Planet Money
12:54 pm
Wed May 22, 2013

Go East, Young Marijuana Dealer

Originally published on Wed May 22, 2013 4:40 pm

Chuck used to sell marijuana in California. But the legalization of medical marijuana in the state meant he was suddenly competing against hundreds of marijuana dispensaries. So he moved to New York, where marijuana is still 100 percent illegal. Since making the move, he says, he's quadrupled his income. (For the record: His name isn't really Chuck.)

He spends pretty much every day dealing what he calls "farm-to-table" marijuana. On a recent afternoon in his dimly lit New York apartment, he was just about to complete a daily ritual: loading about 50 baggies of marijuana, worth a total of about $3,000 into his backpack, before heading out to make deliveries. "We're helping keep people stoned on a Friday night in New York City," he said.

Eighteen states and the District of Columbia have now legalized marijuana, either for medical use or for fun. And, it turns out, when one state brings an underground market into the mainstream and another doesn't, there are economic consequences in both places.

Dealers aren't the only ones with an incentive to move marijuana out of California. The legalization of medical marijuana led to a rush of pot farmers with permits to grow marijuana legally. That in turn led to a supply glut — and plummeting wholesale prices. Some growers haven't been able to unload all their crops at the price they want on the local, legal market. So they break the law and send it out of state.

Special Agent Roy Giorgi with the California Department of Justice is supposed to stop the illegal flow of marijuana in California. That can mean crouching in the brush in some remote part of the mountains, or it can mean heading to a FedEx or UPS in California's pot country to take a look at all the outgoing parcels and try to detect marijuana inside.

He estimates that 1 in 15 packages he examines has marijuana in it. "Right now, Northern California bud, that trademark, that stamp, is really some of the best in the world," he says.

Of course, all of Giorgi's efforts to catch marijuana growers and dealers tend to drive people out of the illegal marijuana business. That, in turn, means Chuck has less competition — and can charge higher prices.

Chuck sells marijuana for about $60 for an eighth of an ounce; in California, it would be anywhere from $30 to $45. With his New York customers, Chuck talks about marijuana like it's a rare California wine. When he pours out the contents of his backpack to reveal strains with names like Girl Scout Cookies and AK47, his clients are wowed.

Because Chuck is working in an illegal market, his customers have a hard time finding other marijuana retailers. "There's plenty of weed in New York; there's just an illusion of scarcity, which is part of what I'm capitalizing on," he says. "This is a black market business. There's insufficient information for customers."

This is what economists call information asymmetry: Chuck knows more about the market than his customers do. If weed were legal, his customers could comparison shop — they could look at menus and price lists and choose their dealer. As it is, once they find Chuck, they're likely to stick with him.

Note: A version of this story originally aired as part of the WNYC series The Weed Next Door. The headline on this post was inspired by @MichaelMontCW

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MELISSA BLOCK, HOST:

And I'm Melissa Block.

Nearly 20 states have now legalized marijuana, mostly for medical use, though in some cases for recreational use. And strange things happen when one state brings an underground market into the mainstream and another doesn't. It turns out, marijuana dealers who've suddenly found their business legal often find themselves making less money. So, some hit the road.

Reporter Marianne McCune, of WNYC and our Planet Money Team, has the story of one California dealer who went to New York for higher profits, and the special agent he left behind.

CHUCK: Greetings from the frontlines of the assaults on sobriety.

MARIANNE MCCUNE, BYLINE: This is Chuck. That's what he wants to be called. He's a San Francisco pot dealer.

CHUCK: Welcome to the war on drugs.

MCCUNE: But we're going to make him sound like this.

CHUCK: I'm happy to report that drugs is winning.

MCCUNE: Mmmmm, maybe more like this.

CHUCK: You're tuned to WNYC, bourgeois assimilationists...

MCCUNE: OK, the point is we've agreed to change the guy's voice. And here's where we've settled.

CHUCK: Hi. We're helping keeping people stoned on a Friday in New York City.

MCCUNE: Chuck came to New York from California to sell weed because here in New York, where his trade is 100 percent illegal, he can make more money. He spends pretty much everyday dealing what he calls farm-to-table marijuana. To get ready, we step into the bedroom.

CHUCK: This is it - a pile of clothes, a pile of weed, a bed to sleep on.

MCCUNE: He puts the pile of weed into a backpack and we head to the subway.

Hey, before we go can you tell me how much you're carrying?

CHUCK: I don't know but I'm going to guess six ounces?

MCCUNE: That's about 3,000 bucks worth. If police could nail him for selling just what he has on him right now, he could go to prison.

On the way down to the subway platform, we pass right by a cop.

CHUCK: I just stroll past nonchalantly.

MCCUNE: This danger of being caught and jailed, Chuck is choosing this risk. He left a state where he could have sold marijuana in a storefront and came to a state where he has to deal under the table - in this case, literally. Right here in a downtown diner - one of our first stops - he passes a baggy under the table to a client, who folds his cash into the pages of a book and passes it back.

Welcome to the contradictory-seeming economics of the nation's fast-changing marijuana laws. The rise of medical marijuana in California is, strangely enough, what drove Chuck to New York. And here's why. Since the state of California made medical marijuana legal 17 years ago, hundreds of dispensaries have opened up. With the rise of the dispensaries, illegal dealers like Chuck, they lose customers - too much competition.

And its competition with a serious edge. Not only can the dispensaries advertise and operate in broad daylight, their customers don't have to break the law every time they score. And in California, almost anyone can get a prescription.

CHUCK: People who retail weed the old fashioned way, like myself, I saw my business falling off. So, my idea was, OK, why not move to New York where I would probably have success.

MCCUNE: Chuck said, I'll buy in California and I'll sell it to New Yorkers. A good plan because New Yorkers will pay $60 or more for an eighth ounce of the stuff he sells, compared to 45 or much less in California. But then came the next challenge: How to get the weed from California to New York. How to get it past people like Special Agent Roy Giorgi?

ROY GIORGI: How can you not hear that?

UNIDENTIFIED MAN #1: (Singing) At a truck stop diner...

MCCUNE: I usually catch Giorgi on his cell, driving through the foothills of the Sierras with the radio on.

GIORGI: Can you hear the music?

(SOUNDBITE OF RADIO DIALS)

MCCUNE: Giorgi is with the California Department of Justice. And he and the other guys on his task force spend their time trying to catch and arrest illegal growers and dealers.

GIORGI: We're actually arresting people that are shipping it all over the country.

MCCUNE: One easy place to look - the FedEx or UPS in, say, Humboldt or Mendocino Counties - California's pot country. Giorgi and his guys will stop by and sort through all the outgoing packages looking for marijuana.

GIORGI: We'll spend one hour out there and identify 30 parcels.

MCCUNE: And that's looking at how many parcels, total?

GIORGI: I don't know the exact percentage. But about one out of every 15 going by is usually a good one. And...

MCCUNE: That's amazing.

GIORGI: It is, it really is. It's an eye-opener. You know, I got to put the phone down for a second. Hold on.

UNIDENTIFIED MAN #2: (Singing) Well, it's a winding road...

MCCUNE: California weed has been flowing east for decades. What's new, Giorgi says, is all the would-be medical marijuana heading out of state. It's what Giorgi calls the White Boy Ranch Grows: thousands of small pot farmers with permits to grow legally for themselves and the dispensaries, but who still choose to sell on the black market. The same economic forces that drove Chuck out of California are driving growers to ship their crops east, as well.

GIORGI: That's a whole 'nother side now. And that's where the eastern states are getting impacted.

MCCUNE: Basically, with the rise of medical marijuana, came a rush of pot farmers. With a rush of pot farmers came a glut of supply. And with the glut of supply, wholesale prices plummeted. Some growers haven't been able to unload all their crops at the price they want on the local legal market. So why not send it out of state, to where it's less a commodity and more of a brand with clout?

GIORGI: Right now, Northern California bud, that trademark, that stamp is really some of the best in the world.

(SOUNDBITE OF OPENING A PACKAGE)

CHUCK: You should smell this stuff, really super citrusy.

MCCUNE: With customers, Chuck can talk about marijuana like it's a fine California wine.

CHUCK: Tangerine.

MCCUNE: When he pours out the contents of his backpack to reveal the broad range of flavors that marijuana dispensaries have helped to popularize, his clients are wowed.

CHUCK: It's all from California.

MCCUNE: The combination of Chuck's old-school authenticity and boutique product, not to mention his dependable service, it's an alluring package to the class of New Yorkers he serves. One guy asks, are you a delivery service? Chuck explains he's more of a mom and pop shop.

CHUCK: I'm kind of just a mom and pop shop.

UNIDENTIFIED MAN #3: That's even better, man. I'd love to become a client.

MCCUNE: Chuck's move to New York - his wager on a city with no marijuana dispensaries, but a taste for California's finest - so far, it's paying off. He says he's quadrupled his income since he moved here. And there's one more reason Chuck's business is doing so well. It's because the people who are working to stop him are, at the same time, giving his business a boost.

GIORGI: I may lose you. I'm going over some mountains here.

MCCUNE: Special Agent Roy Giorgi is now on his way back from a remote part of the mountains, where he was lying quietly in a creek spying on a couple farmers planting marijuana on public land.

GIORGI: Yeah, kind of a miserable, cold morning but well worth it. We got some great footage.

MCCUNE: What did you see?

GIORGI: We had three Hispanic gentlemen, two were wearing camouflage and...

MCCUNE: Giorgi and his task force, they work night and day to catch anyone growing or selling marijuana underground - whether it's Mexicans growing on public land, Asians growing hydroponically, or the white boy ranchers selling would-be medicine on the black market. But all that work Giorgi and law enforcement across the country do to catch the bad guys - to disrupt the illegal flow of marijuana - if they don't manage to find Chuck, they're actually helping him because the harder they work to stop him, the riskier it is to do his job. And that means Chuck has fewer competitors. He can charge higher prices. Here he is counting a fat wad of bills.

CHUCK: Sorry about this. In white Protestant culture it's considered to be gauche to flash giant wads of money in front of guests but we'll just do it anyway.

MCCUNE: There is one more advantage of working in an illegal market. The competitors Chuck does have are kind of hard for his customers to find.

CHUCK: There's plenty of weed in New York. There's just an illusion of scarcity, which is part of what I'm capitalizing on.

MCCUNE: What do you mean?

CHUCK: Because this is a black market business, there's insufficient information for customers.

MCCUNE: In economics, it's called information asymmetry. If weed were legal, Chuck's customers could comparison shop. As it is, once they find Chuck, they're likely to stick with him.

So, Special Agent Roy Giorgi and Chuck, on the surface they're enemies. But in a way, these two guys can't succeed without each other. Giorgi is, in some small part, inflating Chuck's profits. Chuck, he's helping to keep Giorgi employed.

Why do you do what you do?

GIORGI: Wow. I think it's really the overall love for the job. If we weren't working the level we are working, it would spread from what's going on in Mexico up into California. It's very self-rewarding. It kind of becomes your high.

UNIDENTIFIED MAN #4: (Singing) Tomorrow will be better. Can I call you then?

MCCUNE: OK, if every law enforcement agent across the country were as aggressive as Giorgi and his guys - if they could check every tractor trailer, every Greyhound bus, every suitcase and cardboard box - Chuck would be out of business. But as things stand, there's just enough law enforcement to weed out the competition and not enough to scare Chuck away.

CHUCK: I'm going to guess the law enforcement priorities that I'm not near the top.

MCCUNE: Chuck makes dealing weed look so easy. Before I leave him to finish his deliveries on his own, he takes a risk he says he rarely does. He's about to meet up with a couple of regular customers, but he can't figure out where to do the deal. So he just does it right there on the street in plain view.

CHUCK: I guess here we'll have to do it.

MCCUNE: A neighboring building super puts out the recycling and watches suspiciously from a few feet away. And Chuck walks away with 400 more dollars. That's what he's here for. Marianne McCune, NPR News, New York. Transcript provided by NPR, Copyright NPR.

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