(This story is part of a special report on the drugs trade which can be seen at: http://www.reuters.com/article/idUSTRE60D3Z720100114 )
* Mexico makes more dollars from drugs than oil
* Study shows drug money drives 20 pct of Sinaloa state
* Booming drug business may lead to "mafia capitalism"
ZAPOPAN, Mexico, Jan 22 (Reuters) - At a modern factory in a city whose main claim to fame is an image of the Virgin Mary revered for granting miracles, Mexican pharmaceuticals firm Grupo Collins churns out antibiotics and other medicines.
But the United States contends that the company in Zapopan is not what it seems. The U.S. Treasury put Grupo Collins on a black list in 2008,saying the firm supplies a small drug cartel in western Mexico with chemicals needed to make methamphetamines.
Grupo Collins, which has denied any connection to organized crime, is one of dozens under suspicion of laundering money for the nation's booming drug business, whose growing economic impact now pervades just about every level of Mexican life.
Mexican cartels, which control mostof the cocaine and methamphetamine smuggled into the United States, bring an estimated $25 billion to $40 billion into Mexico from their global operations every year.
To put that in perspective: Mexico probably made more money in 2009 moving drugs than it did exporting oil, its single biggest legitimate foreign currency earner.
From the white Caribbean beaches of Cancun to violent townson the U.S. border and the beauty parlors of Mexico City's wealthy suburbs, drug cash is everywhere in Mexico. It has even propped up the country's banking system, helping it ride out the financial crisis and aiding the country's economy.
Smuggled into Mexico mostly from the United States in $100 bills, narco money finds its way onto the books of restaurants, construction firms and bars asdrug lords try to legitimize their cash and prevent police from tracing it.
"Mexico is saturated with this money," said George Friedman, who heads geopolitical analysis firm Stratfor.
In western Mexico, drug money started pouring into Zapopan and nearby Guadalajara in the 1980s as the Sinaloa cartel bought hospitals and real estate, said Martin Barron, a researcher at the institute thattrains Mexico's organized crime prosecutors.
Now residents in the region known in Mexico for its piety say drug smugglers barely make an effort to disguise themselves.
A strip of fancy boutiques in Zapopan was financed with drug money, says Jaime Ramirez, a local newspaper columnist who has been reporting on the drug world for two decades. As well as the Grupo Collins factory in Zapopan,a nearby car wash is also on the U.S. Treasury's black list.
A local cemetery draws relatives of traffickers who were among the 17,000 people killed in the drug war in Mexico since 2006. "A lot of narcos are buried there. You should see it on Fathers' Day," Ramirez said, as a black pick-up truck with tinted windows pulled in.
Zapopan residents just shrug their shoulders when a wealthyneighbor displays traits seen as typical of a drug trafficker -- wearing cowboy gear, playing loud "norteno" music from the country's north or holding lavish parties attended by guests who arrive in pick-up trucks or SUVs.
"Living alongside them is normal," Ramirez said. "Everybody knows when a neighbor is on the shady side."
One of those neighbors was Sandra Avila, a glamorous traffickerknown as the "Queen of the Pacific," who lived in Zapopan before being arrested in Mexico City in 2007.
On a typical day in Zapopan recently, men unloaded boxes from vans in the Grupo Collins compound, near the company's private chapel and soccer field. From behind the factory's high walls, there was little to suggest it could have ties to a cartel.
"It has always been really calm,"...