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Chapter 42: Tobacco
🕑 Added 2024-11-28 15:24:09 +0000 UTC“These are the first batch of goods you’ll be handling!” In a warehouse on the outskirts of Chicago’s industrial district, Josh gestured toward the room full of wooden crates and addressed Linden Schneider and Dix. He pointed at one of the crates beside him. “Dix, open it.”
Dix stepped forward and opened the crate as instructed.
Seeing its contents, Dix's eyes lit up, and Linden Schneider’s widened in astonishment.
“Tobacco of such high quality!” Linden exclaimed. “Are all the crates in this warehouse tobacco?”
“That’s right. All of it is raw, processed tobacco. Your job is to figure out how to sell it. Whether you sell it as loose tobacco or make it into cigarettes, I don’t care. Once sold, you each get 10% of the profits, and another 10% will go to the other associates. The rest comes to me. Alternatively, instead of cash, you can give me other goods I need, such as firearms, steel, cloth, grain, and so on. If you find better trade deals, let me know in advance. What do you think? Any questions?” Josh asked, looking at Lynden.
In later generations, when people discuss the most profitable illegal industries, their first thoughts usually jump to gambling, drugs, or arms trafficking.
Especially drugs, which often boast hundreds of times the profit margin.
However, many people don’t realize that in America, drugs have never been the most lucrative illegal industry.
By the 21st century, while drugs like cocaine and heroin could generate over $100 billion in annual sales in the U.S., their net profit margins weren’t actually that high—less than 20%. The reasons included high processing costs, market dispersion, and high transportation risks. It only seemed extraordinarily profitable because of multiple layers of distribution inflating its apparent value.
In fact, when compared to industries like health supplements (e.g., sugar water sold as “bird's nest” costing 3 dollars to produce and sold for 30), drugs weren’t as profitable.
As for arms trafficking, the real money lies in legitimate arms deals conducted by major corporations. Even the so-called "Lord of War" at his peak only made a few billion dollars annually from illegal transactions.
So, what’s the most profitable illegal industry in America?
Between 1919 and the 1950s, it was alcohol, thanks to Prohibition.
After the 1950s, it became cigarettes—contraband tobacco.
Legal tobacco is already a highly profitable industry, and illegal contraband cigarettes are even more so.
Take New York in 2021 as an example. Because of the nation’s highest cigarette taxes, a pack of legal cigarettes retailed for an average of $13, with a wholesale price of $12.50, leaving a profit margin of only 50 cents.
Contraband cigarettes, however, had a cost price of under $1 per pack for smugglers. Including transportation costs, it wouldn’t exceed $3. They could sell to local distributors at $5–6, yielding a profit margin of over 200%.
Downstream distributors could sell contraband cigarettes at $12—still undercutting legal market prices—and earn $5–6 per pack, a profit margin exceeding 100%.
In other regions, where cigarettes aren’t as expensive, the average retail price still exceeds $7 per pack.
This enormous profit margin has led to contraband/illicit cigarettes occupying over 60% of the U.S. market.
The risks also differ dramatically between drugs and tobacco.
Selling drugs, even in small quantities, risks severe criminal charges and often results in the loss of citizenship rights. Penalties were even harsher in earlier decades.
Selling contraband cigarettes, by contrast? Unless caught by the IRS with irrefutable evidence, offenders usually face a fine at most.
The disparity in risk is worlds apart.
As a result, starting in the 1950s, organized crime groups like the Mafia, known for their structured operations and efficient logistics, shifted their focus toward tobacco sales.
Let the Mexicans and Colombians handle the drugs; tobacco is where the real money is.
Once I read a Fact that by the 1990s, 90% of the contraband cigarettes in the U.S. were Made in China.
The only challenge with contraband tobacco lies upstream—it requires skilled management.
This was why Josh placed so much trust in Lynden Schneider. Known as a "criminal expert," Schneider wasn’t just highly intelligent and experienced in smuggling; he was also a legitimate “doctor,” holding a Ph.D. from the University of Munich in National Economics.
How someone with that background ended up resorting to theft is anyone’s guess. Then again, given Germany’s post-WWI economic collapse, perhaps it wasn’t too surprising.
“How much tobacco is here?” Schneider asked, his expression solemn as he surveyed the warehouse filled with crates.
“Forty tons!” Josh replied with a grin.
“Forty tons?!” Schneider gasped, his hand trembling.
In this era, cigarette prices were influenced by currency purchasing power. A carton of cigarettes cost around $10.
While this might not seem high, when adjusted for purchasing power relative to gold, it was actually more expensive than in later generations. By 2021, the dollar had devalued nearly 40-fold.
Forty tons of tobacco, if used responsibly, could yield around 40 million cigarettes—one million packs, or 100,000 cartons, valued at $2 million.
However, contraband sellers weren’t concerned with quality. By loosening the rolls or mixing in dry grass, production could double to 80 million cigarettes.
Even after accounting for downstream sales margins, they could clear $2 million in profit.
If their cut was 20%, that meant $400,000—a far better return than stealing gemstones, where a $1 million haul might net 30%.
Not to mention, selling tobacco carried significantly lower risks.
“Of course we can do it!” Schneider exclaimed, his eyes gleaming.
Contraband tobacco wasn’t just lucrative and low-risk; it could also be bartered for resources that money couldn’t buy—especially in chaotic regions like Europe.
If this tobacco were shipped to Europe, Schneider could trade it for a fortune in gold.
“However, Mr. Karn, selling such a large quantity will require startup funds, additional weapons, and manpower,” Schneider added after calming himself.
“Manpower and weapons have already been prepared by Dix, and here’s $50,000 as startup capital. Also, I’d like to introduce someone—Lieutenant Dietrich, step forward,” Josh said, clapping his hands.
From the shadows, a man in plain clothes emerged. It was none other than Police Captain Dietrich, who had appeared several times before.
“Mr. Kahn, long time no see...,Mr. Schneider,” Dietrich greeted Josh respectfully before turning to Schneider with a faintly arrogant demeanor.
“Captain Dietrich!” Schneider greeted him with a peculiar expression, immediately grasping why Josh had introduced the captain.
The profits from tobacco were the carrot, and Dietrich’s presence was the stick.
Having someone like Dietrich on their side would undoubtedly simplify tobacco sales.
“By the way, Schneider, your early release wouldn’t have been possible without the captain’s help. He and his colleagues will also take a cut of the profits. You’ll need to work closely together,” Josh said with a smile. “We’re all smart people here. You understand what this business represents. This is just the first shipment. Do well, and everyone will prosper. But if anyone gets other ideas, I suggest they think twice about the consequences.”
The group hastily nodded in agreement.
“Good. I’ll leave the rest to you. I have other matters to attend to,” Josh said before leaving the warehouse.
As for whether Schneider would betray him and keep the tobacco, Josh wasn’t worried. He had two layers of safeguards.
First, Dix’s men were Kentucky cowboys, all with families. Even Dix himself had ties to Louis’s widow. Schneider wouldn’t succeed without their cooperation.
Second, there was Dietrich, a genuine dirty cop whose weaknesses Josh had thoroughly exploited. With a family to support and a lucrative stake in the tobacco trade, Dietrich had every reason to remain loyal.
The odds of betrayal were slim, especially since Josh controlled the supply chain.
And where was that supply chain? Westeros.
Yes, beyond legitimate trade ventures, Josh had discovered another goldmine in tobacco during his dealings with Daenerys.
In Westeros, tobacco wasn’t smoked but chewed, much like betel nut. Due to its medicinal properties and addictive nature, it was highly popular among the nobility. This had led to extensive cultivation, especially in Daenerys’s slave-free regions, where labor costs were negligible.
For Daenerys, however, tobacco was a useless commodity in her quest for conquest. She was happy to sell it to Josh at rock-bottom prices, giving him another delightful surprise.
