Recent surveys and research studies by sources from the UN to streetRx.com put the size of the illegal drug market in the U.S. at anywhere from $200 to $750 billion. The market is notoriously hard to track by design, and it is constantly evolving as prices and usage fluctuates; but as ConvergEx's Nick Colas notes, there’s a plethora of data on the topic: formal surveys by the CDC and user-submitted blog posted on websites like Hightimes.com trace price, usage, and traffic stats for marijuana, powder and crack cocaine, d-methamphetamine, and heroin. Legalized dispensaries now allow us to estimate potential tax revenue from marijuana sales, while incarceration rates for drug offenders reveal the economic impact of the illegal drug trade. In short, while the illegal drug market might be hard to track – if only by virtue of its illegality – Colas points out that we can learn a lot about its size and scope by aggregating these formal and informal data. Most surprising of them all: illicit drug use is no longer the realm of just the youth.
Via ConvergEx's Nick Colas,
The laws of supply and demand exist everywhere, and looking at the most esoteric markets can give you some very useful insights into mainstream topics. There is a lot to learn here about consumer behavior, the social costs of drug law enforcement, and even some surprising demographic data.
Ever wondered how much a particular narcotic or opioid costs in your city? The answer might’ve been hard to find out 20 years ago without some serious hook ups in the shady part of town, but today all you have to do is head to streetrx.com. Type in your drug of choice, and up pops the data: location, price, date, and a 1-5 star rating. You’ve got your standard cocktails on here – oxycodone, heroin, marijuana – and then a few not-so-popular choices like hydrocodone, Exalgo, and Klonopin. Each one of them is going to cost you a pretty penny, depending on where you buy it – but at least you’ll know whether you got a good deal or not.
Streetrx.com and similar, user-run sites like Hightimes.com have made the drug economy more transparent than ever – but it’s still virtually impossible to put a sticker price on it. Academic literature on the topic puts the figure at anywhere from $200 to more than $750 billion, with most estimating around the $400-$500 billion level. But as an illegal activity, illicit drug use is highly under-reported, if at all, so “guesstimates” are the name of the game when it comes to determining the market’s size.
Still, while we might not be able to guess the exact dollar amount the underground drug market rakes in every year, these informal data sources – along with some of the more formal stats tracked by the Center for Disease Control – can tell us quite a bit about the nature of this economy in the US. From price inflation to average user age, the aggregation of this formal and informal data paints a slightly less-fuzzy and, to some degree, larger picture of the market. Here’s the top 10 that we found, in no particular order:
1. Say what you want about the 1960s and 1970s, but the current decade has logged the heaviest drug use per person per year in the history of the United States. 23.9 million Americans aged 12 or older – 9.2% of the entire population – were “current users” (i.e. had used in the past month) of an illicit drug in 2012, the latest data available from the CDC shows. That’s up from 7.1% in 2001, and more than double the rate of 1969’s 4% (according to a 1969 Gallup poll). But the “peace and love” decades aren’t totally free of blame. The youngsters that seemed to have pioneered increasing drug usage in the 60s and 70s are apparently still at it today: 7.2% of those aged 50-54 reported illicit drug use within the past month, compared to 6.6% of those 55-59 and 3.6% of those 60-64. Each of these figures is more than double the respective rates recorded in 2002. Use of illicit drugs among those 12-17, meanwhile, is dropping, while usage in the “young adult” community of 18-25 has been rather stable at around 21.3%.
2. The most “Typical” drug user is apparently an 18-25 year old male living in the urban South, based on data from the National Survey on Drug Use and Health. The South is the biggest drug consuming region in the country by sheer numbers with 7.5 million current users, according to the National Survey on Drug Use and Health. But New England and the Pacific West had the highest rates of usage at 11.4% and 12.3% of the total population. The biggest “experimenting” population is also in New England; the number of people reporting that they had used an illicit drug at some point in their lifetime was higher here than anywhere else (55.4%). City dwellers were also the most common drug users: 57.5% of the total “current users” recorded in 2012 lived in metro areas with more than 1 million people, for example, while less than 1% lived in “rural” areas. Males are almost twice as likely to use as females (11.2% versus 6.8%), though the numbers are rising among both genders. And finally, drug usage among ethnic backgrounds vary widely: 9.1% of whites report being current users, compared to 10.7% of blacks, 3.5% of Asians, and 12.1% of American Indians.
3. Each region has their “drug of choice”. Marijuana seems to have the widest fan base, with current users making up at least 5% of the population in every region, but the Pacific West and New England again have the highest rates of current usage here at 10%. The Northeast, and specifically New England, houses the top users of powder cocaine; the South Atlantic is the hub of crack cocaine and hallucinogen usage, though. The Pacific West is the top culprit for inhalant use – which is also most popular in rural areas – and for un-prescribed psychotherapeutics (tranquilizers, sedatives, etc.). The Midwest finally tops a category with illicit use of pain relievers, though the East South Central region of the South is also high on the list.
4. According to the CDC, median prices for 0.1-10 grams of the 5 most common drugs are as follows: Powder cocaine - $150; Crack cocaine - $180; Heroin - $650; Meth - $280; Marijuana - $14. For context, we should note that cocaine and marijuana users typically buy “by the gram”, and these numbers coincide closely with reported prices on drug user blogs. Heroin and meth are more expensive partially because of higher purity, partially because of higher risk, and partially because users here tend to buy “by the hit” – which seems to be less than 1 gram. Interestingly enough, marijuana is actually the only drug that has increased in price (in current dollars) compared to its cost in the 1980s. The CDC’s drug price data shows that, in 2007 dollars, powder cocaine costs have dropped by -87.2% (you would have paid $1,000 for the same amount back in 1982), crack cocaine by -66.5%, Heroin by 93.2%, and Meth by -43.1%. Marijuana has doubled from $6.57 in 1981 to about $14 today.
According to Streetrx.com and Hightimes.com, though, prices seem to have been relatively stable over the past 10-15 years or so; $20/gram for marijuana, $80-$100/gram for powder cocaine, $20/20 mg of oxycontin, etc. This would seem to imply that drug prices haven’t inflated or deflated in years; perhaps everyone is just getting their fix on the cheap. Or maybe the government is woefully misinformed. What it probably comes down to, though, is demand and supply: millions more people are smoking marijuana, while total drug production for pot, cocaine, and opioids has stepped up in the past decade. Some prices may be on the rise again in the years to come, however, as reports show that some top exporters (Columbia, Peru, Afghanistan) are trying to crack down on production.
5. Interestingly enough, prices don’t vary too much between the black market and the brick and mortar dispensary, at least in terms of pot. According to a dispensary we spoke to in Colorado, 1/8 ounce packs of marijuana run around $60; it’s about the same on the street, per streetrx.com. And it’s exactly this street competition that keeps dispensary prices low: street dealers don’t have to pay taxes or building costs to keep profits high. As a result, many of these dispensaries find themselves just breaking even.
6. Illegal producers, though, are making a killing on mark-ups. According to research by “Drugs Uncovered” in the UK, heroin can sell for 60x its original price in the end market: cocaine can get up to 18x, and marijuana about 3.5x. Most of the money goes to operations, like worker pay and money laundering fees, but there’s no doubt that the kingpins of these organizations are living large off their markup dime. Which leads us to our next point…
7. Although unquantifiable, drug money is undoubtedly spent regularly in the luxury retail space. At least once a month police around the world will make a massive drug bust at a gang or kingpin’s home base and discover a kind of “millionaire lifestyle”: luxury cars, jewelry, alcohol, clothing, etc. Drug suppliers might not be the target audience of these luxury retailers, but they’re certainly providing a chunk of what economists call “Marginal demand”.
8. While the drug market might generate large amounts of cash for suppliers, its cost to the state is astronomical. Of the roughly 1.6 million people in prison in 2012, some 330,000 were doing time for drug offenses, and at an average cost of about $25,000 per inmate. All together that’s a whopping $8.2 billion. And, interestingly, according to a 2005 paper “Long-Run Trends in Incarceration of Drug Offenders in the US” by J. Caulkins and S. Chandler, higher arrest rates for drug offenders have actually correlated to higher usage rates. Keeping them in prison doesn’t seem to be stopping the flow of drugs.
9. The National Institute on Drug Abuse estimates that illicit drug use costs the U.S. $11 billion in healthcare every year, and $193 billion when accounting for crime costs and lost work productivity. Those abusing prescription narcotics and rotating multiple doctors for scripts are estimated to cost insurers $10,000-$15,000 every year.
10. Several studies also indicate that legalization of marijuana (and potentially other illicit drugs) in the US would have a net positive impact on the economy. Not only would state and local governments be able to tax sales – which, according to the Cato Institute, could rake in about $8.7 billion per year – but much of the money that we currently spend on incarceration and enforcement would also be saved. It’s not exactly a budget saver, true, but $8.7 billion is nothing to sneeze at either.
The drug economy is nothing new, but according to most of these data points it is an ever-growing and ever-evolving market. As long as it stays underground, we’re unlikely to get a clear reading of its exact size or value, but based on user-reported data and informed estimates we can try to approximate how much it generates and how much it costs. Perhaps once we have those numbers, we can try to figure out how we approach the drug market and its participants.