What Asian Females Are Looking For When They Watch A TV Show

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Just a few days ago, the Wall Street Journal ran a story about how a pair of Jimmy Choo shoes has gone on to become a global best seller after it appeared in a Korean TV show.

jimmy
[ The Jimmy Choo high-heel shoes made headlines after being worn by a leading character in a popular Korean TV show. ]

Korean TV series My Love From the Stars became a hit among Asian female viewers this spring. The story, which talks about a reputed actress’s encountering with a handsome alien guy with supernatural power, diverts little from what a typical Korean soap opera is: faithful love of good-looking couples.

But in the digital era, its commercial value has gone far beyond media coverage and fan meetings. Successful Korean soap operas have prompted the birth of a variety of revenue streams, ranging from sales hike of sponsoring brands to quick turnover of even the knockoffs.

When you have a female leading character whose profession is a star, it makes sense to package her with top-of-the-line fashion garments and accessories — the likes of Burberry, Celine and Lanvin. But when Korean film star Jun Ji-hyun, the actress who plays the role of the female protagonist, changes her outfit more than ten times in just one episode, you’d know how much business potential there is when you have a fad running on screen. The Hermès poncho she wears in episode 15 went out of stock just a few hours after it was broadcasted, and the news went viral on China’s social media. The makeups she uses in the show have gone to the top of Chinese girls’ shopping list.

hermes
[ Hermès poncho: one of the heavily sought after luxury items presented in Korean TV series My Love From the Stars ]

On Taobao.com, China’s biggest e-commerce platform owned by Alibaba, a new industry has emerged, and is now rife with churning out knockoff outfits advertised in TV shows. The moment a Chinese female viewer sees the Hermès poncho and falls for it, private production houses are already on their way to duplicate it at a lower cost. The client would find not just one, but many affordable alternatives within the next few days.

A search on Taobao for outfits from My Love From the Stars would come back with more than tens of thousands of options. The price of a red blazer that comes off its high-end original varies from 100 yuan ($16 dollars) to 700 yuan ($112 dollars), depending on the level of resemblance and the quality of textile. Chinese media reported in February that one of the online stores selling the blazer took in 280,000 yuan ($44,935 dollars) in revenue in just one month from selling 1,450 pieces at about 200 yuan ($32 dollars) each.

Then came the staggering jump in China’s import of Korean beer in March. The figure grew two fold from a year earlier after the combination of fried chicken and beer, a Korean snacking tradition in the show, caught on among Chinese youth. Perhaps Samsung will get some inspiration from this as it wrestles with Apple for the China market.

Tragedy of The Commons

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Kiyoshi Kimura, president of Kiyomura Co, paid $1.76 million for the bluefin tuna he had won at the Tsukiji Market auction in January last year. As his staff towed the prized tuna back to his restaurant, the cart carrying the giant fish was surrounded by groups of professional photographers. He posed for a photo before he cut the tuna, his employees clapping hands in the background.

The picture that ran next to headlines about the eye-popping price tag for a single bluefin tuna is a snapshot of a lucrative industry spinning out of control due to a decade of overfishing under lax regulation.

Fed by ravenous demand from sushi lovers, Japanese and European fleets have exploited the commercial value of bluefin tuna and nearly depleted its stock in the Atlantic and the Pacific Ocean.

“The stock of bluefin tuna, by far the most valued tuna species, has been so heavily overfished in recent times that its collapse has become a very serious and threatening possibility,” said Fabio Hazin, chairman of The International Commission of the Conservation of the Atlantic Tunas (ICCAT), at a meeting in 2008.

Days after Kimura bought his tuna, the Pew Charitable Trusts announced the number of Pacific bluefin tuna has declined by 96.4 percent from pre-1950 levels. The eastern Atlantic bluefin spawning stock has plummeted by nearly 75 percent over the past four decades, according to reports from ICCAT, a Madrid-based regulatory body with 47 members and the European Union.

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Half of that loss, says ICCAT, occurred between 1997 and 2007, a period commonly known as “the golden years” among European fishermen. When the market for bluefin tuna took off in the 1980s, the advent of ranches — large coastal pens for fattening the fish before trading them with the Japanese — transformed the economic outlook of the industry. During the two decades followed, European ranchers and Japanese conglomerates worked together to take advantage of a lack of regulatory oversight. They caught as many as they wanted, and rested assured that state government would take whatever catch number they report for granted. The French government helped expand their fleets with subsidy, only to fuel a black market where trading unreported catch has become an international routine.

From Nobody to Somebody

Bluefin tuna has very few natural predators, but the species paid a price for becoming one of the most sought-after fish among well-heeled sushi devotees in Japan and worldwide.

In the 1960s, bluefin sold for a tiny fraction of its market price today. It was mostly ground up for cat food in the U.S., and dish made out of its meat held little appeal to the Japanese who preferred white-fleshed fish and shellfish. There were plenty of stock of bluefin around the northwestern corner of America, but commercial fishers considered it a trash commodity and passed it on to be the targets of weekend sportsmen.

The turning point came when sushi bars went global in the next ten years: Americans turned out to have an appetite for “toro,” the fatty underbelly of tuna commonly used for sushi. In Japan, people had grown accustomed to meat with strong flavors and dark flesh. It was also about this time that Japanese cargo planes, after delivering electronics to the U.S. market, started buying up cheap bluefin tuna near New England to sell them at a good price back home.

By the 1970s, bluefin tuna had caught on in Japan, prompting the nation’s importers to take in large quantities from fisheries worldwide. Fishing for bluefin in the western Atlantic increased by more than 2,000 percent between 1970 and 1990, according to the International Union for Conservation of Nature. The average price paid to Atlantic fishermen for bluefin exported to Japan exploded by 10,000 percent.

Today, Japan consumes about 80 percent of the bluefin tuna caught globally. The country is home to the Tsukiji fish market, the world’s largest seafood wholesale center. There, the annual fish auction held on the first Saturday in January demonstrates how much hype there is around bluefin tuna. For patrons of the auction, winning the head of a single bluefin tuna at an outrageous price is a fight for status and free advertising. Kimura, who became widely known after he paid $1.7 million last year, also won the bid this year and in 2012.

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The auction price, as shown above, has soared since 2008, before taking a nosedive early this year. “The wildly fluctuating price demonstrates only that the auction is subjective and distorted, dictated almost entirely by the bidders’ wealth and whims,” writes Emma Bryce, a reporter with The Guardian.

Ranching to the Utmost

During the golden age for catching bluefin tuna Japan’s demand turned several family businesses in France into fishing empires. But it was the advent of “ranching,” the industrial method of fattening bluefin in underwater pens before selling them on the market, that facilitated the ruthless catch, particularly in the Mediterranean Sea.

Originated in Australia, tuna ranches were introduced by Spanish and Croatian fishermen to the Mediterranean area around 1998, the same period when ICCAT instituted the first quota on bluefin tuna. The old-fashioned way was to catch the bluefin near the shore and kill them immediately before returning them to the port. The advanced method is much more complicated: Purse seiners transfer the catch to cages; Tugboats slowly carry the cages — for as long as a month — to circular underwater pens located in coastal waters; Fish in the ranches are then fattened for months on sardine, mackerel, and herring till their fat content, flavor and color match the demand of Japanese consumers. Tunas at harvest are shot in the head and kept cool in cold seawater slush; In the end, most of the fish are shipped deep-frozen to Japan on refrigerated vessels, while the rest are packaged and flown to Japanese markets, where they’d be auctioned off fresh. See a video on how ranching works below:

Those circular ranches revolutionized the industry. Fishermen were able to steer their vessels father from the port without worrying the fish caught would rot on their way back to the port. The deeper the water, the larger the bluefin, and the bigger the profit.

“What you gain is consistency in the quality and the supply, because you are not subject to seasonal factors,” says Rex Ito, president of Prime Time Seafood, a Los Angeles-based importer that provides 85 percent of the bluefin tuna needed in L.A. restaurants. “It’s an efficient way of producing a quality product.”

Earlier, the supply of fresh bluefin could only last for a few months per year, with just a tiny percentage of the catch being fat enough. The introduction of ranches means fishermen in his greatest capacity, and hold on to his stock till Japanese traders are ready to deal. For connoisseurs, a stable supply enables bluefin tuna to be on the menu year-around.

Tuna ranches, says Ito, is what gave rise to increased fishing capacity and over-catching. His biggest suppliers are located in Spain and Mexico, where bluefin tuna are ranched and sold to sushi bars in the U.S.

Compared to Spain’s long tradition in the bluefin business, Mexico is new in the game. The country, which now catches the majority of bluefin in the eastern Pacific Ocean, adopted the ranching technology around 2000.

“You wouldn’t necessarily save money by keeping the tuna in a cage and feed it. The process is actually fairly expensive. It’s quite an operation,” says Ito. “But farming or ranching is the future of a lot of seafood.”

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In Europe, ranching has helped French fisheries strike a fortune between 1997 and 2007, depleting the stock of bluefin in eastern Atlantic Ocean by half, according to an investigative report from The International Consortium of Investigative Journalists, a global network of 185 investigative reporters.

In Sète, a small trip nestled along the Mediterranean Sea, bluefin fishing has been a regional vocation for generations of captains. But it was the rise of bluefin and the technique of ranching that made them one of the wealthiest fishermen communities in France. They now operate the world’s most productive tuna fishing fleet, of which 36 multimillion-euro vessels target bluefin tuna in the eastern Atalantic Ocean.

Government subsidies played a significant role in the renovation and expansion of Europe’s powerful fishing fleets. The European Union and its member states, encouraged by a strong market demand for bluefin tuna, has poured €26.5 million into vessels in Sète between 1993 and 2007. The average French purse seiner in 1998 was twice as long and four times as powerful as they were two decades ago. By 2008, there were 131 purse seiners in EU fleet, and another 500 ships owned by ICCAT members outside the EU. All of them served the cause of exploiting the bluefin community. For owners who took out bank loans to purchase their pricey vessels, the only way to repay the debt was to over catch.

Japanese companies, even though at the very end of the supply chain, chipped in with money. They are known as “the architects and financiers of the ranching industry,” because they partnered with Spanish and Croatian fisheries in building and running the facilities. Paco Fuentes, a business mogul from Spain, jointly ownes Drvenik Tuna, a Croatian ranch, with Japanese conglomerate Mitsubishi and local partner Conex Trade. The man also serves as the general manager of Fuentes & Sons, which has eight ranching subsidiaries in six countries. When interviewed on the dire state of bluefin tuna, Fuentes said he didn’t consider it “an endangered species.”

“There are a lot of small bluefin tunas in the Gulf of Lion waters [near France],” he told ICIJ reporters.

Fish Till You Drop, Authorities Say

Tuna ranches inspired fishermen to maximize the economic benefit of bluefin tuna, and brought sushi lovers a sufficient supply of toro meat. But when the feeding frenzy went unchecked, it became gateway to a decade-long, illegal fishing craze in the Mediterranean.

Seventy-five percent of the region’s bluefin tuna stock had disappeared between 1998 and 2007, says ICCAT. During the same decade, off-the-book trade in bluefin market is estimated to be $400 million per year, says ICIJ reports. One out of every three bluefin was illegally caught, and a majority of them were young fish that have not yet reproduced. In 2008, the amount of eastern Atlantic bluefin tuna traded on the global market was still 31 percent larger than ICCAT’s quota that year. In 2010, the gap peaked at 141 percent.4Ranching made it difficult to track the number of bluefin caught mainly because much of its operation is done underwater. Raising undersized fish may hardly be noticed when ranchers cleverly place them in a good adult mix; Fleets could transfer the fish immediately to another vessel without declaring the catch; A diver can simply stops videotaping and allows the fish to pass unrecorded when transferring them from net to cage, thus falsifying the catch number.

Unreported and illegal catches were fueled by a lack of accountability. One French fisherman named Nicolas Giordano told ICIJ that he and his peers declared freely their catch number until 2006 to the laissez-faire French government. “The administration didn’t do its job, and at the time no one took it seriously,” he says.

Until 2007, the French officials never bothered to verify the numbers reported, neither did the Spanish and Italian governments. They adjusted the figure further downward to meet the quota and then sent it to the European Commission, which in turn reported to ICCAT.

“The only country to give their real figures would get fined, so in that kind of game, everyone lies,” ICCAT scientist Jean-Marc Fromentin told ICIJ reporters.

In 2008, ICCAT introduced Bluefin Tuna Catch Documents, a paper-based catch documentation system aimed at tracking down every step of the bluefin trade along the supply chain. But only a handful of countries, mostly big players, have updated their documents since 2014. In response, ICCAT has put forward an electronic catch documentation system to counter the rampant black market.

Forging Ahead

Fuentes & Sons, now a leading seafood supplier in Spain, announced in December its plans to become the first to raise Atlantic bluefin tuna on land. The company would invest €5 million in building a hatchery for the endangered fish, with the expectation of producing about 500 metric tons by 2015.

Japan’s Fisheries Agency, on the other hand, has decided to rein in the nation’s catch of immature Pacific bluefin tuna. Starting in 2015, it would reduce by half the quota of bluefin tuna that are three years old or younger compared to the average catch number during 2002 and 2004.

The biggest market for bluefin has seen its officials turn down several batches of dubious bluefin imports in the past few years, but a moratorium on fishing bluefin seems unlikely given its popularity and economic value.

“They wanted the fatty fish and they recruited the people who could carry out this work for them. Now that the system is out of control and markets are saturated, they are scrambling to distance themselves from it,” said Sergi Tudela, head of Fisheries at WWF Mediterranean.

Reference:
http://www.theatlantic.com/international/archive/2014/01/sushinomics-how-bluefin-tuna-became-a-million-dollar-fish/282826/
http://www.icij.org/projects/looting-the-seas
http://www.theguardian.com/environment/world-on-a-plate/2014/jan/06/pacific-bluefin-tuna-auction-overfishing-sushi
http://www.bloomberg.com/news/2013-01-09/tuna-species-sold-at-record-price-faces-overfishing-study-says.html
http://www.nytimes.com/2010/06/27/magazine/27Tuna-t.html?pagewanted=all&_r=0
http://www.vanityfair.com/culture/features/2007/06/sushi200706
http://www.fis.com/fis/worldnews/worldnews.asp?monthyear=&day=11&id=67799&l=e&special=&ndb=1%20target=
http://bangordailynews.com/2014/03/23/business/japan-to-cut-bluefin-tuna-catch-by-half/
http://www.pewenvironment.org/uploadedFiles/PEG/Publications/Fact_Sheet/tuna-story-of-atlantic-bluefin-2013.pdf
http://www.pewenvironment.org/uploadedFiles/PEG/Publications/Fact_Sheet/tuna-story-of-pacific-bluefin.pdf

Comeback of Subprime Loans

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Wells Fargo’s first-quarter earnings brought into light a driving force of America’s economic recovery. Its 14-percent hike in profit was fueled in part by a surge in auto lending. The financial giant may have found the next recipe of profitable subprime lending.

The San Francisco-based company originated $7.8 billion in auto loans during the first quarter, a 15-percent upswing from the same period last year. Nationwide, auto loan debt per borrower has seen jumps for a consecutive of 11 quarters, according to report complied by TransUnion. Overall outstanding car loans have ballooned by a quarter from $700 billion in 2010 while mortgages and credit-card debt moved downward.
flow of auto loans

It was new auto sales that have boosted consumer spending during the past four years, says Professor Mian, of Princeton University, and Professor Sufi, of The University of Chicago. Their study shows spending on new autos increased by 40 percent in nominal terms from 2009 to 2013, twice the growth in other spending categories. When they take autos off the list, growth in nominal retail spending last year turns out smaller than that of a year earlier. See chart below for new auto sales and all other retail spending:auto leads spendingauto spending 12-13

The professors, however, dubbed the surge in auto purchase “another debt-fueled spending spree” because the rise is not justified by growth in income. Taking out a car loan could be an action prompted by greater confidence in the U.S. economy, but the fact that other lending sectors remain weak defies this assumption.taking credit

Another possibility is banks are tapping just another hefty market to beef up profit. Even though Wells Fargo lowered its minimum credit score requirements on loan from 640 to 600 as an encouragement for first-time and low-income home buyers, its mortgage originations dropped nearly 67 percent from the first quarter a year ago. Meanwhile, the company has been active in originating subprime loans to used car buyers. These loans generate higher returns but are granted to borrowers with low credit scores.

Last year, credit bureau Experian Automotive reported 27 percent of those who took out loans for new vehicles were borrowers with spotty credit, a record proportion since 2007. The figure was only 18 percent in 2009.

Fortunately for now, overall delinquency rate for U.S. auto loans has remained quite stable at about 1.14 percent during the past few years. But the subprime delinquency rate hiked to 6.12 percent in the fourth quarter of 2013, up from 5.73 percent a year earlier, according to TransUnion’s report.

Who Moved My Cheese

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Three months into 2104, Chinese investors announced they’ve snapped high-tech deals worth more than $6 billion in the U.S. The figure, which is greater than the combined total in the past four years, marks a giant leap in high-tech investments made by private companies from China. But instead of welcoming new jobs and R&D grants, business communities across America are advised to be wary of the innocence of Chinese companies.

A recent report published by The Rhodium Group and Asia Society concludes Chinese buyers may have set out to target high-tech industries in the U.S. While the number of deals has dropped since 2011, the value of China-U.S. high-tech transactions took a jump in the first quarter this year. Overall, Chinese direct investment in the U.S. reached a record high of $14.1 billion last year since taking of in 2008, according to the report.

FDI high-tech 00-13

The boom can be seen across America and in a variety of sectors. A majority of Chinese investors, as graphic below shows, unsurprisingly struck deals with technological communities in California. There was a lot of Chinese money going into IT equipment when Chinese PC maker Lenovo bought IBM’s personal computer business in 2005. But the appetite for software and IT services has prominently grown in the past few years.by region 00-13

sector 00-13

Setting numbers aside, a primary issue the report addresses is how to react to the rise of Chinese takeover of “valuable” technological brands made in the U.S. At a conference held in L.A. on Thursday, most bankers and lawyers who helped handle high-tech transactions for their Chinese clients in the past voiced their major concerns: American companies should look out for possible technology theft, and the U.S. government should make efforts to beef up cyber security.

The big-ticket sales capture a shift in China’s economic ambition and could be a prelude to the country’s departure from being a global manufacturer. But being on a learning curve doesn’t mean the nation’s transition must be an evil breed. In nature, purchasing IBM’s personal computer business was no different from Facebook’s buying WhatsApp: both indicate the parent company sees some value in the subsidiary, and pays money to learn from it. It is fair bargain as long as both sides shake hands on the price.

The $6-million deals made in the first quarter include three major components: Lenovo, after it purchased IBM’s PC business years ago, is spending another $2.3 billion buying a server unit of IBM. Earlier, it purchased Motorola Mobility from Google for $2.91 billion. China’s Wanxiang Group took in luxury carmaker Fisker in February.

They all have eye-popping price tags, but the health of the three subsidiaries show Chinese buyers are tasked with turning failing American brands around before they move on to harness, if any, new technologies. Fisker had been in huge financial loss and filed for bankruptcy when Asian buyers emerged at the end of last year. Google paid $12.5 billion for the acquisition of Motorola Mobility to obtain the patents it needed to ward off lawsuits from Apple (and they weren’t accused of technology theft), and dumped the “perpetual money-loser” a year later. IBM’s PC unit was, again, losing money when Lenovo bought it in 2005, yet the latter has come back for more. The low-end server business Lenovo is taking from IBM has posted seven quarters of losses.

To the other end, The Committee on Foreign Investment in the United States (CFIUS) has guarded national security well. It guarded it so well that Chinese telecommunication giants had to shift their U.S. business from installing network equipment to selling smartphones to survive in the U.S. market.

In 2011, Huawei Technologies Co., China’s biggest network equipment maker, was barred from participating in building a nationwide emergency network. A year later, the U.S. House Intelligence Committee chairman discouraged U.S. companies from doing business with Huawei and ZTE Corp, for fear of intellectual-property theft and spying. The Committee also noted in a report that CFIUS “must block acquisitions, takeovers, or mergers involving Huawei and ZTE given the threat to U.S. national security interests.”

From selling handsets, ZTE had a market share of 6 percent in the U.S. last year. The CEO of ZTE’s U.S. division touted the company’s decision to drop network business in the U.S. “a strategic move” and “an adaptation to America’s legal framework.”

The second-largest telecommunication manufacturer in China has opened 14 offices and five R&D centers in the U.S. It hires about 380 local employees. It has invested $350 million in its U.S. business. It remains at the mercy of geopolitics.

job created

The invisible hand

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Opportunists taking legal risks to wedge into marijuana business say uncertainty offers a nice middle ground for startups before high rollers come around

Having ditched Morgan Stanley to work in the weed business, Derek Peterson was pretty confident he’d made a good bet when his company ran close to an IPO in 2011.

A year earlier, the former Wall Street banker quit his job and founded GrowOp Technology after he learned a friend’s marijuana dispensary was clearing $18 million a year. California-based GrowOp, which started its business in March 2010, manufactures and sells indoor hydroponic and agricultural equipment to cannabis growers. Peterson reaped $800,000 in revenue in the first nine months. And the business looked so promising that he told Bloomberg his sales goal would be $2.5 million and $5 million to $8 million in the two years to come. He revealed in the same interview that his company was poised to go IPO by the end of 2011.

That IPO plan was never materialized. The startup eventually managed to go public through a reverse merger in 2012, but hasn’t been able to secure significant funding until early this year — all because of legal swings.

“Because the federal government has come to be more supportive, and because they are allowing banks to do business with us now, and because they are not cracking down anymore, the industry is allowed to move forward,” says Peterson.

For fear of legal pitfalls, cannabis-related companies have treaded on thin ice for years. Their hands were tied because investors with deep pockets wouldn’t go against federal law to finance weed businesses. Recent passage of recreational use of pot in Washington and Colorado has rejuvenated the market, driving investors’ appetite up. And some pioneering entrepreneurs have learned to sail through the murky legal water.

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Back in 2011, GrowOp’s IPO plan fell short mainly due to an unfriendly political environment. Fifteen states had legalized medical use of cannabis, yet California was cracking down on dispensaries. Worried that the SEC wouldn’t let the IPO come to fruition, Peterson backpedalled. The offering plan had reached its auditing stage.

“Judging from all the pressure that was melting from the federal level, it seemed to us that we might not be able to go public through an IPO, and we don’t want to risk that,” says Peterson.

GrowOp ended up merging with Terra Tech Corp, a listed shell company that does no real business. Peterson and his colleagues took over the management and resumed day-to-day operation. “It’s kind of a back-door channel which goes around the expensive and cumbersome process of going through IPO,” says Peterson. “We think we’ve made a smart decision.”

GrowOp’s story shows how political clout can put off investor sentiment, leaving a dent on startups’ financing ability. But the legal stakes are higher than that. The fact that states and the federal government take opposing stances on weeds has left many investors and entrepreneurs wary about tapping into this niche market. Goldman Sachs and its peers have kept people like Peterson at arm’s length because they could be punished for lending money to cannabis-related companies. Or, if the federal government chooses to come down harder, law enforcement may simply show up at Peterson’s doorsteps and seize all of GrowOp’s assets. For Goldman Sachs, that means loads of money going up in smoke overnight (given that they do care).

Again in 2011, the media touted a “green rush” in the cannabis industry, but the market underwent ups and downs in years followed.

With a net income of $1.2 million in 2010, California-based General Cannabis once sought to raise $10.5 million in an IPO a year later. The technology-based service company with a focus then on the legal pot business was founded as early as in 2003, and began trading some of its stocks on OTC markets in 2010. During its heyday, the company owned seven subsidiaries, including Weedmap.com, an equivalent of Yelp in the world of marijuana dispensaries. It managed 14 medical cannabis clinics in California, and was processing $2,200,000 worth of transactions in March 2011.

But the company sold off its weed business once and for all at the end of 2012 after consecutive slumps in its shares. It also changed company name into SearchCore, Inc. shortly before sales of its pot-related assets.

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Medical marijuana use is already legal in 20 states and the District of Columbia. Recreational use of marijuana was passed in Colorado and Washington in 2012. But under federal law, cannabis has always been treated no different from heroin or cocaine: it is highly addictive and has no medical value, therefore should continue to be banned.

Legalization of Weed

Even in places where medical use of marijuana has been legal at state level, operating costs and rigid regulations make it tough to stay in the business.

In Colorado, legislators have completely freed up weed. The number of medical marijuana businesses there peaked at 1,131 toward the end of 2010 as the drug was being funneled in bulk into the mainstream market from the black one. But the number has dropped to 675 two years later, which equals a more than 40 percent shrink in the industry, says Denver Post. Heavy regulations and police crackdowns have forced a big chunk of practitioners to leave: Stores near schools were forced to close after the state’s U.S. attorney warned that they could be prosecuted if didn’t move. Others collapsed because federal rules denied marijuana businesses of bank loans or common tax deductions.

What adds to the financing hurdle was a big upfront cost that goes into a medical cannabis dispensary even before it opens its door. Jeremy Kelsey, owner of a medical marijuana outlet in Seattle, told NPR that his facility needed bulletproof glass and a 24-hour monitoring system. He spent heavily on ventilation, dehumidifiers, air movers, and air conditioning units — all for producing high-quality cannabis.

Fluctuation in retail price is another vexing problem. Transaction data collected anonymously by priceofweed.com show mixed results of changes in pot prices in the past three years. There have been drops in the prices of high-quality cannabis, whereas price of low-quality breeds has been marked up.

Pot Price 2010 - 2013

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One piece of comforting news for weed growers is that the market is gaining new traction after voters made recreational use of cannabis legal in two pioneering states. Nationwide, new marijuana-related legislation is pending in 17 others. Investors are looking at a market that is expected to reach from $1.5 million to $6 million by 2018.

Washington and Colorado are at the very forefront of this rapid growth. In Colorado, pot storeowners cheered for a total of roughly $5 million in sales revenue during the first week selling recreational weed. The retail price of marijuana there has doubled in that week. Seattle-based Privateer Holdings, an equity firm led by two former Silicon Valley bankers, is buying up warehouses in Washington with the $7 million they’ve raised three years into their weed business. They are confident about bringing in roughly $50 million this year alone.

GrowOp, now a subsidiary of Terra Tech Corp, is acting fast to capitalize on Washington’s marijuana reform. It announced in May last year the opening of a new location in Seattle. It is also vying for permits to open marijuana dispensaries in Nevada in hopes of becoming a cannabis grower itself.

“In controlling the actual product that goes for sale at $3,000 to $7,000 per pound wholesale, there is huge amount of strength being the core cultivator,” says Peterson.

The company has just closed a $6.8 million round of financing with Dominion Capital. It also had another $8 million raised from issuing new shares. “The more healthy the political scene gets for us, the more investors come in, and the easier and cheaper it gets for us to raise money,” says Peterson.

He says current legal environment is in fact helpful for GrowOp to get on track to become the Starbucks of weed.

“If it were fully legalized and there’s no legal risks, the big boys would be getting into it. Fortunately this quasi-legal environment provides enough cover for us that the big people will stay out and give us the ability to build market share and our brand,” he says.

He’s right in a sense that the market is already booming with private investors brimming with confidence. ArcView, a California-based organization that connects investors with entrepreneurs in the cannabis industry, has helped its clients secure 4 million of financing in the past few months. The company nearly went out of business two years ago due to a lack of investor interest.

And the money is not only going into selling pot, it’s been poured into ancillary goods that are being built around it. Colorado’s law requires that pot be sold in child-resistant containers, so Ross Kirsh invented Stink Sack, a startup that sells odor-proof packages for weed. He sold his idea immediately to a group of ArcView investors, and was put on a plane to China with the $150,000 he’s raised right after the meeting.

Earlier this month, the federal government issued guidelines on how banks interested in the cannabis industry may navigate the murky legal waters.

“I think you’re gonna see the smaller and regional banks jump in first. As soon as the big potatoes see there is money to be made there, bigger banks will follow,” says Peterson. 

To view an infographic on marijuana in America, click here; To learn how weed got in the U.S., click here.

Read China’s politics and economy from Macau

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A research team from Reuter’s posted a pair of charts (see Figure 1 below) with nearly paralleled curves back in 2011 which suggests that Macau’s gaming revenue tells a lot about China’s economy. The curves reveal not only how China’s collective wealth has grown, but also where that big chunk of money is going, given the fact that many managed to legitimize shady income amid the buzz at the world’s new casino capital.

China’s GDP boom since around 2003 has created new wealth among heads of national conglomerates as well as regional manufacturing-oriented powerhouses. Some city officials – the likes of Bo Xilai and Liu Zhijun – also took their share from doing “favors” to businesses cutting deals for government contracts. Whatever their day jobs may be, these people are the “high-fliers” when they land at Wynn’s VIP room in Macau. And change in Wynn’s gaming revenue often suggests tweaks in the Chinese government’s grip on its economy and its mega rich.

Figure 1. Macau Gaming Revenue and China GDP
Macau's gaming revenue vs. China GDP
Chinese high rollers made up nearly two thirds of Macau’s gaming revenue, not out of their love for throwing dice, but because they saw Macau a good fit for money laundering, according to an article from The Economist. With enough help from an apt junket, a corrupted government official who has taken bribes in yuan can readily swap his filthy money into Macanese pataca at a gambling table. A billionaire who has cut corners to get rich and wants to elude future scrutiny when political tide changes can turn most of his fortune into foreign dollars and hoard them better. In some other cases, the rich simply don’t want to put his money at home.

These are the main players in China’s economy, and the way they’ve chosen to do with their money reveals two things: a) a big chunk of the new wealth has left China instead of being reinvested into sustainable economic activities; and b) there is a trust issue between China’s nouveau riche and Beijing because the latter still has authority to crush someone’s property for no solid reason.

When China’s new leadership laid down rules in early 2012 to crack down on lavish spending and its more recent rein in corruption, we’d expect them to have an impact on Macau’s gaming revenue much as they did to the sales of foreign luxury brands. The cynical ones on social media, however, said the new measures would always be staying just on paper.

If we check Macau’s gaming revenues for answers, it presents a different story, as world-class alcohol makers and watchmakers took hit from Beijing’s gift crackdown.

China’s inflation-adjusted GDP changed less in 2013 than a year earlier, going upward by 7.2 percent and 10.3 percent respectively (see figure 2 & 3 below for real GDP calculation).

Figure 2. China GDP Annual Growth Rate 2006-2013
 
Figure 3. China Inflation Rate 2006-2013China's Inflation Rate 2006-13
During the same period, however, Macau’s gaming revenue kept climbing in two consecutive years despite a slowdown in China’s economy. The number went up first by 13.5 percent in 2012, and again by 19 percent one year later, according to Yahoo News and The Wall Street Journal. Meanwhile, there has been a flurry of Chinese tourists touring and buying real estates in the U.S. The rich folks may have sped up transferring their money outside China as Beijing’s new leadership tightens its grip.

The Price of Labor

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At Advanced Cleaners on the corner of Vermont and 29th, price tags have remained unchanged for 8 years for one reason: it serves Trojans, or, USC students. The owner, Hertsel Mofarrah, adorns the storefront as if it were an alumni house. Much of its red counter is covered with snapshots of USC life, and most words left on the photos were addressed to Aunt Ruby, the front desk sweetheart lady who left the job half a year ago when she turned ill.

Ruby’s successor, Urania Blanco, is from El Salvador, the smallest and the most densely populated country in Central America. She rushes out from the rear of the store when the doorbell rings, collects the dirty pieces, and numbers each one of them before putting them in a to-go basket. In the afternoon, Mofarrah comes in and picks up the batch. He sends the clothes to Royal Cleaners on Robertson Boulevard, and drops them off again at his USC cleaner a day later. The shirts and suits have been properly cleaned and pressed. Blanco does a last shave and hangs them in order on a conveyor.

Mofarrah runs both cleaners, but he hasn’t become his own chauffer until the USC business took hit of the recession in 2008. He used to have a line of seven workers at Advanced Cleaners attending to every step of the dry cleaning process. When business turned sour amid the larger economic downturn, the full-fledged crew was reduced to nothing but one receptionist at the counter. He halved the 1,800-square-feet place, leasing the other part out. The machines were also removed. At what later became Mofarrah’s main storefront on Robertson, he had to let go of two people that year to survive the national crisis.

But he says the profit is still shrinking mainly due to a rising cost of labor. Five years into a sluggishly rebounding economy, 70 percent of his business revenue still goes into offsetting expense in climbing wages, chemicals and utility. “The minimum wage has gone up, and my guys don’t settle for the minimum wage because the dry cleaning business relies on trained professionals with rich experience,” says Mofarrah.

He hires five people at Royal Cleaners, where a dry cleaning machine and other amenities are stationed. When a customer brings in a pair of pants for dry cleaning, it goes to the spotter first. The spotter, who gets paid $14 an hour to remove all types of stains using the right chemicals, holds the most lucrative position of all five employees. The tailor has the second fattest paycheck. The whole team has enjoyed raises in the past few years, says Blanco, who worked among them before being transferred to the location near USC.

When Gov. Jerry Brown signed into law the bill that would raise California’s minimum wage to $10 an hour by 2016, it left workers upbeat and small businesses worrisome. While the raise comes in two phases in the next two years, the 25 percent hike would push California to be on top of every other U.S. state in terms of minimum wage and is estimated by the L.A. Times to deliver extra money to around 2.4 million Californians.

For Mofarrah, the USC branch of his laundry business seems self-perpetuating once he bought up the place in 1998. Costs are easily contained now that there is only one employee. And the utility fee is just a tiny fraction of what he pays at Royal Cleaners, where rent has also climbed up by five percent each year. To fulfill a daily task of cleaning 500 pieces, from both storefronts, he now pays a monthly of $1,000 for gas, and another $1,000 for water and electricity. Even the price of plastic bags has doubled from 5 years ago, he says, and the government ridiculously charges him $7 per gallon when its people comes in to collect barrels of chemical waste. The price tag was $2 fifteen years ago.

In response, Mofarrah raised the price for dry cleaning by an average of 50 cents at the end of last year — at Royal Cleaners only. The price for dry-cleaning a pair of pants climbed from $5 to $5.5. But USC students still get the old price of $5, or 50 cents less on discount. “We know it’s hard for students to spend a lot on laundry, so we keep the price low,” the father of a USC Medical School alumnus says.

Mofarrah’s USC business receives about 150 pieces every day, and handles the cleaning of theater costumes and marching band uniforms. But summer strikes him as a truly bleak season for his laundry business because 80 percent of Advanced Cleaners’ customers will be gone. “The students are home, and there is nothing,” he says. Blanco became so bored last summer that she made a pair of crochet stool covers in her free time at work, in red and yellow. They are now part of the store’s USC flair.