Cartels Face an Economic Battle

U.S. MARIJUANA GROWERS CUTTING INTO PROFITS OF MEXICAN TRAFFICKERS

ARCATA, Calif. -- Stiff competition from thousands of mom-and-pop
marijuana farmers in the United States threatens the bottom line for
powerful Mexican drug organizations in a way that decades of arrests
and seizures have not, according to law enforcement officials and pot
growers in the United States and Mexico.

Illicit pot production in the United States has been increasing
steadily for decades. But recent changes in state laws that allow the
use and cultivation of marijuana for medical purposes are giving U.S.
growers a competitive advantage, challenging the traditional
dominance of the Mexican traffickers, who once made brands such as
Acapulco Gold the standard for quality.

Almost all of the marijuana consumed in the multibillion-dollar U.S.
market once came from Mexico or Colombia. Now as much as half is
produced domestically, often by small-scale operators who
painstakingly tend greenhouses and indoor gardens to produce the more
potent, and expensive, product that consumers now demand, according
to authorities and marijuana dealers on both sides of the border.

The shifting economics of the marijuana trade have broad implications
for Mexico's war against the drug cartels, suggesting that market
forces, as much as law enforcement, can extract a heavy price from
criminal organizations that have used the spectacular profits
generated by pot sales to fuel the violence and corruption that
plague the Mexican state.

While the trafficking of cocaine, heroin and methamphetamine is the
main focus of U.S. law enforcement, it is marijuana that has long
provided most of the revenue for Mexican drug cartels. More than 60
percent of the cartels' revenue -- $8.6 billion out of $13.8 billion
in 2006 -- came from U.S. marijuana sales, according to the White
House Office of National Drug Control Policy.

Now, to stay competitive, Mexican traffickers are changing their
business model to improve their product and streamline delivery.
Well-organized Mexican cartels have also moved to increasingly
cultivate marijuana on public lands in the United States, according
to the National Drug Intelligence Center and local authorities. This
strategy gives the Mexicans direct access to U.S. markets, avoids the
risk of seizure at the border and reduces transportation costs.

Unlike cocaine, which the traffickers must buy and transport from
South America, driving up costs, marijuana has been especially
lucrative for the cartels because they control the business all the
way from clandestine fields in the Mexican mountains to the wholesale
dealers in U.S. cities such as Washington.

"It's pure profit," said Jorge Chabat, an expert on the drug trade at
the Center for Research and Teaching in Economics in Mexico City.

The exact dimensions of the U.S. marijuana market are unknown. The
2007 National Survey on Drug Use and Health estimated that 14.4
million Americans age 12 and over had used marijuana in the past
month. More than 10 percent of the U.S. population reported smoking
pot once in the past year.

Mexico produced 35 million pounds of marijuana last year, according
to government estimates. On a hidden hilltop field in Mexico's
Sinaloa state, reachable by donkey, a pound of pot might earn a
farmer $25. The wholesale price for the same pound in Phoenix is
$550, and so the Mexican cartels could be selling $20 billion worth
of marijuana in the U.S. market each year.

"Marijuana created the drug trafficking organizations you see today.
The founding families of the cartels got their start with pot. And
marijuana remains a highly profitable business they will fight to
protect," said Luis Astorga, a leading authority on the drug cartels
at the National Autonomous University of Mexico, who grew up in
Sinaloa in 1960s and recalls seeing major growers at social functions
in the state capital, Culiacan.

Led by California, 13 U.S. states now permit some use of marijuana;
Maryland is considering such a law. In many cities, marijuana is one
of the lowest priorities for police.

To some authorities, the new laws are essentially licenses to grow
money. With a $100 investment in enriched soil and nutrients, almost
anyone can cultivate a plant that will produce two pounds of
marijuana that can sell for $9,000 in hundreds of medical marijuana
clubs or on the street, according to growers.

High-end marijuana grown under such special conditions often fetches
10 times the price of poor-quality Mexican pot grown in abandoned
cornfields and stored for months in damp conditions that erode its
quality further.

"What's happened in the last five years, it's just gotten totally,
totally out of hand, as far as a green rush of people coming from all
kinds of different states and realizing the kind of money you can
make," Jack Nelsen, commander of the Humboldt County Drug Task Force
in Northern California. County residents who have a doctor's
recommendation can legally grow as many as 99 plants.

Authorities found and destroyed about 8 million marijuana plants in
the United States last year, compared with about 3 million plants in
2004. Asked to estimate how much of the overall marijuana crop was
being caught in his area, Wayne Hanson, who heads the marijuana unit
of the Humboldt County Sheriff's Office, said: "I would truthfully
say we're lucky if we're getting 1 percent."

The Mexican traffickers' illegal use of public lands is a response to
the dramatic increase in U.S. production, according to authorities
and growers. In the northern woods of California, illegal immigrants
hired by well-heeled Mexican "patrons," or bosses, lay miles of
plastic pipe and install oscillating sprinkler systems for
clandestine fields that produce a cheaper, faster-growing "commercial
grade" of marijuana. Eric Sligh, the editor and publisher of Grow
magazine in Northern California's Mendocino County, said the Mexicans
use a fast-growing variety of marijuana and time their harvests to
periods of low domestic production in the United States.

After establishing sophisticated farming networks in California,
Washington and Oregon, the Mexican traffickers are shifting
operations eastward to Michigan, Arkansas and North Carolina, federal
agents say.

Like wily commodity traders, Mexican traffickers time their shipments
to exploit growing cycles in the United States. They warehouse tons
of pot south of the border to ship north during periods when demand
peaks and domestic supplies are scarce, Mexican anti-narcotics officials said.

The traffickers are also engaged in an escalating race to achieve
higher levels of tetrahydrocannabinol, or THC, the chemical
ingredient that gives pot its potency. The THC content of Mexican
marijuana seized at the southwest border jumped from 4.8 percent in
2003 to 7.3 percent in 2007, according to U.S. officials. Those
levels are still less than half that of the highly potent marijuana
found in places such as Arcata, where THC content often tops 20 percent.

Although most Mexican marijuana is still grown outdoors, Mexican
security forces have begun to discover greenhouse operations, similar
to those found in the United States and Canada. A Mexican army unit
on routine patrol in Sinaloa arrested two men in a greenhouse the
size of an American football field with more than 20,000 marijuana
plants inside. The greenhouse was equipped with modern, highly
sophisticated refrigeration, heating and lighting systems.

In the national forests and public timberlands of Northern
California, Mexican growers shoot at U.S. law enforcement agents with
growing frequency and use fertilizers and pesticides that pollute
watersheds and start fires. A 90,000-acre blaze in Southern
California's Los Padres National Forest in August began on a
marijuana farm run by Mexican traffickers, according to authorities.
The fields are so inaccessible that helicopters are needed to insert
agents, who cut the plants with pruning shears, machetes and even
chain saws before airlifting them to be destroyed.

This season, five teams from the Bureau of Narcotic Enforcement in
California have seized 4.2 million plants worth an estimated $1.5
billion, a 576 percent jump since 2004.

Ralph Reyes, chief of operations for Mexico and Central America for
the U.S. Drug Enforcement Administration, said intelligence suggests
that the major cartels are directly behind much of the marijuana
growth that is taking place on public lands. "The casual consumer in
the U.S. -- the kid or adult that smokes a joint -- will never in
their mind associate smoking that joint with the severing of people's
heads in Mexico," he said.

But it has been difficult for U.S. authorities to prove the
connection, partly because the individuals who cultivate the plants
have no idea who they are working for and are able to give little
information when arrested.

A Mexican grower in Humboldt County, who recently harvested 800
plants and asked not to be identified, said the pot farmers are
usually approached by an anonymous boss, who puts up the money --
sometimes as much as $50,000 -- for the seed, fertilizer, hoses,
camping equipment and food needed to live in the woods for three
months growing "Maribel," as the Mexicans refer to the plants.

The grower said the patron pays the growers in cash or product, which
they can then sell on their own.

"The mountain can eat you up," the grower said. "You're only thinking
about the next day. You have to get up at 4 in the morning to water
the marijuana, because the helicopter might come by when the sun is
up, and if you water too late, he'll see the mist coming off the
plants. You do this every day. There's no church on Sunday or
anything like that. You have to be focused. You have to give
everything for them."