A NYC Micro-Economy: Cigarette Arbitrage

There’s an interesting article in the NY Times today about the underground market for the sale of “loosies” – loose cigarettes.

“Rarely does a minute go by without a customer stopping just long enough to pass a dollar bill to Lonnie Loosie, known to the police by his given name, Lonnie Warner, 50. They clench the two “loosies” — as single cigarettes are called — that he thrusts back in return.

Soon Mr. Warner’s two partners, both younger men, arrive for the day and fan out along the same block. By midmorning, the block to the south is occupied by Carlton, who sells loosies, as does Carlton’s younger brother, Norman, 54.

A few blocks north, another man sells cigarettes near a check-cashing storefront. Add to these a few roving vendors who poach territory when they can.”

So right away we see some common business traits:  employees, territory, and competition!

““The tax went up, and we started selling 10 times as much,” Mr. Warner said. “Bloomberg thinks he’s stopping people from smoking. He’s just turning them onto loosies.””

Perhaps a  Laffer Curve effect?

“Mr. Warner said he bought his cigarettes — almost always Newports — for a bit over $50 a carton from smugglers who get them in states like Virginia, where the state tax is well under a dollar a pack. He then resells them for 75 cents each, two for $1 or $8 for a pack ($7 for friends).

Mr. Warner said he and each of his two partners took home $120 to $150 a day, profit made from selling about 2,000 cigarettes, mostly two at a time. Each transaction is a misdemeanor offense.”

Importing, distribution, bulk to retail pricing, arbitrage – the underground Loosie Biz has it all.

“In the four years since he began selling cigarettes, Mr. Warner recalls being arrested 15 times, generally on the charge of selling untaxed tobacco. He has been arrested so often that he can recognize 10 different plainclothes police officers, he claims. The ever-present risk of arrest makes working with partners valuable — “we have six eyes on this block,” he explained.

Over many court appearances, Mr. Warner has made a favorable impression on the lawyers in Midtown Community Court, who know him as Lonnie Loosie and consider him better company than the typical misdemeanor defendant.

“There are people who are known bad guys, and then there’s him,” said Russell S. Novack, the Legal Aid lawyer who represents many of Midtown’s hustlers, prostitutes, shoplifters and public drunks. “He’s like the goodwill ambassador of Eighth Avenue. And when he comes into court, he says hello to everybody.”

Public relations!  Lonnie Loosie is the Goodwill Ambassador of 8th Ave.

But it’s the last few tidbits of the micro-economy that I found most interesting:

“Mr. Warner carries only one or two cartons of cigarettes in his backpack, because that is the most he cares to lose should he be arrested. So each time he and his two partners run out, Mr. Warner takes the train up to Harlem, or walks a few blocks east to meet one of his half-dozen suppliers, mostly immigrants from West Africa.”

Risk management!  Brilliant.  And he’s got local suppliers/storage guys working for him too. Pretty impressive.

“There are also deliveries to make. Mr. Warner is constantly on his cellphone scheduling meetings in the lobbies of office buildings, where he will drop off a pack. “A lot of customers, especially women, don’t like coming out to the block,” he explained. “They think it’s too hot.””

I’m pretty impressed that Lonnie has a delivery mechanism.  I mean, forget Amazon Prime, Lonnie will bring you two loose cigarettes! It’s like the tech bubble days of Cosmo.com all over again!

But the coup de grace:  Lonnie has figured out how to provide himself with health coverage – the bane of every small businessman:

“He currently relies on his periodic stays on Rikers Island — an occupational hazard — for medical attention. “When they screen me, I ask for all the blood tests,” he said.”

Where there’s a will, there’s a way.

-KD

 

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