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Wednesday, 10 July, 2002, 17:20 GMT 18:20 UK
The UK's dope economy thrives on
Those found with cannabis will now get a warning

The government's decision to relax the cannabis laws has thrown the spotlight once again on Britain's thriving drugs economy.

The big money is made by importers

IDMU Director Matthew Atha
The cannabis industry is, in strict economic terms, one of the UK's great unsung success stories.

According to the Independent Drugs Monitoring Unit (IDMU), a consultancy which provides expert evidence to the courts, the British cannabis market has grown from scratch to an annual value of about 5bn ($7.7bn) over the past thirty years.

That's more than twice the annual UK beer sales achieved by the country's biggest brewer Scottish & Newcastle.

The men and women who run the cannabis trade employ all the standard business strategies used in the legal economy.

They invest in new production techniques, build up stockpiles to guarantee supply, maintain flat distribution chains, and compete aggressively on quality and price.

Profit motive

But cannabis entrepreneurs make profit margins that business people in the legal economy can only dream of.

A kilo of British home-grown 'skunk' - a particularly potent strain of herbal cannabis - costs about 150 to grow, but can fetch a wholesale price of several thousand pounds.

According to IDMU director Matthew Atha, cannabis importers - who buy cheaply from suppliers in North Africa - can make even more.

"The big money is made by importers," he says. "They can make a mark-up up of between 60% and 70%."

These colossal profit margins compensate cannabis entrepreneurs for the extra risk involved in supplying an illegal product, an activity which could land them with a lengthy jail sentence.

UK cannabis market
Total market value 5bn/year
Home grown crop 2.5bn/year
Average deal price 10 per 3.5 grams

However, as in most successful businesses, the profits are not shared throughout the workforce.

Mark-ups at the bottom of the distribution chain are low, forcing most front line dealers to rely on alternative sources of income.

Healthy competition?

Illegal markets, which are by definition unregulated and therefore easily dominated by cartels, are rarely competitive.

But the British cannabis market seems to be an exception.

Average prices have been falling for nearly ten years, despite a steady rise in consumption.

This suggests either that new suppliers are flooding into the market to meet rising demand, or that existing cannabis entrepreneurs have become more efficient, enabling them to cut their prices.

Either way, the consumer, for once, has the upper hand.

There is evidence, also, that a growing consumer preference for high-grade skunk - most of it grown in cellars and attics up and down the country - has forced suppliers to reduce their traditional dependence on cannabis imports.

"The market for imported herbal cannabis has virtually collapsed because it couldn't compete in terms of quality with the home-grown product," says Mr Atha.

IDMU figures show that home-grown herbal cannabis now accounts for nearly half the UK market, up from just 10% in 1984.

Crime costs

Like many major industries, the cannabis trade imposes unmet social costs on the population.

Legalise cannabis rally
Cannabis consumption is on the rise

These include the costs that arise from committing the scarce resources of the criminal justice system to arresting, prosecuting and imprisoning thousands of cannabis dealers and users every year.

The government's partial relaxation of the cannabis laws - which makes possession of small quantities of the drug a non-arrestable offence - is intended to free up some of these resources to tackle other, more serious crimes.

Of course, cannabis remains profoundly illegal.

Just in case anyone gets the wrong idea, the government is also introducing stiffer sentences for those who supply the drug.

But experts believe that this is unlikely to have a significant effect on a market that is so well established - and so profitable.

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