Insights About Cannabis Production and Distribution Costs in the EU

Published in: Further Insights into Aspects of the Illicit EU Drugs Market / Franz Trautmann, Beau Kilmer, Paul Turnbull (eds.) (Luxembourg: Publications Office of the European Union, 2013.), Part II, Report 4, p. 389-403

Posted on RAND.org on January 01, 2013

by Beau Kilmer, James R. Burgdorf

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Enforcing laws against the production and distribution of cannabis dramatically inflates their costs. The increase is largely driven by having to compensate producers and suppliers for their risk of arrest, incarceration, seizure, and violent injury as well as by the inefficiencies associated with having to operate covertly. This report demonstrates how cannabis prices increase across the supply chain in the EU as distributors take additional mark ups to compensate themselves not only for shipping costs but also for the risks they assume. For instance, we show that in Morocco it costs €90-€180 to purchase the 36kg of cannabis needed to produce 1kg of cannabis resin. After accounting for labour and distribution costs as well as risk compensation, that same 1kg generates about €8,000 in gross revenues in a Dutch coffee shop. The report also discusses the cost of producing cannabis under a number of legal regimes. Making cannabis production and distribution legal could dramatically reduce their costs; however, the size of the decrease will largely depend on the type of production that is allowed and how the market is regulated (e.g. a competitive market with private firms, a state monopoly, non-profit cooperatives). Further, the significance of the drop will also depend on the economic and legal situation of the producing countries. We would expect to see larger drops in industrialized countries where labour costs are high and there are significant risks associated with being arrested and sanctioned.

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