Jonathan Caulkins and Michael Lee explain:
[I]nefficiency stems from having to operate covertly. The precautions required to evade detection make the production of drugs very labor intensive. Grocery-store cashiers, for instance, are more than 100 times as productive as retail drug sellers in terms of items sold per labor hour. Similarly, hired hands working for crack dealers can fill about 100 vials per hour, whereas even older-model sugar-packing machines can fill between 500 and 1,000 sugar packets per minute. This labor intensity of drug production, combined with the high wages demanded for that labor, are what drive up the costs of drugs; by comparison, materials and supplies — glassine bags, gram balances, and even guns — are relatively cheap.
Caulkins and Lee provide a useful comparison point to appreciate the impact of illegality on price: If cigarettes suffered the same legal disadvantage as cocaine and heroin, they would cost about $2,000 a pack. This is a stark illustration of how taxes on a legal drug could never even remotely raise prices as high as does illegality.
(Photo: A man shows a flower of the cannabis sativa plant in Montevideo on December 7, 2012. Lawmakers in Uruguay are studying a bill to legalize the cultivation of marijuana and allow limited personal consumption of it – which if passed, will have authorities controlling its quality and the amount used. With the bill, which is supported by President Jose Mujica, the government wants to end drug-related violent crime which in recent years has emerged for the first time in this sleepy nation sandwiched between Argentina and Brazil. ABy Pablo Porciuncula/AFP/Getty Images)