Prior to the liberalization of marijuana laws in the United States, strong marijuana demand in the US provided Mexican drug cartels with a thriving export market, fueling violence in Mexico, where the homicide rate in 2018 was over five times the world average. However, US marijuana liberalization has led to an explosion of domestic marijuana production in the US, which lowers the demand for US marijuana imports from Mexico, ceteris paribus. Using a sample of over 2,300 rural municipalities from 1996-2018, I test whether marijuana liberalization further impacts Mexican municipalities more suitable to marijuana cultivation relative to those less suitable by interacting temporal variation in the adoption of marijuana laws in the US with municipality-level variation in marijuana cultivation suitability in Mexico. My results show that US marijuana laws have led to a large and statistically significant reduction in both marijuana cultivation and gun-related homicides in Mexico as well as an increase in legal agricultural output. I find that US marijuana liberalization through 2018 induced a further decrease in cultivation of 27 percentage points in a Mexican municipality in the top decile of suitability compared to one of average suitability, and a further decrease in gun-related homicides of 17 percentage points. The increase in legal agricultural output provides strong indirect evidence of a change in marijuana cultivation, as these poor rural Mexican municipalities look to replace the income lost to marijuana production in the US. I use the same interaction of marijuana suitability and liberalization as an exogenous instrument to show a causal increase in gun-related homicides due to illegal marijuana markets in Mexico. I find a 10% change in marijuana cultivation leads to a 1-6% increase in gun-related homicides. US marijuana liberalization ultimately lowers violence in Mexico, underscoring the role that US drug demand plays in the violent drug war in Mexico.

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