Cannabis & Capitalism - What's Done in the Dark Series Part 2

In this second installment of the What's Done in the Dark Series, we continue to explore the trade of illicit goods in the United States, namely, the fledgling industry for legalized marijuana sales.

The ad below debuted in Times Square, New York City, March 2010:



In Times Square no less! And earlier this month, a major television network debuted a 1-hour special on the Marijuana Industry in the United States. This macro level view is causing a lot of micro level conversations between regular people in their homes, at their colleges and on their jobs. For decades, the use of this Level 1 drug has been banned in one of the world's most economically progressive countries, while in others, it is accepted and profitable for both the state and the people. The occurrence of the television special itself - much less the content - is evident of changing normative opinions here on the home front.

A bit of history for the buffs: Marijuana is a close relative to industrial hemp; both strains are of the Cannabis genus which is believed to have originated in central Asia. For millenia, mankind has harvested this plant for medicinal, recreational, practical, and ritualistic use. Tribesmen in Africa employ herb to commemorate life's seminal events. Inhalation and ingestion results in a more holistic and vivid appreciation of the natural world and a change in one's level of consciousness. Yet no one person has ever overdosed or died from its use**. Past Presidents George Washington and Thomas Jefferson cultivated and profited from hemp during the dawn of our great country's birth. While marijuana for recreational use is regulated but permissible in countries such as Holland, Portugal and Spain, it was first decriminalized by Oregon (for non-medicinal use) in 1973, right here in the good ol' U. S. of A.!

The 1937 Marihuana Act imposed a nominal $1 tax on all shipments of the plant and a lot of bearucratic red tape on all market participants*. This era also witnessed the effect of the media on societal attitudes. Mogul William Randolph Hearst used his holdings in the publishing industry to further his personal opposition to the "Killer Drug," alongside Federal Bureau of Narcotics agent Harry Anslinger. The movie poster above is from the 1936 film of the same name. From 1937 until 1970, marijuana was technically legal, (though taxed) but America outlawed the "burning weed" at last, forty years ago. Data from the shadow economy reveals that consumption of the distinct leaf has proliferated during this time, to no wonder. Prohibition has a funny way of increasing the propensity to acquire the banned good.

The MSNBC documentary follows restaurateurs and chefs who specialize in edible pot recipes; a necessity for those who seek the herb's medicinal properties but can't or won't inhale. The myriad practical uses for the ubiquitous plant has placed it squarely on the radar of economists worldwide.

We first encountered Harvard economist Jeffery Miron on this blog last year. Since then, Dr. Miron has become a foremost voice on the practical, economic benefits of legalization. He often looks to the success of regulation in other nation's as well as the tumultuous history here that led to it's current banishment. He rationalizes - using economic theory and quantitative forecasting - that the savings the nation would retain from reducing law enforcement come out to about $7.7 billion annually. Similarly, he adds that proper taxation would add amounts of up to $6.2 billion to the budget coffers. You can read more on Miron's research here.

ECONtreprenuers nationwide have been and continue to capitalize off of cannabis. Much like the Gold Rush of the 1840s or the Internet Boom of the 1990s, independent dealers and businesspeople are making a dash to claim their stake in this wildfire (pun intended) market. While official sources of the size, composition and smoking habits of the American consumer base are scarce, a noteworthy reference is PriceofWeed.com. Let us step back and stress that The Delasol Group does not endorse the manufacture or sell of illegal drugs. But we do admire efficient economic ideals, and this website is just that.

Anonymous users can submit their location and the most recent price paid/weight received for (presumably) recreational quantities of the drug. An accompanying blog goes into some detail on the statistical adjustments to the data to cull out pranksters and others who would put in false values. Nonetheless, it gives the casual browser (another pun!) a chance to compare costs from city to city across the U.S.

We here at delasol would be interested in more social metrics from the hardworking people at priceofweed.com. What about a (anon.) user survey on usage, experiences (positive/negative), budget, networking, customer service and general etiquette on navigating the perilous corners of the shadow economy?? We specialize in survey design and implementation, as well as market research, so an economic partnership may be in the makings!


cheers,

delasol


* Obtained from this site.
**courtesy of the Centers for Disease Control This is a .pdf and the CDC data is on the last page.

The Nutcracker, What's Done in the Dark Series Part 1

Happy Holidays from The Delasol Group!

In this first installment of the What's Done in the Dark Series, we explore the prohibited sale of alcohol in our communities. Our harmless post title belies the true nature of the nutcracker, and we don't mean the soldier in red.

In modern day Harlem, USA, a nutcracker is a horse of an entirely different color. Nutcrackers are potent mixed liquor drinks advertised on colorful flyers and sold in doorways and on corners throughout the borough.

Delasol founder Suneye Holmes first encounted the concoction at the annual African-American day parade in 2008. She remembers receiving flyers and business cards in broad daylight at the family affair, "as though selling liquor without a license is even legal!!"

The watered-down marketing techniques only serve to make the beverages appear more accessible and less suspicious to potential buyers.

$5 is the going price for a sealed plastic bottle of a Styrofoam cup of the drink. Vendors are composed of women, blue-collar workers, the underemployed and the requisite hustler-type. Buyers are usually underaged, underemployed or both, though young professionals and family-types are not uncommon. Obviously there is a need to regulate for the protection of the community: youths should not be inebriation and we need to know what's in those cups!! This area of the shadow economy highlights the need for accountability, order and consumer protection laws.

A typical investment is $250 for alcohol and fruit chasers. A typical return is $700, or $2.80 received for every dollar spent on ingredients.

The manufacture and sell of homemade mixed drinks is the stuff stories are made of in Manhattan. 80 years ago, people were just as enthralled with passing the time with an illicit elixir. But just like then, law authorities today are determined to quash the occurence. Equating the unauthorized sale to that of endangering a minor or child abuse, they are pouring out suspicious contents and passing out summons on the street. Recessions have a funny of increasing ECONtrepreneurship...and the fuzz.

Thanks to the NyTimes.com site and Harlem World, USA for much of the research for this blog.


cheers,

delasol

What's Done in the Dark (Series Preface)

By definition, entrepreneurs are risk-takers. They take on the risks of gathering, organizing and profiting from economic resources: the natural land, financial, investment and human capital, and their own blood, sweat and tears.

Entrepreneurs, at some point in time, created businesses to market and distribute all of the products that we buy today, whether it's a physical good (like a volleyball) or a service (like going to get your taxes done). Businesses choose prices to sell their products for that are competitive with other firms. People choose which products to buy based on price and quality, among other factors.

In every country, the sale of illegal products is present to some degree. In the United States, it is estimated that outside of our booming $14.8 billion legal economy*, a $1-2 billion "Shadow" economy exists, though the numbers will vary from source to source. Government agencies, such as the Bureau of Economic Analysis (BEA), gather economic data from the paper trail left by people and businesses spending their incomes. But when the transactions are cash-based and neither the seller nor the buyer reports it, the government misses it. The Shadow Economy gets its name from this phenomenon; since we can only estimate it's size, there is much data than can be brought into the light.

This underground economy takes several forms and (on this blog) it is composed of any economic activity that takes place "off the books" or "under the table." Here are some common examples:

Transportation Services - When in New York City, you as the Yanks do: hop a ride in either a licensed Medallion (usually yellow) Taxicab, or in a mysterious black town car known only as a "gypsy cab." While both offer the same service, Medallion taxis actually have a medallion fixture on the vehicle; gypsy cabs lack this identifier, however, there is more room to barter with the gypsies (in our experience) and they are ubiquitous in the neighborhoods of the City, often preferred when yellow cabs are deemed overpriced or inaccessible. Medallions and their cabs are strictly regulated by the NYC Taxi & Limousine Commission.

Prostitution Services - The world's oldest vocation probably because of perpetually high demand and incomes. Usually shunned because it's obnoxiously labor-intensive. Arguably a low-skills position - pun intended - but the physical and mental stress, as well as the uneven distribution of said income negates most gains. Prostitution is illegal in the United States, but things are definitely done (and paid for) in the dark. The Netherlands legalized this one in 2000 and regulates it to date.

Weapons - The shadow economy provides the means for obtaining guns and ammunition that a government bans, perhaps via smuggling from another country or pilfering from domestic manufacturers. Often, it is the case of someone having a weapon they are ineligible to posses, because of an existing criminal record or maybe a documented mental illness. Rogue governments acquire guns illegally too, and some use them to start covert wars.

Alcohol & Tobacco - Prohibition of alcohol ended in the U.S. because Americans were still drinking and (because?) the economy was in dire straits. From 1919 to 1933 it was illegal to buy, sell, make or deliver alcohol in this nation. The amount of liquor consumed fell, but the number of illegal speakeasys and criminal activity in general rose during this period. The Twenty-First Amendment repealed the Noble Experiment. The U.S. Archives estimates that in New York City alone, in 1925, there were at most, 100,000 speakeasy clubs, offered the gamut of vice goods! Today, New York authorities are struggling with the manufacture and sale of homemade mixed drinks on the street called Nutcrackers.

Copyrighted Media - Think: bootleg. Your friendly local convenience store hookup; outside the store, that it. Whether you make a hand-to-hand transaction or search for that new movie or song online at little to no cost, it's all under the table and out of the light. The artists would argue that a higher fee is owed them for their work.

There are other markets that could be listed here, but delasol wants to emphasize that this list is not to suggest that the shadow economy is composed entirely of illegal activities. We define the shadow economy as including economic activities that are cash-based in nature, the result of bartering, or just outright illegal. Many cash-based businesses are perfectly legal, such as gambling in some American cities. And bartering, of course, is a matter of an agreement between the seller of a good or service and a buyer.

We will begin a new series on this blog on the economic implications of a dynamic underground economy. The first installation will be about the changing illegal drug trade in the U.S. as marijuana appears to transition from a high societal cost to a potential cash cow.


cheers,

delasol


*3rd quarter 2010 data (.pdf) from the Bureau of Economic Analysis

Pre-Paid Debit vs Checking and Credit

An emerging financial market in recent years is the Pre-Paid Debit industry. Marketing as been particularly successful in the aftermath of the 'Great Recession' of 2008, caused primarily by credit on crack.

That one's for Wall Street. 

Pre-Paid issuers, such as Young Money records, Wal-Mart, Russell Simmons and even the Kardashians have enjoyed relative profits as many consumers appear to prefer cash/debit transactions over more debt.

After a conversation earlier this week with a fledging ECONtreprenuer in Atlanta who is a musician/aesthetician/ESL instructor, we decided to devote some blog space to the Pro and Con of the Pre-Paid Debit Card - Fees! - to help inform persons considering their usage.

• User be informed - Fees ahead!

In the October 22nd posting on record label Young Money's venture into the prepaid market, we featured a chart of fees from the RushCard website. With cash that you save and stuff inside a mattress, there are no fees to pay! As an economic tradeoff, however, there is also no interest to earn.

In a checking or savings account, it will vary from bank to bank (or credit union) if you have fees to pay. Ask questions if you are unsure if you will have to pay a fee to keep you money in the bank of your choice.

A Pre-paid debit card - such as the wildly successful RushCard - is NOT a debt instrument, so your credit stays intact! You only spend what you deposit into a pre-established account. Fees abound, however, for Initial Activation, Monthly Maintenance, International/Domestic transfers, Adding Money to you account and more. Understand that the amount that you deposit may not be the final balance after the necessary fees are deducted.

For example: The most popular reloadable prepaid debit card in America, the WalMart MoneyCard, charges $3 as a monthly maintenance fee, $3 to reload the card with more cash, $2 to withdraw cash at an ATM or a bank teller, and $1 to find out your balance at an ATM.
As prepaid cards go, that’s a good deal. Other cards charge a lot more, according to a September report by Consumers Union, the nonprofit publisher of Consumer Reports. One striking example is the Kardashian Kard, which has a $9.95 activation fee and charges $7.95 per month, with a $1.50 fee to call customer support and a $6.00 fee to shut down the card.**

Spend Wisely!

delasol



**Courtesy of the Christian Science Monitor 

Liquid Assets

Liv-ex is a UK-based company that brokers investments in wine.

Yes, wine. That most liquid of assets for oenophiles worldwide. Indeed, Delasol Group Founder Suneye Holmes has in recent years partnered with longtime friend Erica E. to promote informed wine tasting and choosing, at an economical rate, of course.

Liv-ex is an index of 100 wines that are very old and very delicious. Most of them hail from France - Bordeaux, primarily - but also from other countries as well. Wine is a "vice indicator," that is, a guiltly obsession that usually fares well whether the economy is making a lot or a little money for households and businesses. As of November 30th, wine as an investment is doing remarkably well compared to last month and the last year:

Presumably, "vice indexing" can help investors win at the expense of the weakness' of households. During economic downturns - such as the 18-month 'Great Recession' just survived - vice assets such as alcohol, tobacco and wine tend to increase sharply. Even moreso than during the peaks & recoveries.

Investing is as quantitative as decision as it is qualitative. That is, earning profits is as important as putting your money where your mouth (beliefs) is. At the pursuit of profit, entire civilations have been obliterated and cultures lost forever. When your economic decisions reflect the values and principles you want your future children to know, the return is far greater than gold.

While DLS has no holdings in wine, we are partial to grapes from Israel, South Africa, California and Argentina.

Happy Investing,

delasol