Understanding the illegal drug supply chain structure: a value chain analysis of the supply of hashish to Europe

The study aims to understand the organization of the illicit hashish supply chain from Morocco to Europe and estimate price formation at each stage. Existing research often focuses on US retail markets, neglecting the hashish trade and economic behaviors of its actors. The study utilizes a supply chain management framework focusing on the supply chain network structure (SCNS) to identify actor participation in market flows. The economic approach considers associated risks and uncertainties due to law enforcement, and the institutional context. While research often focuses on explaining end-consumer prices, this study considers product characteristics and quality. The research is justified by the significant negative externalities of transnational drug trafficking, the growing illicit cannabis market size, the diversity of actions to maintain stable market conditions, Morocco's role as a major supplier, the impact of widespread cannabis production knowledge leading to increased supply and the specific characteristics of each drug supply chain. Previous research mainly addresses the retail stage, lacking analysis of international supply chains and their broader consequences. The study also delves into hashish production and market characteristics, emphasizing the variations in cannabis products and consumption patterns in Europe.

The literature review examines existing publications on cannabis commercialization, highlighting the scarcity of research on the international hashish supply chain. Studies on drug markets are reviewed, focusing on the organization patterns in the country of destination, distribution levels, the role of economic principles, cultural and social values, and the maximization of supply options to mitigate disruption risks. Existing studies on drug pricing in illicit markets show the prominence of the economic approach based on risk and uncertainty due to law enforcement and the role of institutional context. Research on the role of product characteristics and quality in consumer purchase decisions is also reviewed. Existing studies, however, are limited regarding the formation of hashish prices, particularly at upstream and downstream levels, with the majority concentrating on the retail market and primarily addressing hard drugs like cocaine. The review includes studies examining the effect of legalization on cannabis prices and the analysis of price bargaining between local dealers and transnational gangs. The literature also highlights the impact of scarcity and interdiction policies on violence in the supply chain. The overall review demonstrates a need for expanded knowledge of practices and dynamics in illicit drug supply chains to better understand operations, price formation, and distribution organization.

The study uses a mixed-methods approach, combining a literature review with primary and secondary data collection. Primary data came from interviews with 13 family farmers in the Rif region of Morocco and agricultural technicians, along with interviews with 12 individuals involved in hashish smuggling (juriri juriri) along the Moroccan coast and in Spain. The farmers provided data on production costs (cultivation tools, seeds, materials, fertilizers) and revenues, distinguishing between traditional and transgenic varieties. The smugglers detailed hashish smuggling into southern Spain and Portugal, focusing on operational activities and prices. Secondary data sources included investigative newspaper articles, TV documentaries, reports from counter-narcotics police services, and online sources. Snowball sampling was used to recruit participants. Interviews used a mix of pedagogical and responsive approaches, with notes taken and data cross-checked for accuracy. The data obtained from farmers allowed for cost estimations at different stages of production. Data on prices at later stages were drawn from a variety of sources and cross-referenced to ensure accuracy and validity.

The Moroccan hashish supply chain involves up to seven main actors, organized as a long channel across multiple countries. The value chain comprises primary activities (inbound logistics, operations, outbound logistics, marketing, sales, and service) and secondary activities (transport and storage). The production stage involves sowing, harvesting, drying, processing (dry sieving and filtration), and packaging. The outbound logistics involve diverse transportation methods (overland, sea, air, and body packing), highlighting the adaptation to avoid police seizures. The analysis shows a significant increase in prices throughout the supply chain. The production cost per kg is low, but prices increase dramatically at each stage of distribution, particularly upon entering Europe. The profit margins for drug smugglers (besnas) transporting hashish from Morocco to Spain are estimated at 12%, while wholesalers operating in Spain and France achieve margins of up to 78%. Retailers in Spain, France, and other European markets have earnings of 52% to 73%, with significantly higher earnings for the final stage of distribution. The study estimates that the final retail price is approximately 7000% of the production cost. A pattern of a disinclination to raise prices and a greater willingness to change the quality of the product is observed across the supply chain. The analysis further underscores the significant variable costs and limited fixed costs in the production stages, creating instability and promoting continuous adaptation of the supply chain.

The findings address the research question by revealing the complex structure and dynamics of the hashish supply chain. The unequal distribution of profits across the chain highlights the significant power wielded by dealers, who dictate supply strategies to mitigate risks and maintain control over the market. The adaptability and resilience of the supply chain, characterized by its high variable costs and constant adjustments to evade law enforcement, underscore its survival mechanisms. The shift from traditional to transgenic seeds illustrates how dealers coerce producers into adopting practices that enhance profits further upstream in the chain, and thus demonstrating the coercive power exerted by dealers. The exponential increase in price from the production stage to the final retail stage indicates the significant risk premium incorporated at each step, highlighting the effectiveness of the supply-push system implemented by dealers. The findings have significant implications for law enforcement strategies, suggesting the need for approaches beyond simply targeting lower-level street dealers.

This study offers a comprehensive analysis of the hashish supply chain from Morocco to Europe, revealing its complex structure, dynamic operations, and substantial profit margins. The research highlights the dominance of dealers, coercive power dynamics, the chain's resilience through adaptation, and the significant price escalation from production to retail. Future research should explore the hashish business model, the role of information systems in supply chain resilience, and strategies for legal cannabis channels to remain competitive. Further research is needed to understand the interactions between the risk of seizure, the concentration of dealers, and end prices and product quality.

The study's limitations stem from the inherent challenges of researching illegal activities. The reliance on snowball sampling and the inherent difficulties in obtaining fully transparent and accurate financial data from participants operating in an opaque and clandestine market impacted the ability to fully generalize the income values of intermediate stages and quantify expenses associated with bribery. The voluntary nature of participation introduced limitations on the randomness and independence of the sample. Despite these limitations, the research provides valuable insights into the dynamics of an otherwise obscure market.