Wiktionary
n. A state whose economy depends heavily on narcotics and other drugs.
WordNet
n. an area that has been taken over and is controlled and corrupted by drug cartels and where law enforcement is effectively nonexistent; "this Mexican town has become a narco-state that ships 100 pounds of cocaine to the United States every day"
Wikipedia
Narco-state (derivatives: narco-capitalism, narco-economy) is a pejorative neologism meant to express criticism of a state's policies and practices surrounding the international illegal drug trade. The terms are standard words with the prefix "narco-", defined by the Oxford English Dictionary as "associated with the trade in illegal drugs". It is a pejorative term meant to criticize and express disfavor about a government's drug policies; no state calls itself a narco-state as a neutral descriptor — thus, who uses the term, and in what context, is significant to understanding its intended meaning. For example, Guinea-Bissau has been called a "narco-state" due to government officials often being bribed by traffickers to ignore the illegal trade.