Heroin, or a Businessman's Perspective on the Drug Trade

Excerpt from EL CHAPO AND THE SECRET HISTORY OF THE HEROIN CRISIS by Don Winslow, writing in Esquire, quoted in The Wall Street Journal

Okay, I'm going to say it: The heroin epidemic was caused by the legalization of marijuana.

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.

Good news, right?

Not for the Sinaloa Cartel, which by the time Colorado passed Amendment 64 in 2012 had become the dominant cartel in Mexico. Weed was a major profit center for them, but suddenly they couldn't compete against a superior American product that also had drastically lower transportation and security costs.

In a single year, the cartel suffered a 40 percent drop in marijuana sales, representing billions of dollars. Mexican marijuana became an almost worthless product. They've basically stopped growing the shit: Once-vast fields in Durango now lie fallow.

More good news, right?

Yeah, no. Guzmán and his boys are businessmen. They're not going to take a forty-point hit and not do something about it. They had to make up those profits somewhere.

Looking at the American drug market as it existed, Guzmán and his partners saw an opportunity. An increasing number of Americans were addicted to prescription opioids such as Oxycontin.

And their addiction was expensive. One capsule of Oxy might sell on the street for thirty dollars, and an addict might need ten hits a day.

Well, shit, they thought. We have some of the best poppy fields in the world. Opium, morphine, Oxy, heroin—they're basically the same drug, so …

The Sinaloa Cartel decided to undercut the pharmaceutical companies. They increased the production of Mexican heroin by almost 70 percent, and also raised the purity level, bringing in Colombian cooks to create "cinnamon" heroin as strong as the East Asian product. They had been selling a product that was about 46 percent pure, now they improved it to 90 percent.

Their 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.

At the same time, American drug and law-enforcement officials, concerned about the dramatic surge in overdose deaths from pharmaceutical opioids (165,000 from 1999 to 2014), 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.

As a result, overdose deaths have skyrocketed, more than doubling from 2000 to 2014. More people—47,055—died from drug overdoses in 2014 than in any other year in American history. (Perhaps the most famous of these, Philip Seymour Hoffman, died on February 2, 2014, right at the height of the epidemic.) That's 125 people a day, more than five lives every hour, a fatality level that matched the AIDS epidemic's peak in 1995.

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Don has a great deal to say about the Mexican drug cartels, but he doesn't have much to say about the American Drug Distribution Cartels, where according to my back-of-the-envelope calculations 90% of the profits are made.