Edited by Chris Wilkins, Massey University, Auckland, New Zealand; received May 18, 2025; accepted January 31, 2026 by Editorial Board Member Christopher B. Barrett
Significance
Illegal drug markets generate enormous harms and involve large amounts of money. This article provides a primer on illegal drug markets, with an emphasis on supply chains. While some features of illegal drug markets have been quite stable over time (e.g., quality of the product is often very difficult to determine from visual inspection), there have been major changes over the past 15 y (e.g., explosion of fentanyl use in North America, increasing use of cryptocurrencies in illegal drug transactions). The article highlights the need for monitoring the price and purity of drugs along the supply chain to better understand supply changes and evaluate policy interventions.
Abstract
This article provides a primer on illegal drug markets, with a focus on the structure and nature of these markets and the enterprises involved. The markets for illegal drugs are large, with annual retail expenditures likely exceeding $100 billion in the United States alone. Many drugs are easy to produce, and their high value-to-weight ratios make them attractive to smugglers. Some features of illegal drug markets have been quite stable, such as the small size of retail purchases, in part because most sales are to people who use frequently and typically do not buy in bulk. Between production and consumption, most of these substances cross multiple borders—and often continents—and the mark-ups along the supply chain continue to be substantial. But there have been major changes over the past 15 y. While illegally manufactured synthetic drugs are not new, the proliferation of fentanyl and other synthetic opioids created an overdose crisis in North America and has other countries on high alert. The internet has also made producing and accessing a wide range of drugs and their precursor chemicals easier. The emergence of cryptocurrencies has created new opportunities to hide transactions and launder the proceeds. In addition to highlighting the stability and turbulence in these markets, this article offers ideas for future research and emphasizes the need for monitoring purity-adjusted drug prices, which is critical for understanding supply changes and evaluating interventions in these markets.
The use of substances to create a sense of euphoria or alter one’s state of consciousness dates back millennia (1, 2). Some of these substances were used for medicinal or spiritual purposes while others were used for pleasure. That is still the case today, with many of these drugs now being subject to laws prohibiting them, or to regulations governing their supply, possession, and use.
The markets for illegal drugs are large, although credible and recent global estimates do not exist. In the United States alone, annual retail expenditures likely exceed $100 billion (3). Many drugs are easy to produce, and their high value-to-weight ratios make them attractive to smugglers. The barriers to entering these markets are minimal at many points along the supply chain, and the main risks to participants are arrest and violence. Demand in major drug markets is driven by those who use frequently and often spend a large share of their income on drugs (in affluent countries, it can be on the order of $10,000 to $20,000 annually for daily or near daily users of cocaine, heroin, and/or methamphetamine) (4). Depending on the drug, consumers typically do not buy in bulk and sometimes make multiple purchases a day. The resulting large number of retail transactions has important implications for the structure of these markets and the conduct of suppliers.
There are also illegal markets for drugs that are legally produced and diverted from medical use. Indeed, diverted prescription opioids played an important role in creating dependence for many people who are now suffering fatal drug overdoses from illegal opioids in North America (5). However, this essay focuses on substances which are illegal throughout the supply chain—from production to final sale. It mostly focuses on illegally produced cocaine, opioids, amphetamine-type substances (including methamphetamine), and cannabis as they account for the largest share of expenditures and harms associated with illegal drug markets. Frequent use of these substances can create problems for people who use them, their loved ones, and others (6–10), but these drugs can also produce benefits. For example, opioids can dull pain and stimulants can provide energy. Even the pure hedonic pleasure of use could enhance social welfare, although pleasure is usually excluded in policy analyses (11, 12).
This article is a primer on illegal drug markets, not a cost–benefit analysis of drug prohibition or legalization. The next section provides an overview of drug prohibition and its enforcement. Section 2 describes research on the size of illegal drug markets and the harms associated with production and trafficking. Section 3 presents some general observations about the structure and nature of drug trafficking enterprises, and Section 4 describes two large markets with different supply chains that have undergone important changes over the past 15 y: The fentanyl trade to the United States and the cocaine trade to Europe. Section 5 describes some recent technological innovations in illegal drug markets, and Section 6 concludes with some ideas for future research.
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