Drug Market: Why Legalization is Impossible

The ban on drugs creates a risk economy. The value of the product ceases to be defined by cost price and turns into a function of fear: the harsher the punishment and the tighter the control, the higher the markup. A gram of heroin costing one dollar in Afghanistan sells for a hundred dollars in Europe. A kilogram of cocaine bought in Colombia for a few thousand brings profits on the streets of New York comparable to the annual turnover of a legitimate business. These funds are never reflected in state budgets but feed a parallel economy — a “black cashbox” that finances operations, intelligence services, criminal structures, and political projects.

This “risk premium” works like a reversed tax. In the legal economy the state collects excises and taxes. In the shadow economy the “excise” is collected by the system that enforces prohibition. Therefore, the discussion about legalization is not a humanitarian gesture but a threat to the existing order of rent distribution. Where power rests on gray revenues, legalization is impossible by definition.

It is important to understand: drugs in this equation are only raw material. Their physical value is minimal. But the social value created by the very fact of prohibition is colossal. It is prohibition that makes a ×50 markup possible. It is prohibition that provides fertile ground for corruption, managed cartels, and parallel financing channels.

Therefore, legalization in one society works as a way to displace crime and collect taxes, while in another it is perceived as an undermining of the foundations of the state. In the US, Canada, or the Netherlands, budgets receive billions in excises and street crime goes down. In Russia or Mexico, legalization would destroy one of the key sources of the shadow economy.

This difference explains why the global map of legalization looks like a mosaic. Where the system does not depend on the “black cashbox,” reforms are possible. Where dependence is woven into the very fabric of power, legalization is doomed to remain a slogan.

Drugs are not only a social problem and not only a matter of healthcare. They are a mirror of the state’s structure. And the deeper we look into this mirror, the clearer we see: the issue is not morality, but the political economy of prohibition.

The Street Under Control

No illegal market exists by itself. Street-level drug trade is not a spontaneous process but a managed system. If a “spot” operates steadily somewhere, it means it is built into a control scheme. At the grassroots level — it’s a patrol that “does not notice” what is happening. At the middle level — a department that keeps arrest statistics and cleans out competitors. At the top — entire agencies whose function is not to eliminate the market but to manage it.

In the USSR, the militia for decades oversaw speculators and underground “spots” with scarce goods. The very logic of distributing scarce products reproduced the model of the future drug market: retail under supervision, “their own” sellers under protection, “outsiders” — dismantled. Repression and patronage were two sides of the same mechanism.

In the US, the “war on drugs” since the 1970s was presented as a fight for the nation’s health. In practice, the DEA played games with Latin American cartels. Some were demonstratively “handed over” on camera, others were allowed to operate in exchange for cooperation. Documents on operations in Mexico and Colombia show: drug control was used as an instrument of political pressure and a channel for financing special operations.

In Russia of the 2000s, the Federal Drug Control Service under Cherkesov practically monopolized the market. Officially the agency reported “successes in the fight,” but in reality it became the sole “roof” for large shipments. The market was cleared of independent players and put under the control of a security structure that itself kept the statistics on the “fight against drugs.”

A similar logic works in Latin America. Colombian and Mexican cartels could not exist without deep integration with police, the army, and politicians. The drug market in these countries is not “against the state” but in tandem with it: some clans control parts of territory, others receive carte blanche for export routes.

The mechanics are the same everywhere. The “fight” against drugs comes down to managing the balance: show the public some arrests, remove extra players, keep the system running. Punishments and bans do not destroy the market — they turn it into a regulated one.

Therefore, the slogan of a “war on drugs” almost always means not a fight against the market but a fight for control over it. Control of the street is control of the money source. And therefore also of a lever of influence over politics and society.

The Country’s Black Cashbox

The main secret of the drug market’s resilience is that it produces not so much a product as rent. The cost price of drugs is negligible, but prohibition turns it into a source of superprofit.

Let’s calculate.

Cannabis in cost price comes down to a few dozen cents per gram. In the illegal US market before legalization it was sold at $10 — a twentyfold markup.

Heroin costs $1–2 per gram at the production site in Afghanistan. In Europe its retail price reaches $100 per gram — a hundred to one.

Cocaine in Colombia is bought at $2–5 per gram. On the streets of New York or London it reaches $150 per gram — ×70–80 compared to cost.

This difference is not “business profit” but a special form of tax. Only this tax is not collected by the Ministry of Finance, it remains in the gray zone. The “×50” multiplier turns cheap raw material into gold, and control over this multiplier gives power over colossal resources.

In countries with large drug markets, this delta is measured in billions of dollars. And all this money bypasses the budget. They are distributed through “black cashboxes” — hidden funds that feed not only criminal networks but also security structures and political projects.

In Afghanistan, revenues from opium for decades financed armed groups — from field commanders to the Taliban. In Mexico and Colombia, cocaine rent defined the resilience of cartels and their ties with the state. In Russia and the post-Soviet space, the drug market became an embedded element of the corruption economy: rent was distributed through security officials and criminal clans.

Importantly, the “multiplier” itself is artificially created. Without prohibition the market would resemble alcohol or tobacco: cost + logistics + tax. But prohibition creates the illusion of “riskiness” and forms a price that has nothing to do with the product’s real value.

In essence, the “×50” multiplier is itself an instrument of power. It makes possible gigantic gray flows of money that cannot be controlled from outside. This is the very meaning of prohibition: not to protect society, but to keep the source of superprofit in one’s own hands.

Illegal Margin as the Political Economy of Prohibition

The legalization of drugs is discussed as if it were a matter of morality. In practice, it is about money and control. Prohibition creates a “risk premium,” turning cheap raw material into an expensive product at the end of the route. Whoever manages risk and logistics also manages the money flow. Legalization, on the contrary, cuts this premium, brings sales into the tax framework, and destroys the established order of rent distribution. This can be seen on three levels — production, “white” legalization, and hybrid zones.

Production: Afghanistan as a Rent Factory

For many years, Afghanistan provided the lion’s share of global opium; European and Middle Eastern heroin markets were essentially “tied” to its harvests. Estimates from the European Monitoring Centre for Drugs confirm that throughout the late 2010s Afghanistan accounted for about 80% of the world’s illegal opium production. This is not about unique fields — it is about a prohibition structure, where risk at every stage is capitalized into the final price of the product.

It is telling how the “lever” of prohibition affects the market: after Taliban-imposed restrictions in 2023, opium collection dropped by an order of magnitude, and the conversion model into export heroin (tons at 50–70% purity) contracted. This is not a “moral victory” but a demonstration: when a protected channel disappears, so does the rent it used to feed.

Legal Alternative: When Rent Turns into Tax

Where the political system is not tied to shadow margin, the “risk premium” is replaced by excises. Canada is a textbook case. In the six years after legalization, the industry cumulatively added tens of billions to GDP, and a stable tax base became the norm. The latest aggregated industry report shows about $76.5 billion in cumulative GDP contribution since 2018; related earlier estimates gave $43.5 billion GDP and over $15 billion in budget revenues by the early 2020s. This is not a “gold mine,” but it is stable white money instead of gray rent.

The key is the flow of demand from the street to the “white” cashbox. According to federal monitoring, the share of those buying from illegal sellers fell from 28% in 2018 to 3% by 2024. The margin that previously settled in the shadows became tax and retail markup — lower, but reproducible and transparent.

In the US the mechanism is identical, only at the state level. By mid-2025, Colorado had accumulated over $3.0 billion in cannabis taxes; nationwide, since 2014 states have collected more than $20 billion. This does not compare with the unaccounted superprofits of the prohibited market in “hard” substances — but these are taxes, reporting, and political manageability without the need to keep the street in the gray zone.

Hybrid Zones: Why the Black Market Does Not Disappear Completely

The legal framework does not erase the black market “to zero,” especially where the regulatory cost of a legal storefront (licenses, standards, taxes) leaves room for “cheap” illegal supply. Examples from New York, California, and Oregon show how inconsistent regulation can feed underground shops — and then part of consumers prefer the “gray” price. This is not a “failure of legalization,” but the cost of inconsistent rules and an unsynchronized federation.

At the same time, both in Canada and in the EU, data on consumption do not confirm alarming scenarios of a “teen epidemic”; rather, the point is redistribution of channels and adult demand. Pan-European assessments and Canadian reviews indicate stabilization: the legal market displaces the illegal in sales and reduces police load on cannabis-related crimes.

Political-Economic Conclusion

Prohibition is not simply a “fight against vice.” It is a mechanism of rent extraction through risk, logistics, and control — from field to urban storefront. Legalization cuts this rent and converts it into tax. Where power institutionally does not depend on “gray” income, the political decision is made in favor of taxes and quality control. Where dependence exists, the conversation on legalization is endlessly postponed, and the market is kept in a managed gray zone — illegal enough to stay profitable, legal enough to preserve leverage.

Practice confirms this: Afghanistan for decades “held” the global opium market; Canada and Colorado showed how to turn “gray” margin into excise; the US and EU simultaneously are learning to suppress underground competition with proper regulatory architecture. In every case, the main variable is not morality but the structure of incentives: who benefits from prohibition’s margin and who is able to live on taxes instead of it.

Legalization = Market Collapse

The legalization of drugs is perceived as a moral or political act, but in reality it is the undermining of the prohibition economy. Once the product is transferred into the white zone, the very foundation of gray rent collapses:

• the “risk premium” disappears,

• the price drops severalfold,

• competition kicks in,

• the system loses monopoly control.

For the consumer, this means access to a cheaper and higher-quality product. For the budget — a new source of taxes. But for those who for decades fed off the “black cashbox,” this is a catastrophe: the main source of superprofit and leverage over the street disappears.

Examples Confirm This

Colorado: Tax Instead of Rent
After cannabis legalization in 2014, the state of Colorado effectively turned gray rent into excise. From 2014 to mid-2025, the budget received more than $3 billion in tax revenues. Annual collections fluctuated between $250–400 million, providing a stable source of income on par with traditional industries.

Yes, this is not a “gold mine” with a ×50 multiplier, as in the case of heroin or cocaine. But it is predictable money that can be accounted for, planned, and redistributed openly.

Canada: White Market Instead of a Gray Cashbox
Canada’s 2018 legalization became a model of transition from “risk premium” to excise. In the first six years, the industry contributed $76.5 billion to GDP, about $15 billion to the budget, and created nearly 100,000 jobs.

The key effect was that demand shifted from the street into the “white cashbox.” If in 2018 nearly a third of consumers continued to buy cannabis from illegal dealers, by 2024 only 3% remained. The black market ceased to be a monopolist: its place was taken by licensed companies that operate under the rules and pay taxes.

Political-Economic Meaning

Legalization does not simply lower prices. It removes the main value of the gray market — the ability to manage money that is reflected nowhere. Where power is embedded in this system, legalization equals suicide. Where political logic is built on taxes and transparent mechanisms, the transition is possible and even beneficial.

Why It Is Possible in Other Countries

If in some states legalization is impossible due to an embedded dependence on the “black cashbox,” in others it turns out to be rational policy. The difference lies in the structure of revenues and in how much the security apparatus feeds off the gray market.

USA: Taxes Instead of Gray Rent

Since 2014, American states that have legalized cannabis have collected more than $20 billion in taxes. In 2023, total revenues amounted to $4.18 billion. For individual states this is a significant source of income: Colorado annually receives $250–400 million, California — about $1 billion. These sums are smaller than the “black cashbox” of the illegal market, but they are stable and controllable. More importantly: they do not depend on street crime and do not create shadow centers of power.

Canada: Institutionalization of the Market

After legalization in 2018, Canada demonstrated that the market can be fully brought into the white zone. From 2018 to 2024 — $76.5 billion cumulative GDP contribution, $15 billion in taxes, tens of thousands of jobs. The share of the illegal market fell from 28% to 3%. The Canadian model showed: if the state can provide convenient infrastructure (shops, online access, fixed prices), the black market becomes unprofitable.

Netherlands: Control Through Semi-Legality

The Netherlands took a different path — the model of “regulated semi-legality.” Coffeeshops are legal, but production and wholesale trade remain in the gray zone. The result: cannabis consumption in the country is no higher than in neighboring EU states where cannabis is prohibited. This confirms: legalization or semi-legalization does not lead to an “epidemic,” but allows quality control and reduces the burden on law enforcement.

Contrast: Russia and Latin America

A completely different picture exists where the “black cashbox” is embedded into the very system of power. In Russia, the Federal Drug Control Service turned the drug market into an instrument of income distribution. In Mexico and Colombia, drug cartels merged with political elites and the army: control over a route means control over a region. In these countries, legalization is impossible because it destroys the very foundation of the political economy.

Outcome

Legalization works where the state can afford to give up superprofit in favor of stable taxes and transparent control. It is impossible where this very superprofit — the “×50 multiplier” — feeds security clans and parallel budgets.

Consumption: Myths and Facts

One of the main arguments of legalization opponents is the fear of a sharp increase in the number of consumers. In the public imagination, legalization = a “drug epidemic,” especially among teenagers. Yet facts show a completely different picture.

Colorado: Growth Among Adults, Stability Among Teenagers

After cannabis legalization in 2014, in Colorado the consumption rate among adults rose: from 10% to about 17% by the mid-2020s. This is natural growth: some of those who previously bought “in the shadows” moved into the legal zone and began to appear in official statistics. But among teenagers the consumption rate remained stable — about 10%. There was no “wave of teenage drug addiction,” contrary to alarmist forecasts.

Washington: The Same Dynamic

In neighboring Washington, after legalization the curve repeated Colorado’s: growth among adults (from 14% to 21%), stability among school and college students. Teenagers, as before, constituted a group with a constant level of use, while the main growth came from adults who stopped hiding.

Canada: Youth Without a Spike

Canadian statistics after legalization in 2018 give an even clearer picture. Among adults, consumption grew from 14% to about 20%. Among young people aged 15–24, the rate was already high — about 30% — and did not increase after legalization. Legalization did not “create new addicts,” it merely transferred existing demand into the legal sector.

Netherlands: Consumption Lower Than in Neighboring Countries

An even more telling example is the Netherlands. Here coffeeshops have been legal for decades, yet the level of cannabis consumption is no higher than in EU countries where it is prohibited. Moreover, according to EMCDDA, among young people the level of use is even lower than in France or the United Kingdom. That is, the very fact of legality does not provoke growth, and sometimes even restrains demand through control and normalization.

Conclusion

Legalization changes consumption channels, but does not turn society into a “nation of addicts.” The main growth is observed among adults — those who were already using but did so illegally. Teenagers remain at the same level. In the long term, legalization does not increase consumption but redistributes it through transparent channels and reduces the burden on police and courts.

Conclusion

Drugs are not only a medical or moral problem. First and foremost, they are an economic resource embedded in the structure of the state.

In the illegal regime they become a mechanism of rent extraction:

• the product’s cost price is negligible,

• the “risk premium” inflates the price dozens of times,

• the difference forms a “black cashbox” that feeds security agencies, criminal networks, and shadow political projects.

This scheme works as long as prohibition remains. Prohibition is the main instrument of market monopolization. It allows the control of the street, the management of money flows, and the reproduction of the system of gray revenues.

Legalization changes the very structure. Instead of gray rent there is tax. Instead of street crime — licensed stores. Instead of the “risk premium” — a transparent markup and excise. The examples of Colorado, Canada, and the Netherlands show: legalization does not create an epidemic but transfers existing demand into the regulated field and brings billions to the budget.

But precisely for this reason it is impossible where power rests on shadow flows. In Russia, Mexico, Colombia, and other countries where the drug market is embedded in the power system, giving up the “×50 multiplier” is political suicide. Where the state has learned to live on taxes, the transition to legalization becomes a rational strategy.

Drugs are a mirror. They show how the economy of power is structured. Where gray cashboxes rule, prohibition is eternal. Where taxes and institutions rule, prohibition gives way to regulation.

And therefore the answer to the question “why legalization is possible here and impossible there” lies not in morality and not in medicine. It lies in political economy: who benefits from the prohibition margin and who is able to give it up in favor of transparent taxes.