DSI White Paper – By Richard Wottrich, CEO & Senior Consultant
June 30, 2017, Atlanta USA
Over 80% of illicit drug demand in the Americas comes from the United States.
Today’s surge in illicit drug traffic at America’s southern border is driven by drug cartel violence in Central America.
GlaxoSmithKline and Johnson & Johnson legally grow opium poppies in Tasmania.
The United States accounts for three-quarters of global legal opiate painkiller sales by weight and five-sixths by value – thus 4.3% of the global population accounts for 83.3% of painkillers sales.
Global Traffic in Illicit Drugs
Attempting to estimate the global GDP of illicit drugs is akin to getting an accurate vote count in an American presidential election – it brings to mind the uncertainty principal. The United Nations has estimated it as follows, “the global drug trade generated an estimated US $321.6 billion in 2003.” In 2016 perhaps one percent of global GDP is in illicit drugs – roughly $790 billion a year and growing – fast.
Drugs in the Americas
Drug cartels are integrated into Mexico’s economy and government. The major drug cartels operate throughout Mexico and employ over 500,000 people and indirectly support an additional 3.5 million people. Estimated profits for the combined cartels are $25-$35 billion a year. These profits fuel corruption and graft on an international scale. Over 80% of illicit drug demand in the Americas emanates from the United States.
The history of drugs and violence in Central American dates to the 1980s, when civil wars in El Salvador and Nicaragua sent thousands of people north in search of safety. This illegal immigration fed into the gang culture of Los Angeles and morphed into the drug cartels of today – destabilizing much of Central America. Many in the drug cartels are American-born.
John Sullivan, a gang specialist with the Los Angeles County sheriff’s department, said, “These gangs are part of the cultural fabric of the U.S., not Central America. We deport them, and they’re bigger and badder than any gangs there, and they dominate. And now we have areas [in Central America] that are widely destabilized, with a high degree of violence.” America’s own demand for drugs has helped produce the very cartels that arose to meet that demand.
The United States drug market, from Colombia through Central America, has been estimated by RAND Corp at over $100 billion. This supports a vast criminal supply chain that recruits and intimidates hundreds of thousands of people. Children are coerced, acting as lookouts, drug ‘mules’ and any other nightmare you might conjure. The cartels send young teens into the United States, where they learn gang culture in the Latino ghettos of Los Angeles, Chicago and Washington DC. In turn they terrorize entire neighborhoods into the drug trade.
The tiny country of Honduras’ (8 million people) illicit drug traffic exceeds its GDP. Let that sink in for a moment. Over 75% of America’s cocaine is shipped out of Honduras. As a result Honduras has one of the highest murder rates in the world – 59.1 murders per 100,000 people in 2016 – a rate that if applied to the United States would generate almost 200,000 murders a year. The recent flood of child migrants to the United States from Honduras, El Salvador, Guatemala and Mexico is thus driven by this extreme violence and massive drug-related gang activity.
The Legal Opium Poppies of Tasmania
Over 90 people a day are dying of Opioid Abuse Disorder in the U.S. In total including all illicit drugs, 59,000 to 65,000 people died from drug overdoses in the U.S. in 2016. Where do opioids come from?
Tasmania, roughly the size of West Virginia, is one of the most remote places on earth with a population of just over 500,000. Tasmania is the origination point for the global supply chain that involves the biggest drug companies in the world – producing $25 billion a year of opiate painkillers in the U.S. alone.
Tasmania’s gentle climate, 50 years of plant modifications and an obliging government have produced a near-monopoly on production of one of the pharmaceutical industry’s most important raw materials. Tasmania grows roughly 85% of the world’s thebaine, or codeine methyl enol ether, an opiate alkaloid used to make OxyContin and related powerful prescription drugs that have revolutionized pain management over the last two decades. It produces all of the world’s oripavine, an alkaloid poppy extract utilized to treat heroin overdoses. Tasmania also accounts for 25% of the world’s morphine and codeine, two older painkillers from opium poppies still widely used outside North America.
The value of these narcotic alkaloids to Tasmanian farmers may seem small at roughly $100 million a year, but they support a vast painkiller network that marks up value 150 times at market. GlaxoSmithKline plc (LSE:GSK) ($24.6 billion revenues) and Johnson & Johnson (NYSE:JNJ) ($73.6 billion revenues) control most of this production, providing narcotic alkaloids to their own painkiller divisions and to other pharmaceutical companies worldwide. They are a legal cartel overseen and sanctioned by the United Nations Commission on Narcotic Drugs (CND).
Of special interest is Purdue Pharma L.P., a privately held pharmaceutical company that paid one of the largest pharmaceutical company fines in history in 2007 for mislabeling its product OxyContin. Purdue’s revenues are over $3 billion per year, mostly from the sale of OxyContin.
Most of the opium poppy extract produced in Tasmania is shipped to pharmaceutical factories in the Northeastern United States. The U.S. accounts for 75% of global legal opiate painkiller sales by weight and five-sixths by value – thus 4.3% of the global population accounts for 83.3% of painkillers sales. More specifically, the U.S accounts for 84% of global oxycodone (Oxycontin) consumption and more than 99% of hydrocodone (Vicodin, Lortab) consumption.
There is a human price for this obvious “overuse” of opioid painkillers. Between 1999 and 2016, the number of U.S. drug poisoning deaths per year involving an opioid has risen from 4,030 to almost 34,000, now exceeding overdoses of heroin and cocaine combined. Blue Cross and Blue Shield said recently that its claims for opioid addiction and dependence surged nearly 500 percent between 2010 and 2016. Forbes magazine contributor Robert Pearl, MD, says that 3 in 4 drug overdose deaths are due to opioid painkillers such as oxycodone, hydrocodone or methadone.
Remember one salient fact. The pharmaceutical industry knows and has known for years that it produces far more painkiller doses than are sold legally.
A new opiate painkiller with 5 to 10 times the power of Vicodin hit the market in 2014, and there have been corresponding spikes in Opioid Abuse Disorders. In 2014 more than 40 drug overdose experts urged the Food and Drug Administration (FDA) to reconsider its approval of Zohydro ER [manufactured by Zogenix, Inc. ZGNX (NasdaqGM)], a potent extended release formulation of straight-up hydrocodone, citing the potential to add to the growing epidemic of painkiller addiction.
Andrew Kolodny, president of the advocacy group Physicians for Responsible Opioid Prescribing, was very direct: “It’s a whopping dose of hydrocodone packed in an easy-to-crush capsule. It will kill people as soon as it’s released.”
Measured in human misery one might be tempted to ask, “What is the difference between an illicit and a legal drug cartel?” But that is hyperbole. More interesting questions are, “What is it in American culture that produces this dramatic and pervasive abuse of drugs?” or “What is the pharmaceutical drug sector’s mindset that these companies can continue to sell far more drug doses than are prescribed legally?”
Just as importantly, how long can such an obvious imbalance in legal and illicit drug consumption last? At what point does the entire legal supply chain cartel collapse in the face of abuse and resulting government regulations, or in the destruction of a U.S. middle class capable of affording this habit? How far can pharmaceutical lobbying reach and when will blow back hit their industry?
Richard L. Wottrich, firstname.lastname@example.org