When I was growing up, drug dealers always seemed to have cushy jobs that were a license to print money. But what are the actual economics behind the legal and illegal sides of the marijuana industry?
When you're in high school and college, selling weed seems like a dream job on par with race car driver or pirate. The access to drugs ups your social cache, you make your own hours, and you can get high whenever you want. I assume that pretty much everyone between the ages of 15 and 25 has dealt drugs, or seriously considered it, or at least fantasized about the ways they would avoid the cops while raking in that sweet, sweet drug cash. I would sell only to trusted classmates and refuse to talk business over phone or computer except by way of an elaborate code that might fool cops and parents. All in all, a perfect plan.
So why doesn't everyone cash in? Well, to begin with, even though the people I bought weed from as a teenager were far from cool or tough in the traditional sense, they clearly had some kind of savviness or street wisdom that I lacked. I have no idea where they were getting their drugs from, but I assume at some point dealers have to handle interactions with sketchy people who are either their suppliers or their suppliers' suppliers. Every dorky kid slinging dime bags at the Jewish Community Center is only a few degrees of separation from a dude with a gun.
Nevertheless, even in hindsight, the weed merchants of my youth appear to have gotten off scot-free. As far as I know, no one I ever bought from got arrested, or even suspended. In my mind, selling weed would have enabled me to save more money than I did through my grunt labor at Panera Bread, Firehouse Subs, Pollo Tropical, and a litany of other fast food restaurants.
But were any of those dealers I knew making any real cash? With so many weed dealers roaming America's campuses and 7-Eleven parking lots, is the market too crowded? And has the loosening of weed laws helped or hurt dealers looking to get rich? To find out, I hit up people in both the illegal and legal marijuana trades to see who—if anyone—was cashing in.
I started with a college student I'll call Darren. The Manhattan native got into selling weed two years ago when he was behind on rent. He and a friend pooled together $120 each and bought an ounce from an old high school buddy, then went to Ace Hardware, bought some baggies, and started offering delivery for orders as low as $15.
Because Darren was wiling to haul ass around NYC for the tiniest amount of money, people started hitting him up slowly but surely. The fact that he doesn't smoke made it easier to turn a profit. When he and his partner doubled their money, they went back and asked for two ounces, and managed to haggle for a discount. Two weeks later, word had spread to other dealers in the area.
"Now this is where people started figuring out who's entered the market," Darren says. "Word moves quick." Another old acquaintance sent a text offering a quarter pound of weed, and a menu of choices.
"So like I was getting shit like Blue Dream, Cookie Monster, Girl Scout Cookies, Platinum Kush, Blackberry Kush, White Nightmare," Darren says. "I was like, 'What the fuck?' And he was willing to put it on the arm, which means on credit."
The new arrangement was that Darren had two weeks to pay back the price of the quarter pound, which was easy, he tells me, since he and his friend were the only dealers selling any exotic strands in their area. About a month or two after that, another old friend texted with an offer to front an entire pound, which was about the size of a bed pillow. The friend also didn't care about when he would be paid back.
This sort of friendliness is incredible to me, but one of the big things I learned from Darren is that most of the weed world seems to operate around credit. As he explained, though, "Why would you run off with a pound that would sell for $2,000, when the potential in the long run is worth so much more?"
The second lesson I learned was that middle-tier dealers are making a lot of their profits doing flips, or moving big amounts of weed for tiny amounts of money to other dealers below them. It seems obvious in retrospect, but they're basically selling the fact that they have a connection.
"There's a guy I sell an ounce to for $200," he tells me. "He'll literally sell the ounce to some other dude for $220, and it's an easy $20 for less than 30 minutes of his time, so he'll come back and do it again right away. Sometimes it feels like you're not even selling weed."
Darren's been dealing for three years now, and he's moving a pound or two every week and a half. The guy above him, he says, is moving anywhere from 20 to 50 pounds a week, but still doesn't consider himself a kingpin, or even big-time.
Darren has no desire to get to that level; he wants to pass his business onto someone else when he graduates from college. But if he kept with it, he might come to resemble a dude I'll call Brian, who makes big bucks running drugs as a full-time business.
Brian claims he grosses half a million a year, which comes out to about $250,000 after payroll and other expenses.
Brian's been in the weed business for about three years and has watched it become even more lucrative in that time. A pound used to cost $4,500, but now he can get one for $3,330 or $3,800. "Retail prices haven't changed at all," he says. "That means a lot of people are making good money now because wholesale has gone down so much."
On paper, Brian makes next to nothing, about $15,000 a year. He has an LLC officially set up in Delaware, where taxes are lower, and now employs an uncurious accountant and a handful of deliverymen to do the schlepping he's grown tired of doing himself.
Brian claims he grosses half a million a year this way, which comes out to about $250,000 after payroll and other expenses. Despite this, he doesn't consider himself big-time, either.
"Big-time guys are out in California and have connects to multiple farms," he insists. "They fly out here, arrange things, fly back and make sure everything is packaged correctly. They do that twice a year and make a million each time and are chilling in California the rest of the time."
Brian tells me that he knew quite a few people who had been robbed, which highlighted one of the big downsides to selling weed illegally. The thought of that looming risk, coupled with his comment about big timers having connects with Cali, though, made me wonder about the other side of the weed business—the legitimate side. Was it easier to make money selling weed the legal way?
To answer that question, I called up Anthony Franciosi, the budding entrepreneur behind the Honest Marijuana Company, who moved to Colorado from New Jersey when he was 18 to become a marijuana farmer. As he learned to grow, he worked as an irrigation specialist and did restaurant work in the resort town of Steamboat Springs.
He got his start hawking extra buds from his harvest to a local dispensary. "I found that when I would give it to them, it was just disappearing, and they wanted even more of it," he tells me. "If I had the foresight back then, maybe I would have put some money away and got some licenses."
Instead, he found starting a farm of his own difficult. His first opportunity came in the form of a family friend who figured Franciosi was responsible enough to entrust with a $300,000 investment. The idea was to control the product from seed to sale, eventually opening a storefront. But it soon became apparent they didn't have the funds to build that kind of operation.
"They weren't really happy with the product they were gonna be able to come out with using that kind of money," Franciosi says. "Basically that whole plan just flopped on its head."
He found a second partner from New Jersey, however, someone with a bit more capital who was willing to spend $1.5 million to build a growing facility from scratch in a rural area. It's set to open early next month, and it will employ five full-time employees as well as some auxiliary help, like trimmers. Those workers will earn around $45,000 a year, Franciosi says, which is a pretty good deal considering those jobs don't require a college degree.
Overhead is a lot more complicated for on-the-books businesses like his; Franciosi not only has to pay his employees, he has to fork over a ton in taxes, without a lot of the write-offs that many federally legal businesses enjoy. Still, he remains optimistic.
Much like the illegal weed industry, the legal one seems to run on Monopoly money.
"I feel like the margins are shrinking, and that the people who got into the industry early were able to realize huge profits," he says. "I think going forward it's still a profitable business but practices just need to get better. I want to be a boutique facility—7,000 square feet as opposed to some in the state that are 200,000 square feet." In the end, he hopes to produce 90 pounds per month in flower and have it retail for $200 an ounce in Denver and around $300 in the mountains.
Obviously, having a backer to the tune of $1.5 million helps. What I learned from talking to Franciosi is that much like the illegal weed industry, the legal one seems to run on Monopoly money. While it's called "putting it on the arm" in the former, it's called "venture capital" in the latter.
Eddie Miller is one of the guys who has a vested interest in seeing small-scale entrepreneurs like Franciosi succeed. The marketing professional, who built his first website in his parents's Long Island basement at age 16, is one of the new breed of weed enthusiasts, almost evangelical in his passion for both kinds of green. He tells me he thinks it's not a bad idea for kids to skip college and head to California or Colorado, and that he knows a guy who just invested $4.5 into the cultivation side and hopes to make it all back in the first year, and that the most profitable sector in pot is technology—which is why he's the CEO of InvestInCannabis.com, a company that aims to sell infrastructure to fast-growing weed companies.
The unbridled optimism, though, made me a little weary. If everyone followed Miller's example, wouldn't all those new businesses and all that VC cash create a marijuana bubble? And what about when a couple of companies make it huge and become the Mercedes or Starbucks of weed?
When I asked would happen to the little guys, or to people who wanted to run boutique stores, Miller replied they would simply get eaten up by something like the Apple Store of pot.
I guess that makes sense. After all, there are huge companies like Anheuser Busch InBev that swallowed up many other businesses on the way to becoming global conglomerates. Just in 2015, ABIV bought the largest independent operation in California, Heineken bought 50 percent of Lagunitas, and MillerCoors purchased most of Saint Archer Brewing. It stands to reason that the economics of the weed industry will eventually resemble those of the beer market.
In Miller's vision of the future, selling marijuana won't be any different than selling DVDs or paper. Presumably that'll be nice for him and others who have gotten in on the ground floor.
"Twenty years from now you won't go into a store and ask for a gram of Khalifa Kush Bubble Hash, you'll ask for a pack of it, or a box of it," Miller says. "Everything will have been sized accordingly. The measurements by which it's sold will have changed. As soon as there's federal legalization, the tobacco, alcohol, and pharmaceutical industries will all get into cannabis."
Add the two inevitabilities of legalization and consolidation together, and it seems unlikely that tomorrow's teens will even be afforded the choice of becoming either becoming sandwich artists or dime-bag-slinging outlaws. Perhaps they'll all be working at either the Starbucks of weed or actual Starbucks.
Franciosi, the grower, says that soon most of the weed on the market will be pharmaceutical grade, and that the people with 200,000 square-foot warehouses will be forced to use pesticides and other nasty chemicals to keep up. He hopes the people who want to deal with that will be motivated to buy his stuff, which he likened to small-batch whiskey. But he also thinks the black market will probably remain an option for the foreseeable future.
"The price for drug dealers is $50 a quarter, no matter what," he says. "That's kind of a joke here, though. It's like, 'Yeah, good job, you got some for $9 a gram, and this other guy paid $17,' but you compare the two, and one's some smushed-up stuff that looks like it's been in your pocket. Still, the people that I know who are local and have been here for a long time in Colorado say the store prices can't ever compete with the underground."
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