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The Elder Scrolls III: Morrowind Hints
Why won't traders do business with me if I'm carrying moon sugar?
1 of 5: It's a controlled substance, and they don't want to lose their licenses.
2 of 5: Many people smoke skooma, which is made from moon sugar, so it's illegal, too.
3 of 5: Just drop the contraband on the floor, do your bartering, and then pick it back up.
4 of 5: But not all traders shun illegal drugs. Some known buyers are Ra'Virr in Balmora City and Ajira in the Balmora City Mages Guild.
5 of 5: Other buyers for skooma (but not moon sugar) include the Creeper and the talking Mudcrab merchant. See the following link for more info on them.