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News & ArtsTuesday, May 5, 2009
Economy Re: Pizza and Pot
Posted by Dominic Holden on Tue, May 5, 2009 at 10:56 AM
David Mendoza, the owner Pazzo's Pizza, made his dough every way he could: baking pizza, running a theater, operating a construction company, importing hash. Now he's accused of trafficking a ton of marijuana from Canada. Whatever brought in bucks without hurting someone, legal or illegal, he did it. But when his profit mode was legal, he seemed willing to fork over the taxes. I mean, you can be sure as shit that the government would charge him with tax evasion if his legal businesses weren't paying taxes. But when it was allegedly illegal, he didn't—he couldn't—pay taxes on it.
Here's the math on where our money would go: If importing that one alleged ton of marijuana were legal, Mendoza would be paying the government its share of its $5 million dollar street value. Compared to cigarettes—which are taxed at about a quarter or more of their retail value—that would be over $1 million in revenue for schools, public health, light rail, roads (rather than this guy's second home). Instead, this minimally processed agricultural commodity, which cannot be stamped out, is illegal. So Mendoza faces a penalty of up to life in prison. Assuming Mendoza, 44, lives for 40 more years behind bars at a cost to taxpayers of $25,000 a year, he would represent $1 million in cost to all of us.
1
If it were legal, that crop wouldn't have a "street value" of $5 million, but yeah, we see your point.
2
You're not suggesting we legalize pot though are you?
NOOOOOOOOOO!!! MUST CONTINUE TO WAGE FUTILE WAR ON DRUGS!
FOREVER!
You must think of the children! Please, think of the children!
NOOOOOOOOOO!!! MUST CONTINUE TO WAGE FUTILE WAR ON DRUGS!
FOREVER!
You must think of the children! Please, think of the children!
3
If weed were legal there is no way in hell a ton would go for 5 mil. It’s no harder to grow than tobacco. I mean maybe 10 or 20 thousand for a ten (that’s 5-10 bucks a pound). 50 tops if it was really good. But the costs of production are just too low to justify such astronomical prices, especially when it’s not that hard to grow your own.
Now it of course should be legal, but let’s not pretend it’s going to generate that much revenue.
Now it of course should be legal, but let’s not pretend it’s going to generate that much revenue.
4
In Canada, (i'll wait until the groaning ends about sentences that start that way) government privacy laws forbid the CRA from telling other agencies what you report your income on. So if you made a million dollars selling pot, and you're willing to pay taxes on it, you can say "HEY I SOLD POT, HERE'S YOUR HUNDREDS OF THOUSANDS" and they can't report you to the authorities.
This also means that, if you aren't paying tax on your illegal activities (and they could somehow prove it, which...is another matter entirely, in a cash-based industry) they'll happily come after you for their 33%.
Seems sane to me. It is, after all, BC's second-largest import.
This also means that, if you aren't paying tax on your illegal activities (and they could somehow prove it, which...is another matter entirely, in a cash-based industry) they'll happily come after you for their 33%.
Seems sane to me. It is, after all, BC's second-largest import.
5
In Canada, (i'll wait until the groaning ends about sentences that start that way) government privacy laws forbid the CRA from telling other agencies what you report your income on. So if you made a million dollars selling pot, and you're willing to pay taxes on it, you can say "HEY I SOLD POT, HERE'S YOUR HUNDREDS OF THOUSANDS" and they can't report you to the authorities.
This also means that, if you aren't paying tax on your illegal activities (and they could somehow prove it, which...is another matter entirely, in a cash-based industry) they'll happily come after you for their 33%.
Seems sane to me. It is, after all, BC's second-largest import.
This also means that, if you aren't paying tax on your illegal activities (and they could somehow prove it, which...is another matter entirely, in a cash-based industry) they'll happily come after you for their 33%.
Seems sane to me. It is, after all, BC's second-largest import.
6
(argh, I got an 'internal server error' on the first one, but they both posted. sorry for the duplicate.)
7
What makes you think "Whatever brought in bucks...legal or illegal" was limited to things that didn't hurt people?
How big is a ton anyways? A truckful? That's a lot of anything to be smuggling. Where did he put it?
How big is a ton anyways? A truckful? That's a lot of anything to be smuggling. Where did he put it?
8
Not paying taxes is bad. Just ask the CEOs of major corporations who are busy ripping off the American middle class.
Oh, wait .. they never do jail time.
Is it a metric ton (MJ usually in kilos since all but the US use metric measures - e.g. 1000 kg is 1 metric ton) or is it a US ton?
Oh, wait .. they never do jail time.
Is it a metric ton (MJ usually in kilos since all but the US use metric measures - e.g. 1000 kg is 1 metric ton) or is it a US ton?
9
The IRS could still get him for not paying taxes on his drug dealings, Al Capone was caught for tax evasion and none of the other crimes he was a part of. There was an article on Digg a few years ago with the IRS' tax codes for if you made money selling drugs you must pay taxes, if you took a bribe you must pay taxes, if you stole property you must pay taxes on the market value.
10
I am generally in agreement with legalization, but #1 is dead on, so there is a gaping hole in your logic (shocking, coming from the Stranger).
11
@ 1 and 10) I was running with the AP's estimated street value for a ton of pot smuggled from Canada into Washington two months ago (which I linked to in the post). It could be more or less, depending on the increment of sale. But at $2,500 a pound (roughly $150 an ounce, or just over $5 a gram) a ton would sell for about $5 million.
12
@11, right but your arguement begins with "If importing that one alleged ton of marijuana were legal". If that were the case there is no way in hell it would sell for 5 million. If I can grow it my backyard with some seed from a bag of works there is no way someone will pay me anything close to 150 an ounce. It'd likely sell for the same amount the corn or carrots I could grow now would sell for down at the farmers markets or even less since your per plant production is much higher.
13
If they street cost of the weed were to stay the same after legalization, the government would more likely get about $4mn in taxes, since it wouldn't cost nearly that much to make it.
So it's not a $2 mn swing, it's much more like a $5mn swing.
So it's not a $2 mn swing, it's much more like a $5mn swing.
14
@ 12) The pot you would grow outdoors in Western Washington wouldn't sell for much because it would suck. All outdoor pot is low grade and sells at low prices. The stuff poeple want--especially if it were regulated--is more expensive to produce, and grown by experts. In Holland, where the marijuana trade is de facto legal, pot sells at roughly the same price (around $12 a gram) as here. The profit margins on high-grade pot aren't huge. Paying for lighting systems, irrigation, soil, electricity, rent for the location, employees, are steep. It's only about a 50 percent profit margin for many growers--legal or illegal, the cost won't change much.
15
@14, Pot is not fully legal in Holland. I can't go buy a farm or large warehouse and grow weed. The production is still very controlled.
And do you really think agribusiness would not get invloved bring about a huge drop in prices though competition and economies of scale. Look at hot house tomatoes or even orchids. They require some pretty impressive equipment to breed and grow and a whole plant is maybe worth 20-40 bucks. When things are illegal you got to keep them small or build big underground bunkers. When its legal, you can make some pretty massive operations. Greenhouses, tropical areas to grow, ect are pretty plentiful.
If I can by a pound of genetically modified or highly breed raspberries in the middle of winter for 20 bucks a pound there is no way weed is going to get more than that.
And yeah I might be able to grow great weed in my back yard here, but in California I am sure I could. Hell plenty is grown right now outside in warmer areas. I could also go buy some lamps and grow my own for not that much. Hell one plant with one light would keep your average recreational user stocked for a long ass time. At 4 pounds a plant that lamp and electricity would have to cost me 6,000 dollars for it not to make sense. Having known people who grew orchids or other shit in their house I can tell you even 600 is a stretch.
By the way a 50% profit margin is down right huge. Most farms would kill for 10% and many buisness get by on 5 or less. In fact outside of things that illegal I don;t know of any industry that gets even close to that. Far to much incentive for someone to open their own buisness and get by on 40, then 30. then 20.
And do you really think agribusiness would not get invloved bring about a huge drop in prices though competition and economies of scale. Look at hot house tomatoes or even orchids. They require some pretty impressive equipment to breed and grow and a whole plant is maybe worth 20-40 bucks. When things are illegal you got to keep them small or build big underground bunkers. When its legal, you can make some pretty massive operations. Greenhouses, tropical areas to grow, ect are pretty plentiful.
If I can by a pound of genetically modified or highly breed raspberries in the middle of winter for 20 bucks a pound there is no way weed is going to get more than that.
And yeah I might be able to grow great weed in my back yard here, but in California I am sure I could. Hell plenty is grown right now outside in warmer areas. I could also go buy some lamps and grow my own for not that much. Hell one plant with one light would keep your average recreational user stocked for a long ass time. At 4 pounds a plant that lamp and electricity would have to cost me 6,000 dollars for it not to make sense. Having known people who grew orchids or other shit in their house I can tell you even 600 is a stretch.
By the way a 50% profit margin is down right huge. Most farms would kill for 10% and many buisness get by on 5 or less. In fact outside of things that illegal I don;t know of any industry that gets even close to that. Far to much incentive for someone to open their own buisness and get by on 40, then 30. then 20.
16
@1 for the win. In a perfect world, this would be just another crop like what we used to make the US Constitution and the ropes that gave the US Navy years of joy with.
17
I'm bored so lets do some numbers. I go over to eastern Washington and buy some vacant land in eastern Washington for 100,000 and put a 10,000 sq/ft commercial greenhouse on it at $30/sqft which includes the building and all equipment. That's a capital investment of 400,000. Financed over 30 years at 10% interest is about 3500 per month.
Figuring 20 sqft a plant(pretty conservative) gives me 500 plants.
Lets assume I'll need 10 employees to water and grow the plants. I'll pay them 10 an hour with no benefits since this is agricultural work. That gives me labor costs of about 13-15 an hour, we'll take 15 since we are going for the most conservative estimate. 6 months to maturity (again conservative) is 1000 hours of work per employee so that's a total of 10,000 hours at 15 an hour which is 150,000. We'll add in our mortgage costs of 21000 and we are at 181,000. Lets add another 100,000 in water, electrical, seeds, and miscellaneous and we are at 281,000 and what the hell round it up to 300,000 just for shits and giggles.
500 plants yielding 4 pounds per plant, which is pretty low, gives me 2000 pounds of weed. That's a production cost of 150 per pound for our highly inefficient grow op. Conagra could do it for a fraction of that since they don't need to finance anything, could automate alto of the watering and fertilizing, and would use massive greenhouses. Plus the 120,000 we added on top of space and labor is way way to high. I'd actually estimate more like 20k, but am to lazy to do the research.
Go read this article. It gets into some of the economics of greenhouse growing.
http://www.omafra.gov.on.ca/english/crop…
More...
Figuring 20 sqft a plant(pretty conservative) gives me 500 plants.
Lets assume I'll need 10 employees to water and grow the plants. I'll pay them 10 an hour with no benefits since this is agricultural work. That gives me labor costs of about 13-15 an hour, we'll take 15 since we are going for the most conservative estimate. 6 months to maturity (again conservative) is 1000 hours of work per employee so that's a total of 10,000 hours at 15 an hour which is 150,000. We'll add in our mortgage costs of 21000 and we are at 181,000. Lets add another 100,000 in water, electrical, seeds, and miscellaneous and we are at 281,000 and what the hell round it up to 300,000 just for shits and giggles.
500 plants yielding 4 pounds per plant, which is pretty low, gives me 2000 pounds of weed. That's a production cost of 150 per pound for our highly inefficient grow op. Conagra could do it for a fraction of that since they don't need to finance anything, could automate alto of the watering and fertilizing, and would use massive greenhouses. Plus the 120,000 we added on top of space and labor is way way to high. I'd actually estimate more like 20k, but am to lazy to do the research.
Go read this article. It gets into some of the economics of greenhouse growing.
http://www.omafra.gov.on.ca/english/crop…
18
Dominic @14 is totally correct. You can't just throw seeds down outside and expect a valuable crop, and aside from base equipment and operating costs, tending to the plants is difficult and time consuming.
I'm interested in the unknown variables to the equation. The premise, I guess, is that the state could have saved $2m on this particular bust if the drug were legal, but I'm curious: what are the (largely unknown) hidden costs--medical, economic, or otherwise--accrued when a population consumes a pound of MJ? Certainly not anything close to $2m, but an intriguing question nonetheless.
I'm interested in the unknown variables to the equation. The premise, I guess, is that the state could have saved $2m on this particular bust if the drug were legal, but I'm curious: what are the (largely unknown) hidden costs--medical, economic, or otherwise--accrued when a population consumes a pound of MJ? Certainly not anything close to $2m, but an intriguing question nonetheless.
19
Also found this http://www.centuryinter.net/tjs11/hist/t…
Tell me why growing marijuana would be harder than tomatoes. Not to mention 1500 times harder. And why cutthroat competition would not do the same thing to the weed industry.
Tell me why growing marijuana would be harder than tomatoes. Not to mention 1500 times harder. And why cutthroat competition would not do the same thing to the weed industry.
20
Now I'm for decriminalization, but this argument seems easy to exploit and easy to knock down.
"If we legalized and taxed prostitution, we would make more money."
"If we legalized and taxed child porn we would make more money."
"If we legalized and taxed all firearm sales, we would make more money."
Somehow I think you only support the first...
"If we legalized and taxed prostitution, we would make more money."
"If we legalized and taxed child porn we would make more money."
"If we legalized and taxed all firearm sales, we would make more money."
Somehow I think you only support the first...
21
@Giffy @15, 17, and 19. Until you try growing marijuana, please don't try to lecture Dominic on the subject. It's true that it is very, very easy to grow pot, but it is also true--as Dominic argues--that it is difficult to grow good pot.
Your per-plant yield estimates are completely wrong. No one yields pounds per plant, and even if that were somehow possible, such a massive quantity would mean a reduction in quality, as weed, much like wine, is better when the plants produce less (resin production is often increased with fewer buds).
Dominic is nevertheless wrong. Whereas top quality marijuana is certainly expensive to produce, I happen to know that it is possible to have a cost to yield ratio of not more than $500/pound/month. If you are looking to double your money, that's $1000 a pound (never mind the money to made off of hash or edibles produced from the trim, worth perhaps another $500). With an increase of scale, those production costs come down somewhat, although I suspect that the decrease is offset by increased labor costs.
In any case, most of that $500/month is electricity. I know some hippies who grow using solar power, and whereas I don't know how much their array cost them, my guess is that over the long term, and given sufficient scale, they are making out like bandits.
That said, quality marijuana is a pain in the ass to grow, and your average consumer is no more going to grow weed than he is going to brew beer.
Your per-plant yield estimates are completely wrong. No one yields pounds per plant, and even if that were somehow possible, such a massive quantity would mean a reduction in quality, as weed, much like wine, is better when the plants produce less (resin production is often increased with fewer buds).
Dominic is nevertheless wrong. Whereas top quality marijuana is certainly expensive to produce, I happen to know that it is possible to have a cost to yield ratio of not more than $500/pound/month. If you are looking to double your money, that's $1000 a pound (never mind the money to made off of hash or edibles produced from the trim, worth perhaps another $500). With an increase of scale, those production costs come down somewhat, although I suspect that the decrease is offset by increased labor costs.
In any case, most of that $500/month is electricity. I know some hippies who grow using solar power, and whereas I don't know how much their array cost them, my guess is that over the long term, and given sufficient scale, they are making out like bandits.
That said, quality marijuana is a pain in the ass to grow, and your average consumer is no more going to grow weed than he is going to brew beer.
23
@21 Jesus fuck double your money! Name a business were you can do that so quickly. You clearly know absolutely nothing about buisness or competition. While your trying to double your money, I'll settle for a 10% profit and undercut the fuck out of you and walk away quite happy.
Also name an industry where it is the prime shit that sets the market. Weed, like everything, has the bulk of the market represented in crap with a top sliver of high end. Most wine sold is not a hundred a bottle, its 5-10.
And tied up, well grown and well bread plants can produce that. Sure your current operations don't get near that, but they rarely have the space or the technology. We are talking no need to be secret, strains made with the full weight of agri-science, level production. Hell cut it down to .5 pound per plant and you are still only at 600 production costs in an very very inefficient operation.
Most of the 500 you say happens now is electricity, no need for that when you can use a greenhouse in Arizona, California, Eastern Washington, or where ever.
Again, tell me how its harder than growing tomatoes.
Also name an industry where it is the prime shit that sets the market. Weed, like everything, has the bulk of the market represented in crap with a top sliver of high end. Most wine sold is not a hundred a bottle, its 5-10.
And tied up, well grown and well bread plants can produce that. Sure your current operations don't get near that, but they rarely have the space or the technology. We are talking no need to be secret, strains made with the full weight of agri-science, level production. Hell cut it down to .5 pound per plant and you are still only at 600 production costs in an very very inefficient operation.
Most of the 500 you say happens now is electricity, no need for that when you can use a greenhouse in Arizona, California, Eastern Washington, or where ever.
Again, tell me how its harder than growing tomatoes.
24
@23--Really? You'll sell for a 10% profit and undercut the fuck out of me? If that were true, the top grade weed in SF's cannabis clubs wouldn't cost $60 per eighth.
You may be able to argue that there isn't significant competition--and you'd be wrong. Marijuana agricultural production for the cannabis clubs is huge business in California. Nevertheless, top weed--which is the bulk of club sales--commands roughly $2800/lb which is then resold for $6400/lb (at $400/oz). These are not estimates or guesses by the way. These are the numbers.
In any case, as I previously stated, I agree with your argument that tax revenue from marijuana would be significantly less than Dominic suggests, but not nearly as insignificant as you argue.
No one, by the way, is going to use a damn greenhouse without also using grow lights. How is marijuana agriculture more difficult than growing tomatoes? For properly grown marijuana, you need to carefully control the light cycle. One extra minute of light (and by light, I mean light the strength of a full moon) per night can provide enough stress to turn female plants into hermaphrodites. Male flowers release pollen and your valuable sensimilia starts to produce seeds. Seed production in turn saps energy the plants would otherwise devote to resin production resulting in a product inferior in quality. And that is merely one way in which growing marijuana is more difficult than growing tomatoes.
You may be able to argue that there isn't significant competition--and you'd be wrong. Marijuana agricultural production for the cannabis clubs is huge business in California. Nevertheless, top weed--which is the bulk of club sales--commands roughly $2800/lb which is then resold for $6400/lb (at $400/oz). These are not estimates or guesses by the way. These are the numbers.
In any case, as I previously stated, I agree with your argument that tax revenue from marijuana would be significantly less than Dominic suggests, but not nearly as insignificant as you argue.
No one, by the way, is going to use a damn greenhouse without also using grow lights. How is marijuana agriculture more difficult than growing tomatoes? For properly grown marijuana, you need to carefully control the light cycle. One extra minute of light (and by light, I mean light the strength of a full moon) per night can provide enough stress to turn female plants into hermaphrodites. Male flowers release pollen and your valuable sensimilia starts to produce seeds. Seed production in turn saps energy the plants would otherwise devote to resin production resulting in a product inferior in quality. And that is merely one way in which growing marijuana is more difficult than growing tomatoes.
25
You know wines a pretty good analogy here. There is about 2-3 pounds of grapes per bottle of wine and I can go buy a bottle for under 5 bucks that's had a lot more processing then weed. Now sure there are wines made from meticulously raised grapes and processed using only the finest methods that sell for hundreds of dollars, but the I guarantee its heavily outsold by 2 buck chuck.
26
@24, The illegality destroys your arguement. I sure as hell am not going to risk jail time for a 10% profit and neither are the major corporations that while descend on the market. Look at every single agricultural commodity and find one that has that kind of profit. Why would weed be any different. It will be mass produced by agribuisness and sold for cheap just like everything form strawberries to carrots.
And greenhouses have shades. Fancy computer controlled shades that can block all or part of the sun or the moon. Go visit an orchid greenhouse someday. They have sensors placed all over and control the light, temperature, and humidity precisely. the plants are produced with fancy methods like cloning and hybridizing. Even beakers and clean rooms are involved. After all that a plant might sell for 20-40. Sure you got your 100-200 dollar plants, but those are the exception not the rule.
And again, there is weed growing outside right now in California and all across the US. Is it top quality, of course not, but it still sells. And in the end when you have 10 a pound weed on one side and 500 a pound on the other I highly doubt many are going to choose the really good shit. Sure some will, but its going to be a small minority, just like it is now with wine or other alcohol.
And greenhouses have shades. Fancy computer controlled shades that can block all or part of the sun or the moon. Go visit an orchid greenhouse someday. They have sensors placed all over and control the light, temperature, and humidity precisely. the plants are produced with fancy methods like cloning and hybridizing. Even beakers and clean rooms are involved. After all that a plant might sell for 20-40. Sure you got your 100-200 dollar plants, but those are the exception not the rule.
And again, there is weed growing outside right now in California and all across the US. Is it top quality, of course not, but it still sells. And in the end when you have 10 a pound weed on one side and 500 a pound on the other I highly doubt many are going to choose the really good shit. Sure some will, but its going to be a small minority, just like it is now with wine or other alcohol.
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