effect on Mexico. It will in the future, but not right now."

A DEA spokesman declined a VICE News interview request, but recent cases indicate that Mexican cartels are still trafficking large quantities of marijuana, and suggest they may even be attempting to match the potency of America's finest pot. In June, Mexican authorities seized more than 45 tons of supposedly "high quality" weed in a Tijuana warehouse. In late July, police in Jalisco discovered three giant greenhouses staffed by a team of Colombians reportedly imported for their pot-growing expertise. The facilities were described as being similar to American set-ups, with a sophisticated irrigation system to deliver water and nutrients to "genetically modified" plants.

Even in Portland, far removed from the Sierra Madre, vehement proponents of legalization acknowledge that the new status quo will likely have little effect on cartels. Donald Morse, director of the Oregon Cannabis Business Council and the owner of the Human Collective dispensary, told VICE News the current result of legalization is "not the black market as most people visualize it," but friends buying from and selling to each other, often relying on those who have access to medical marijuana.

Product at Pure Green. (Photo by Kirsten Luce/VICE News)

"It's a mini black market of sorts," Morse said. "Some just call it the gray market. It's not going to be the cartels or that kind of thing, I don't believe they'll gain or lose from this. It will be business as usual for them."

Belville, the Portland NORML president, noted that weed legalization frees up resources for police to focus on other types of crime, and that weed users — who may have once been hesitant to call the cops for fear they'd end up getting busted themselves — are now more likely to report domestic violence and other crimes. (Violent crime and property crime have decreased in Denver since Colorado's recreational pot law took effect.) As Belville sees it, Oregon's new "gray market" is relatively innocuous; the problem lies with strict prohibition states where gangs and organized crime groups still have the upper hand.

"The farther it gets from the original grower, the blacker the market gets," he said. "When it passes from hand to hand and turf becomes an issue, that's problematic. What the black market [in Oregon] will have will be the guy who grows and shares with his friends, not for $300 an ounce but for friend prices."

* * *

After showing VICE News around his grow-op in Hood River, Acken hops in the driver's seat of his blue '69 Impala convertible, puts on a pair of sunglasses, and leads an impromptu tour of Hood River on the way to lunch at a local microbrewery. He points out pear and cherry orchards, marveling at the scenic landscape as though he's seeing it for the first time. He chuckles over the fact that the local medical marijuana dispensary with which he partners is just down the block from the town's police station. It's a far cry from how things used to be, he says.

"Everybody who has been in this business for a while has a story about getting burned, because before, if somebody screwed you over, who are you going to call?"

If, as many advocates argue, increased legalization is the key to solving the black market dilemma, it likely won't be long until that argument is put to the test. A proposal that would allow commercial pot sales in Ohio has qualified for the state's ballot in November, voters in Nevada are set to decide on a legalization proposal next year, and Californians will also have the chance to vote on several similar measures in 2016.

"It's going to be a few years before we're able to say something definitive about the short-run consequences," Kilmer, the RAND expert, said. "The effect in the short run could be different than how things play out 10 years later, especially when you're calling for for-profit companies to get involved. There could be concentration in the market over time as bigger players purchase smaller business," a change that could dramatically lower production costs and therefore prices.

Efforts to end federal prohibition are also gaining momentum. Lawmakers in Washington, DC are increasingly tempted by the tax dollars to be gained from legalization, and the pot industry has stepped up its lobbying efforts. In July, Kentucky Senator Rand Paul held the first-ever marijuana fundraiser for a presidential candidate, raising more than $100,000 for his campaign from pot industry bigwigs who paid $2,700 each to hear the potential Republican nominee speak.

Paul has called long jail sentences for marijuana-related offenses "ridiculous," and said he supports allowing state-level legalization. The libertarian-leaning candidate's positions are likely to resonate with younger voters: According to the Pew Research Center, 68 percent of millennials — people born between 1981 and 1997 — support legalization. Overall, 53 percent of all Americans are now in favor of ending pot prohibition, up from just 31 percent in 2000.

A plant being sold at Human Collective. (Photo by Kirsten Luce/VICE News)

In Oregon, Walstatter, the co-founder of the Oregon Cannabis PAC, said his organization recently hosted a fundraiser that netted $100,000 for Democratic Congressman Earl Blumenauer, the largest fundraising event in the state since one held for Barack Obama in 2008. "We had other congressmen saying 'When are you going to raise me a hundred grand?'" Walstatter said, noting that his group is planning a lobbying trip to DC in the fall.

Both Walstatter and Chapman, the marijuana industry consultant, said they knew of several black market growers who had switched over to supply the medical or recreational industry. Chapman cautioned, however, that the ability to reap greater profits on the black market remains tempting.

"A lot of producers are having to ask themselves: 'Do we want to take a small hit on the bottom line in order to become compliant and eventually have a long-term, profitable legal business?' Or do they say 'Screw it, we're happy doing what we're doing, and we don't want to risk changing the model?'" Chapman said. "That's the fork in the road."

Acken still chafes at some of the hassles that come with legalization. Oregon's law limits the number of plants a grower can have rather than limiting canopy square footage, meaning it takes Acken longer to harvest his crop; a greater number of smaller plants would be more efficient. He's also apprehensive about the prospect of stringent tracking requirements and mandatory cameras in grow rooms (a regulation that has not yet actually been proposed).

"We expect pretty incredible surveillance on us and our plants," Acken said. "It's kind of weird and creepy."

But Acken is most wary about how changes in the marketplace could favor big business and drive growers back underground. Ohio's legal weed proposal would allow commercial pot growing at just 10 sites controlled by the initiative's wealthy backers, potentially creating what has been dubbed the world's first "pot grower oligarchy." Acken fears a future where Wall Street and the pharmaceutical industry call the shots.

Related: Massive Bust Brings Charges Against Puerto Rico Drug Syndicate

"Make it like the craft beer industry where people can bring their product directly to the market," he says. "You'll see retailers merge and have power over growers. Otherwise, it's the Wal-Mart effect — growers will have to take whatever [wholesalers] are offering."

He stops, then smiles as he admits that right now, he's got it pretty good. He's his own boss, he makes more than enough to make ends meet, and he's no longer looking over his shoulder worrying about getting arrested.

"I do know one thing for a fact," he says of the seemingly bright future of the pot business. "For all of this to happen someday and for everybody to get rich, somebody has to grow some pot. So I at least have some decent job security."

Follow Keegan Hamilton on Twitter: @keegan_hamilton