This is an excerpt from a report by Anine Kriegler, entitled Cannabis Reform Policy and Organized Crime, A Model and Review for South Africa, first published in February 2024.

The starting point in trying to understand any impact of cannabis legalization must be that experience with it is new.

While there have been previous shifts in terms of medical access and approaches involving de facto deprioritization, it is only in the last decade or so that it has been possible to begin accumulating evidence on the impacts of legalizing and commercializing recreational cannabis.

This is important as there are likely to be certain clear short-term impacts, but both logic and experience have shown that significant changes take time to manifest.

Initial assessments are confounded by the fact that challenges and unforeseen difficulties are inevitable in the early adoption phase – as is the case with the implementation of any new major public policy, ‘particularly one so grand as cannabis legalization’.

So, although research is growing rapidly on the impact on multiple fronts – including physical and mental health, educational outcomes for young people, trafficking incidents and the consumption of other substances – much is still in dispute.

Impact of Legalized Cannabis on Organized Crime

The impact on organized crime is also not clear. But given that legalization disrupts a market that in many places has been in the control of organized crime, some impact is highly likely. The question is instead one of nature and extent, and depends on the policy decisions made.

Legalization is widely advocated as a means of weakening organized criminal groups. One way it might achieve this is by reducing the number of people brought into the criminal justice system for non-violent cannabis possession offences, and thereby reducing the drug-related incarceration that has been shown to be fertile ground for organized crime recruitment.

More commonly, however, the suggestion is that legalization will deprive criminal groups of their control of, and therefore profits from, the drug trade.

A popular analogy is that of the repeal of alcohol prohibition in the US in 1930s, which saw many monstrously violent criminal groups rapidly ‘combusted’, or reduced to shadows of their former power.

‘The Stricter the Restrictions, the Stronger the Incentives to Bypass Them

Yet no expert seriously expects that the creation of a legal cannabis market will entirely eliminate the black market. Here tobacco is the prime example. Despite tobacco being a legal product, it is estimated that more than 10% of the global demand for cigarettes is supplied by irregular sources.

What the tobacco industry also demonstrates is the problem of regulatory trade-off – the stricter the regulations, the stronger the incentives to circumvent them.

One issue with determining the impact of cannabis legalization – or indeed any other policy or law enforcement strategy – on organized crime involves defining the actual desired impact.

This, in turn, is part of the wider problem of defining and measuring organized crime, which is universally difficult and on which there is no consensus.

Impact assessments often rely on information from law enforcement, but this requires ‘a well-developed and competent intelligence program’, and there is reason to believe that law enforcement agencies typically know less about organized crime activity than they think they do.

Common measures of ‘successful’ interventions against organized crime include fewer criminal groups in operation and/or reduced membership of such groups. However, these indicators are not the desired end product but merely strategic steps on the way to the goal, which is likely to be a reduction in the levels of violence, illness, corruption and misery associated with organized crime.

This is difficult to evaluate. Law enforcement organizations have so far tended to be skeptical that legalization has had any positive impact on organized crime, which is a useful data point but should be viewed with a certain amount of scepticism, given law enforcement’s usual hostility to legalization.

Black Markets Thrive But Crime Drops in Legal Jurisdictions

In the context of cannabis legalization, the key proxy for a positive impact on organized crime is evidence of a decline in the proportion of cannabis in the market that is purchased from illegal sources.

By this measure and some others, it is clear that black markets have so far continued to thrive under legalization. For instance, research from Canada so far shows some evidence of a positive impact and some evidence of little to no effect.

In some US states, some even argue that legalization may even have strengthened the black market. But preliminary evidence even suggests that legalization in US states is in fact inducing a crime drop, with possible causal mechanisms including ‘the direct psychotropic effects of cannabis; substitution away from violence-inducing substances; reallocation of police effort; [and] reduced role of criminals in the marijuana business’.

Another possible mechanism is through the drop in price associated with legalization, which reduces the need for drug users to engage in acquisitive crimes. This possibility is ‘supported by evidence that dependent heroin users who move from a criminal supply to prescribed medical provision, reduce their levels of offending dramatically’.

Legalization may also improve the relationship between the police and the public, as people may be more willing to cooperate with the police if they are not afraid of being prosecuted for cannabis-related offences themselves.

Legalization Can Reduce the Social Costs of Crime

Legalization can also have a broader impact on organized crime. It can reduce the incalculable costs of prohibition to government, the economy and society.

These costs include corruption, money laundering, a destabilized economy, deterred investment, migration, the marginalization of certain communities, the costs of crime and violence and the costs to health.

It can support economic development by redirecting government expenditure away from law enforcement and towards other ‘drug-related public health interventions (such as education, prevention, harm reduction and treatment), or wider social policy spending’, thereby reducing the loss of productivity and economic activity resulting from the mass incarceration of drug offenders, and increasing tax revenues.

Cannabis legalization can also have an indirect, positive knock-on effect on combatting other forms of organized crime, for instance by reducing the need for money laundering, which also facilitates other crimes (including cybercrime, corruption, and trafficking in weapons, people and wildlife).

Legalization Will Change Markets in Interesting and Unexpected Ways

It can also change markets in more interesting and unexpected ways. For example, it has been observed that under legalization the face of online cannabis sellers has shifted from young men with dark, anonymous profiles to a culture of individual female influencers, promoting a range of cannabis products as a more mainstream, aesthetically curated accessory to certain feminine lifestyles.

Legalization will inevitably transform some aspects of the black market, but the ways in which it will do so are many and varied

You can’t Liberalize Demand Without Doing the Same for Supply

Equally important is the regulatory lever of supply. The risk of liberalizing demand without a commensurate liberalization of legal supply is one of the clearest lessons of legal reform to date.

It is the most frequently cited explanation for the limited success of newly legal cannabis industries in displacing organized crime. In some places, very strict laws have led to supply shortages, driving consumers to the black market.

In other places, very generous laws (in terms of the number of licences granted and lenience in enforcing compliance) have led to an oversupply and oversaturation of the market, and forced farmers to turn to the black market by selling across state lines to make a profit.

It is common cause that where cannabis has been legalized, price drops in the illegal market have been spectacular. Reduced profit margins have driven small-scale legal and illegal operators out of the business in contexts as diverse as Canada and Mexico.

There is no data on this, but anecdotal evidence suggests that the same is already happening in South Africa. But it is the legal companies that suffer most from increased price competition, as they have to compensate for high regulatory costs by building them into higher prices.

Behavioural economics research on the price elasticity of demand for illegal versus legal cannabis indicates that consumers will generally prefer legal to black-market cannabis, but only if the costs are relatively similar.

Pricing a Big Factor in Consumer Choice

The onerousness of regulation determines whether the legal product will be competitive (in price, but also in quality and accessibility) with black-market products.

The persistence of the black market in places where cannabis has been legalized is largely explained by the failure of legal suppliers to become competitive.

Research shows that those consumers who continue to choose the black market, even when there is legal supply available, do so for many reasons. Many may simply be unable to afford the taxed products.

The question of the appropriate tax point has sparked heated debate in some places. But despite much talk of green being the new gold for South African tax revenue, nothing has yet been proposed as to how such taxation might work.

What is needed is not an adaptation of ‘best practices’ from high-income countries, but a highly tailored, context-sensitive taxation strategy.

The consumer decision to transition to legal sources is multifaceted; cost is a primary motivator, but not alone. Legal sources may well offer greater peace of mind, quality assurance, and product variety, but often also limit potency, sales volumes, anonymity and convenience.

Some black-market suppliers have succeeded in capitalizing on the combination of increased demand and their price competitiveness. Others are abandoning the increasingly high-end, patentable industry, ‘whose research and development departments may be more effective than the state in reducing crime of unprecedented scale’.

The more competitive the legal retailers, the more likely they are to displace the illegal market. The myriad policy decisions around appropriate barriers to entry and competitiveness in the legal market are related to the motivations for reform.

SA’s Problem: Policy Focus on Private Use Not Market Regulation

In many places, the starting point has been market regulation, with a major and explicit justification for legalization being its scope to reduce organized crime.

In South Africa, however, cannabis reform has centred on the right to private consumption, meaning that market regulation has not been the goal, and the potential impact on organized crime impact has played little part in the decision-making process.

The current situation, in which consumption is legal but cultivation and supply are still illegal, could conceivably enable law enforcement to allocate resources more effectively in the fight against organized crime.

Yet, this is unlikely in the case of South Africa. In fact, expanding demand without making any attempt to shift supply into the hands of legitimate businesses is arguably the worst possible approach in terms of the impact on organized crime.

Another lesson from other contexts is that the grey market may pose a bigger threat to the development of a legal industry than black-market drug dealers, because grey market companies do not adhere to complex and costly regulations, but can operate in plain sight, with customers possibly none the wiser.

South Africa’s ongoing legal limbo is fostering a dynamic in which more scrupulous (or at least more risk-averse) potential suppliers are not only unable to reap the current commercial rewards of legalization, but are losing out on opportunities to gain an early foothold in the market. Anecdotally, a growing number of companies previously deterred by illegality are now actively seeking a stake before it is too late.

Cartels Likely to Pivot to More Profitable Crime if Cannabis is Legalized

To the extent that organized crime does dominate the illegal cannabis trade, its resilience to legalization is influenced by its reliance on cannabis for profitability, its overall structural robustness, the breadth of its criminal portfolio, its scope for reorientating cannabis supply towards export markets, and its ability to diversify into other drug markets or crime types.

Forfeited profits are the main mechanism by which legalization is predicted to undermine organized crime. As such, it is necessary to estimate the proportion of organized revenues that are derived from the illegal domestic supply of cannabis.

Large reductions in revenue may well reduce violence in the long term, but may also increase it in the short term, as competition intensifies.

A major concern is whether organized criminal groups will be able to forestall the unfavourable impact of cannabis legalization on their revenues by diversifying into other markets, producing the classic ‘balloon effect’.

Experience in Mexico shows that more ‘competent and powerful criminal groups with more extensive logistical capacities’ have been able to switch to the production and trafficking of opioids and fentanyl, as well as extortion of local businesses.

Don’t Underestimate the Resilience Organized Crime

Too little is known about organized crime in South Africa to make a credible assessment of the potential impact of cannabis legalization. There is no doubt that organized criminal groups, ranging from traditional domestic gang structures to looser international networks, ‘in conjunction with corrupted state security officials, facilitate the trade of cannabis by air, land and sea routes’.

Given that cannabis is the most widely used drug in the country, it is likely that very large incomes are generated from its sale. Unfortunately, while policy reform may devastate many subsistence growers, the ‘mafia-style’ networks or syndicates that drive so much of the violence already tend to be highly diversified in the criminal economy – and may have little trouble recouping lost cannabis profits through other activities, including fraud, armed robbery, poaching, kidnapping for ransom and extortion.

Perhaps the most important lesson for South Africa from experiences with legalization elsewhere is that it is crucial not to underestimate the resilience of criminal organizations. At the same time, we should not be too quick to extrapolate from other contexts (or to other criminal economies), as each will have to contend with its own mix of variables relating to socio-economics and culture, the criminal justice system and market structure.

About the Author.

Dr Anine Kriegler is a senior researcher in the Justice and Violence Prevention programme of the Institute for Security Studies, South Africa. This paper was commissioned as part of the Global Initiative Against Transnational Organized Crime’s Drug Policy Reform and Organized Crime project. It was made possible with generous funding provided by the Open Society Foundation Studies.

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