Report on Cocaine and Federal Sentencing Policy
The Distribution and Marketing of Cocaine
This chapter examines the markets for crack cocaine and powder cocaine in the United States. These markets are inescapably intertwined because virtually all cocaine enters the United States in the powder form. Only at the wholesale and retail levels in the distribution chain does some of the powder cocaine get transformed into crack cocaine. This fact ultimately has critical implications for cocaine sentencing policy.
Policymakers generally view the drug distribution chain using a vertical framework that involves importers, wholesale distributors, and retail-level dealers; that is, focusing on how drugs enter the country, move between and within states, and ultimately reach the user. See sections B and C, infra. Theoretically, each level closer to retail sales involves less culpable individuals trafficking in lesser quantities of drugs. Viewing drug distribution through this vertical framework, however, does not preclude the existence of horizontally integrated drug distribution chains that involve separate and distinct organizations. From an enforcement perspective, for example, a single conspiracy at the retail level may be quite extensive, involving a major distributor, four or five mid-level dealers, and 30 street sellers. The distinctions between these vertical and horizontal frameworks for viewing drug distribution are important to keep in mind as one considers the material presented in this chapter.
Section B describes the development of the current cocaine markets. Section C discusses the importation and regional distribution of cocaine. Section D looks at the wholesale and retail markets for powder cocaine and crack cocaine, examining their development and layers of distribution. Section E discusses the different forums of retail cocaine distribution. Section F describes the structure of organizations involved in the distribution of crack and powder cocaine, including the roles of individual freelance distributors, small groups, and urban gangs. Section G discusses the roles of youth and women in cocaine distribution, and Section H, the prices, profits, and revenues in the cocaine markets.
B. THE DEVELOPMENT OF CURRENT COCAINE MARKETS
1. The Development of Drug Markets Generally
The existence of historical cycles, or "drug eras," for most drugs (including marijuana, and heroin, as well as both powder and crack cocaine) has been suggested by some researchers. Theoretically, during these drug eras, once a drug is first introduced, its use soon expands, later peaks, levels off, and eventually declines to an equilibrium level. See Hamid, infra note 4, passim; Bruce D. Johnson & Ali Manwar, Towards a Paradigm of Drugs Eras passim (paper presented at American Society of Criminology, San Francisco, California) (copy on file with the Commission) (Nov. 21, 1991); and Andrew Golub and Bruce D. Johnson, Drugs Eras: A Conceptual Model for the Dynamics of Change in the Population of a Particular Drug passim (paper presented at the Society for the Study of Social Problems Annual Meeting) (copy on file with the Commission) (Aug. 11, 1993).
A comparison of drug eras shows relatively consistent time periods (10-15 years) from introduction of a drug to peak use. Moreover, drug eras show a pattern of initiation and violent consolidation in the market for the new drug, typically followed by a relatively peaceful plateau period and eventual decline in use. See Johnson & Manwar, supra note 2, at 7-8.
2. The Evolution of the Crack Cocaine Market
The types of organizations dominating distribution of crack cocaine have evolved, at least in primary markets such as New York City and Los Angeles, from primarily freelance distributors (1984-1985) to gang and small-group distributors (1985-1986) and ultimately to small-group and freelance distributors (1987-present). T. Mieczkowski, "Crack Distribution in Detroit," 17 Contemporary Drug Problems 9, 16 (1990) (data derived from Detroit Drug Use Forecast questionnaires from 454 self-reported crack users and sellers); A. Hamid, "The Development Cycle of a Drug Epidemic: The Cocaine Smoking Epidemic of 1981-1991," 24 Journal of Psychoactive Drugs 340 (1992).
In 1984-1985, the crack cocaine market was highly decentralized, involving primarily freelance distributors, characteristic of many early drug distribution markets. The demand for crack cocaine was not well-established and distribution systems were not well developed, leaving the market open to any person with access to cocaine and a desire to distribute. Id.
Over time, the crack cocaine market transformed from this decentralized system into a growing, non-competitive market, to a system in which relatively well-organized gangs used violence to consolidate individual dealers and eliminate uncooperative distributors. United States Sentencing Commission, Hearing on Crack Cocaine 64-68 (Nov. 1993) (statement of Paul J. Goldstein, Professor of Epidemiology, University of Illinois at Chicago Circle) (hereinafter "Commission Hearing"); J. Skolnick, T. Correl, E. Navarro, and R. Rabb, "The Social Structure of Street Dealing," 17 American Journal of Police 1, 20 (1990) (noting "if the market is stable there is little violence, . . . if the market is destabilized, whether by a rival gang or by law enforcement, then violence is likely to erupt"). By 1986, gangs and small-group distributors dominated the market. Following the consolidation, no single gang or organization controlled distribution, leading one researcher to note that crack cocaine
appears to be distributed largely by multiple units of small entrepreneurs rather than by any mega-organization that controls the crack trade [leading to the] speculation . . . that crack distribution lacks a set of highly centralized or formally organized distribution syndicates. It relies heavily on the "low end" dealer [and] users [who] . . . occupy a shadowy ground between dealing and consuming. Mieczkowski, supra note 4, at 20-21.
Other research confirms a generally stable market among gang and small-group distributors during this time. For example, the market among entrepreneurial gangs in northern California became unstable only when these gangs sought to expand marketshare. Skolnick et. al, supra note 6, at 17. Even among cultural gangs in Los Angeles, violence subsided as the markets consolidated and the gangs became more entrepreneurial. According to one gang member,
Now you might see a neighborhood that is Blood and Crip together. But that's because they got something going on with drugs. They got some kind of peace because of drugs. Id.
Other ethnographic researchers present similar findings with respect to this period. See, e.g., Hamid, supra note 4.
Today, researchers and some law enforcement officials believe the market to be again dominated by a "cottage industry" of small-group and freelance distributors. S. Belenko, Crack and the Evolution of Anti-Drug Policy 112 (1993) (citing J. Fagan and K. Chin, "Violence as Regulation and Social Control in the Distribution of Crack," in M. de la Rosa, B. Gropper, and E. Lambert (Eds.), Drugs and Violence: Causes, Correlates, and Consequences (1990), and B. Johnson, T. Williams, K. Dei and H. Sanabria, "Drug Abuse and the Inner City: Impacts of Hard Drug Use and Sales on Low Income Communities," in Q. Wilson and M. Tonry (Eds.), 13 Crime and Justice: An Annual Review of Research 9-67 (1990)); U.S. Department of Justice, Drug Enforcement Administration, DEA Drug Situation Report: Crack Cocaine 12, 17, v (Nov. 4, 1993) (draft) (hereinafter "DEA Report"). In New York City, for example, researchers report:
Despite a systematic effort to locate vertically-organized crack distribution groups in which one or two persons control the activities and gain the returns from labor of 15 or more persons, no such groups have been located, and no distributors report knowing of such groups. Instead, freelance crack selling dominates most drug street scenes. Johnson et al., supra note 11, at 360-61.
C. INTERNATIONAL AND REGIONAL DISTRIBUTION OF COCAINE
Powder cocaine generally is imported into a limited number of "source cities." U.S. Department of Justice, Drug Enforcement Administration, U.S. Drug Threat Assessment (1993) 14 (Sept. 1993) (hereinafter "DEA Threat Assessment"). The powder cocaine then is dispersed to regional and wholesale distributors for later retail sales. As stated above, crack cocaine rarely, if ever, is imported into the United States. Instead, powder cocaine is imported, with some of it later converted into crack cocaine.
Powder cocaine is smuggled into the United States primarily from Colombia, Mexico, and Caribbean nations through Arizona, southern California, southern Florida, and Texas. DEA Report, supra note 11, at iii, v. Powder cocaine, typically in shipments exceeding 25 kilograms and at times reaching thousands of kilograms, generally is channeled to one of four "source" cities (Houston, Los Angeles, Miami, and New York City) for distribution there and throughout the country. Commission Hearing, supra note 6, at 15-16 (statement of Kevin M. Donnelly); DEA Threat Assessment, supra note 13. Los Angeles, Miami, and New York City also serve as source cities for powder cocaine destined for conversion into crack cocaine. See DEA Report, supra note 11, at 1.
Colombian and Mexican suppliers are the primary importers of powder cocaine. Belenko, supra note 11, at 113; DEA Report, supra note 11, at 2. While Mexican smugglers supply cocaine in the southwest, the Colombian Medellín and Cali Cartels control importation into the source cities. According to the DEA, the cartels maintain "operational headquarters" in major U.S. cities (Chicago, Houston, Los Angeles, New York, Philadelphia, San Francisco) to control wholesale and regional distribution networks within those cities. The Cali Cartel's operational cells are directed by managers based in Colombia and operate independently of other cells. The Medellín Cartel's operations are less compartmentalized, involving drug trafficking groups that generally make joint decisions but permit some managers discretion in operations. DEA Threat Assessment, supra note 13, at 14, 20.
A few large gangs in the source cities (the Crips and the Bloods in Los Angeles and Jamaican Posses, Dominican, and Haitian groups in Miami and New York City) purchase powder cocaine from cartel members for further intrastate and interstate distribution primarily as powder cocaine. Commission Hearing, supra note 6, at 13 (statement of Kevin M. Donnelly); DEA Report, supra note 11, at 1-2. In addition, Cuban and Mexican groups are involved heavily in the distribution of powder cocaine that generally is not converted to crack cocaine. Id. at 15; DEA Threat Assessment, supra note 13, at 14; Skolnick et. al, supra note 6, at 4, 30.
D. WHOLESALE AND RETAIL DISTRIBUTION OF COCAINE
1. Wholesale Distribution
Wholesale cocaine traffickers purchase cocaine from importers and regional distributors usually in kilogram or multikilogram allotments. Some wholesalers then transport the cocaine, almost always in powder form, elsewhere interstate or intrastate. DEA Report, supra note 11, at 2. Other wholesalers package powder cocaine into retail quantities (ounces or grams) or convert powder cocaine into crack for retail sales. These distributors often manage crack or shooting houses or street-corner sales and may supervise as many as 20 sellers. The gangs involved in wholesale distribution generally are also involved in retail distribution of cocaine, as are other small-group and freelance distributors. Id. at 2. Conversion of powder cocaine to crack occurs at both wholesale and retail levels.
The Drug Enforcement Administration notes that in recent years some wholesale distributors who initially handled crack cocaine now distribute powder cocaine to avoid "the harsh Federal sentencing guidelines that apply to higher-volume crack sales." Id. at iv.
2. Retail Distribution
Retail distributors sell cocaine to the consumer and may conduct hundreds or thousands of transactions annually. Mieczkowski, supra note 4, at 17. For a variety of reasons including the enticement of profits, there is a large supply of retail dealers. Indeed, in many communities, retail dealers who are arrested or otherwise leave the market are "almost immediately replaced." DEA Report, supra note 11, at 2, 7. An FBI agent involved in an 11-month investigation of drug sales at the Kenmore Hotel in New York, for example, found a "seemingly unending well of crack dealers." Affidavit of FBI Special Agent Kenneth R. Weiss In Support of Verified Complaint and Seizure Warrant, United States v. 143-147 East 23rd Street [which includes the Kenmore Hotel], at 3-4. Dealers arrested "were replaced by other crack dealers, who easily absorbed the prior dealers' clientele." Id.
Researchers note several similarities among certain "street" retailers of crack cocaine and street retailers of powder cocaine. Researchers found that in New York City, for example, street retailers of both drugs are primarily poor, minority youth, generally under the age of 18, and were first attracted by large profits. Belenko, supra note 11, at 109; DEA Report, supra note 11, at 17; T. Williams, The Cocaine Kids (1989). In many cases, these dealers distribute both drugs. P. Reuter, R. MacCoun, P. Murphy, A. Abrahamse, and B. Simon, Money From Crime: A Study of the Economics of Drug Dealing in Washington, D.C. (RAND) 1990. Data derived from District of Columbia Pretrial Services Agency data on the 11,430 D.C. residents charged with drug selling during 1985-1987 and interviews with 186 probationers in the District of Columbia who acknowledged a recent history of drug dealing.
But, researchers also note differences between retail crack and powder cocaine distribution. For example, crack is sold in smaller quantities than powder. Many in law enforcement believe that as a result, crack is more easily transported, distributed, and, if necessary, hidden or discarded upon an encounter with law enforcement than powder cocaine. M. Klein, C. Maxson, and L. Cunningham, "'Crack,' Street Gangs, and Violence," 29(4) Criminology 623, 625 (1991). According to a Miami narcotics detective, crack cocaine is "easy to get rid of in a pinch. Drop it on the ground and it's almost impossible to find; step on it and the damn thing is history. All of a sudden your evidence ceases to exist." J. Inciardi, "Beyond Cocaine: Basuco, Crack, and Other Cocoa Products," Contemporary Drug Problems 470-71 (1987). Some authorities relate that retailers of both powder and crack cocaine "drip" traffic; that is, they carry small quantities on their person for immediate distribution and leave additional quantities in drop spots to which they can return. For discussion regarding "dripping," see e.g., Commission Hearing, supra note 6, at 44 (statement of Kevin M. Donnelly). Firearms may be located near the stash for use against rival groups or others seeking to take the drugs.
The ease of disposal and the tactic of "dripping" increase the likelihood that, in the event of arrest, the retail dealer's criminal liability will be limited to the quantity on his/her person, a quantity that will likely be less than the total quantity the dealer intended to distribute. Of course, the retail-level dealer who distributes from a crack or shooting house is prevented by the nature of that forum from "dripping" and generally will be held liable for the entire quantity of drugs found in the house. Id. Regardless of the dealer's mode of operation, his sentence under the sentencing guidelines is determined using the aggregate quantity of drugs associated with the offense(s) of conviction and all related conduct. See, U.S. Sentencing Commission, Guidelines Manual (hereinafter "USSG") 1B1.3 (1994).
3. Polydrug Distribution
Researchers and law enforcement officials indicate that cocaine distributors at all levels generally distribute more than one drug. For example, in New York City, distributors package crack cocaine and powder cocaine in the same apartments for later retail distribution. The DEA believes:
Without exception, each of [the four wholesale trafficking groups - Jamaican Posses, Crips and Bloods, Dominican and Haitian groups] started out as poly-drug traffickers, concentrating primarily on marijuana and cocaine HCl, and continue to sell these drugs. [Similarly, retailers often sell other drugs in addition to crack.] DEA Report, supra note 11, at 4.
Considerable research suggests that drug dealers gravitate toward distribution of the substance that produces the highest net income (see Section H, "Prices, Profits, Revenues"). Reuter et al., supra note 28, at 59.
E. FORUMS FOR RETAIL DISTRIBUTION
Powder and crack cocaine are distributed at the retail level by similar means. The DEA notes that cocaine sales take place in dwellings (urban and suburban) and on innercity street corners. DEA Report, supra note 11 at 3; Skolnick et. al, supra note 6, at 28. Researchers identify four general forums for retail distribution: through freelance individuals, open-air street sales, sales by runners or beepermen, and sales in crack or shooting houses. Although there is a reasonably clear idea of who sells cocaine in the street and in crack and shooting houses, there is less awareness of how cocaine is sold in the suburbs, in upper-class neighborhoods, and to business people. Id. Dealers who sell to the more affluent users are generally more difficult to target and thus more difficult to inventory.
1. Street-Corner or Open-Air Forum
Distribution of crack and powder cocaine on the street-corner or in open-air markets involves alley, sidewalk, or roadway sales, or sales in fenced-in areas such as public housing compounds. Sales typically consist of small retail quantities sold to walk-up or drive-up buyers. Generally no consultation takes place between the parties prior to the purchase. This method is the least sophisticated type of retail sale and is used frequently for distribution of both crack cocaine and powder cocaine. T. Mieczkowski, "The Operational Styles of Crack Houses in Detroit," in M. de la Rosa, B. Gropper, and E. Lambert (Eds.), Drugs and Violence: Causes, Correlates, and Consequences 61 (1990); Reuter et al., supra note 28, at 17.
The DEA notes advantages to street-corner transactions, such as the availability of avenues of escape, the ability to change locations to avoid law enforcement detection, the ability to use decoy sellers to disrupt surveillance, and the low overhead associated with the street-corner market. DEA Report, supra note 11 at 3. In addition, where a street-corner market has been staked out by a group of cooperating freelancers or a gang, competition and associated violence may be limited. Hamid, supra note 4, at 342-43.
Where competition is not controlled (i.e., where freelancers predominate or where gangs are attempting to consolidate competition), violence aimed at controlling rivals may threaten the security of the street corner. Hamid, supra note 4, at 341-43. The security of some street-corner transactions is maintained by lookouts or enforcers who carry firearms to protect the street retailer from undercover police, rivals, and customers. For instance, in the District of Columbia, police "very seldom[ly]" arrest multiple drug dealing conspirators working in open-air markets, because a lookout monitoring the transaction from another corner often signals the conspirators, thus allowing for widespread escape. Commission Hearing, supra note 6, at 46-47 (testimony of John J. Brennan, Sergeant, Narcotics and Special Investigations, Metropolitan Police Department, District of Columbia); Skolnick et. al, supra note 6, at 28 (citing Bowser (1988)).
In Detroit during the late 1980s, street transactions were the least popular method of distribution only 4 percent of distributors reported using this method exclusively. Mieczkowski, supra note 37, at 63. In other cities, such as New York City, Trenton, New Jersey, and Los Angeles, street-corner transactions predominate. Hamid, supra note 4, at 341-43; Commission Hearing, supra note 6, at 18 (statement of Kevin M. Donnelly) (data for Trenton, New Jersey); Klein et al., supra note 29, at 631. In the District of Columbia, open-air markets increased from between 10 and 20 in the early 1980s (distributing primarily phenmetrazine, dilaudid, heroin, and marijuana) to more than 80 that currently distribute crack cocaine. Commission Hearing, supra note 6, at 8 (testimony of John J. Brennan).
2. Beepermen, Touters, and Runners
A second distribution system involves a "beeperman" who exchanges drugs with the drug user after having been contacted by phone or beeper. In some cases, the beeperman personally identifies the buyer and exchanges the drugs; in others, an intermediary (a "touter") serves as a sales agent or broker who identifies buyers. A "runner" may deliver the drugs and retrieve the money for the beeperman or touter. Mieczkowski, supra note 4, at 24, 61-63 (data for Detroit); T. Williams, supra note 27 (data for New York City).
Beepermen may employ more than one trusted runner or touter, often using a merchandise consignment system in which the beeperman receives a fixed sum and the touter or runner keeps anything else he/she arranges with the buyer. In addition, the touter or runner may be permitted to retain a portion of the drugs exchanged. The runner assumes the risk of loss of the cocaine, whether to law enforcement, rival dealers, or customers. This assumption of risk, along with other conditions, may serve "as an entree for violent behavior" in this system of distribution. Mieczkowski, supra note 37, at 61-63, 65-67.
Beepermen may deliver drugs to a home or office, meet at a designated location, or have the consumer retrieve the drugs from a particular place. Public places such as fast-food restaurant parking lots are considered more secure delivery points than covert locations. This method may be most commonly used in powder cocaine transactions, at least among wealthy users, because it offers privacy and security from law enforcement. Reuter et al., supra note 28, at 17. In Detroit, 21 percent of dealers primarily relied on this method. Mieczkowski, supra note 37, at 63.
3. Crack and Shooting Houses
Distribution through crack and shooting houses involves use of a fixed location from which drugs are sold to visiting consumers. Id. at 62. Crack and shooting houses may be established through converting dwellings by coercion or by bribing the occupants with drugs. Some research indicates that tenants who initially consent to the use of a portion of the residence by a gang for crack cocaine production or distribution later may be coerced into permitting the gang to dominate use of the entire property. Such tenants ultimately may be compelled by the gang to leave the property, lose the property to seizure, or suffer the consequences of a law enforcement raid or a deal gone awry. Id. at 70, 79-80.
Research identifies various benefits of crack and shooting house distribution. Chief among these is a more secure environment, including armed employees and one or more lookouts who alert residents to approaching law enforcement officials. D. Allen and J. Jekel, Crack: The Broken Promise 17-18 (1991). Houses also facilitate sex-for-drugs arrangements that commonly substitute as a medium of exchange for cocaine, as well as other drugs. Other frequently mentioned mediums of exchange at crack houses are stolen property, Mieczkowski, supra note 37, at 75, 82, 87. firearms, and food stamps. Skolnick et. al, supra note 6, at 19-20. (See Chapter 5 for a further discussion of crime associated with cocaine.)
Although crack and shooting houses offer some advantages for distribution, they nevertheless are more likely to be subject to surveillance and raids by law enforcement officials; and successful raids often turn up large quantities of drugs. Id. at 34. Further, crack and shooting houses, particularly those with areas set aside for smoking or shooting cocaine, encourage customers to loiter, which may attract thieves (whether outsiders, customers, or the operators of the house) and others seeking confrontation. In short, the intimate and extended circumstances of the transfer of drugs may make customers and crack house operators more vulnerable to violence and other crime. Indeed, some patrons are "more scared about a user" or "a rip-off or stickup" than about a "bust" by law enforcement. Mieczkowski, supra note 37, at 72, 85-86; Skolnick et. al, supra note 6, at 34. Skolnick quotes a dealer who held little fear of actually being caught:
The police just give themselves away. You just know them when they come, you know, undercover. It's just instinct from being a street person. They catch somebody, they catch little naive people with three or four rocks, and they be right out of jail right away.
Among gang and non-gang distributors, crack houses appear to be used at similar rates. In Los Angeles, both gang and non-gang groups use crack houses for distribution in less than six percent of all sales. Klein et al., supra note 29, at 631. In Kansas City, Jamaican Posses reportedly run approximately 100 crack houses. D. Barton, "The Kansas City Experience: `Crack' Organized Crime Cooperative Task Force," 55 The Police Chief 30 (1988). In Miami, approximately 700 crack houses are in operation. J. Inciardi and A. Pottieger, "Kids, Crack, and Crime," 21 (2) The Journal of Drug Issues 260 (1991) (data derived from interviews with 699 Miami cocaine users half on the street, half in residential treatment interviewed from April 1988 to March 1990).
Two general types of crack and shooting houses exist: (1) "austere" or "fortified" houses and (2) "open" or "social" houses.
a. "Fortified" or "Austere" Crack and Shooting Houses
"Fortified" crack and shooting houses are characterized by limited buyer-seller interaction, bricked or boarded windows, rear or alley entryways, and slots through which the transaction occurs. Mieczkowski, supra note 37, at 71. Structures used include inhabited or abandoned dwellings and buildings, clubs, or motel rooms. Williams, supra note 27; DEA Report, supra note 11, at 7. Approximately half of the structures used for distribution in Los Angeles had some form of fortification, including burglar bars on windows or reinforced entrances to the building. Klein et al., supra note 29, at 632.
"Fortified" houses involve a risk of predatory violence among the parties because their familiarity with each other is limited and conditions favor robbery. Mieczkowski, supra note 37, at 71. As a consequence, firearms are regularly present. In Los Angeles, firearms were seized in 58 percent of raided crack houses. Klein et al., supra note 29, at 642. In Trenton, New Jersey, where crack houses are not common, one house was fortified by boarding the windows with 2-by-6 boards and by fortifying the front door with metal doors. The house had no furniture but was stocked with a sawed-off shotgun, a .38-caliber handgun, 9-millimeter handguns, and a machine gun. Commission Hearing, supra note 6, at 19 (statement of Kevin M. Donnelly).
b. "Open" or "Social" Crack and Shooting Houses
"Open" houses permit considerable interaction between buyers and sellers. The more interactive houses may include an area for smoking and/or shooting, and even rudimentary child care facilities. The arrangement typically leads to loitering among consumers as they socialize or smoke. As a result, additional goods and services, such as drug paraphernalia, liquor, other drugs, and stolen goods may be provided for a fee. Mieczkowski, supra note 37, at 71, 81-82; DEA Report, supra note 11, at 3.
Although the houses are "open" and "social," drug transactions generally are conducted among regulars or customers with whom the seller has some relationship. Pervasive loitering often requires bodyguards or enforcers to keep the peace. Enforcers might patrol the premises with shotguns or knives or stand at the door with a gun. Mieczkowski, supra note 37, at 81, 84-85.
A variation on this "open" crack house is the "freak house," a relatively recent development in New York City. The "freak house" is typically a dwelling in which a male crack user permits several homeless, crack-user females to reside in the dwelling in exchange for providing sex to male customers. The men, who may or may not be users, generally purchase crack cocaine (or have it purchased) in street-corner markets and exchange the crack for sex ("freaking"). The male crack user receives sex and crack cocaine from the women in his employ, and crack or cash from the male visitors. Hamid, supra note 4, at 344; Johnson et al., supra note 11, at 361, 363.
For one researcher, the freak house is symptomatic of the decline of the crack cocaine era:
The freakhouse is a culmination of social processes at work both in the crack-using population and in the low-income neighborhood at large. . . Especially when contrasted with the preceding period of curbside use and distribution, which provided formats for the rapid, widespread diffusion of crack use, freakhouses speak of its contraction. However, declining crack use in freakhouses portends even greater trouble than has already been attributed to it. The risk of heterosexual transmission of AIDS is compounded . . . In its decline, therefore, the cocaine-smoking epidemic intersects with disease and death. Hamid, supra note 4, at 344.
4. Prevalence of Drug Distribution Forums
The prevalence of one forum for cocaine distribution over another often is associated with climatic conditions (e.g., cities in colder climates experience larger numbers of crack and shooting houses), the level of law enforcement activity (e.g., an area subject to a number of raids on houses may see more street distribution), and exposure to violence. DEA Report supra note 11, at 3.
Distribution of crack in Detroit most frequently is accomplished through crack houses; 71 percent of dealers used this forum alone or in connection with other forums. Mieczkowski, supra note 37, at 63, 64. Other Detroit data indicate that 63.7 percent of respondents purchase or distribute through a crack house, while 11.8 percent use touters or beepermen, and 10.4 percent purchase from street sellers. Sharing with a friend makes up the remaining 14.1 percent. Mieczkowski, supra note 4, at 22-23.
Other studies show the important, if not necessarily dominant, role of crack houses in crack cocaine distribution in New York City. See Belenko, supra note 11, at 108. One researcher notes frequent use of crack houses, primarily apartments or after-hours clubs, in Hispanic neighborhoods of New York.
However, some evidence indicates that crack houses in Harlem generally have disbanded "rapidly" when users became disaffected with the excessively entrepreneurial nature of this distribution forum, particularly the renting of paraphernalia, which elsewhere is often provided free, and the requirement that users leave as soon as smoking was completed. Hamid, supra note 4, at 340. Crack cocaine now is sold primarily from apartments of users or curbside. A. Hamid, "The Political Economy of Crack-Related Violence," 17 Contemporary Drug Problems 59 (1990); Hamid, supra note 4, at 340-41. In Los Angeles, only six percent of crack cocaine sales occurred in crack houses, although one-third of arrests occurred in such houses. Klein et al., supra note 29, at 631.
F. ORGANIZATIONAL STRUCTURE OF COCAINE DISTRIBUTORS
Three types of organizational structures are used to distribute both powder cocaine and crack cocaine: freelance individuals, relatively small, non-gang groups, and relatively large, urban street gangs. Only urban street gangs are found at all levels - regional, wholesale, and retail - of distribution. DEA Report, supra note 11, at 4.
1. Freelance Individuals
The "freelance" system of distribution, in which loosely organized individuals use ad hoc contacts to sell drugs, prevailed during the early stages of both the powder and crack cocaine markets when demand was not well-established. Mieczkowski, supra note 4, at 16. With the development of new manufacturing techniques, virtually anyone with access to baking soda and water could make crack cocaine from powder cocaine. Indeed, this breakthrough decentralized the manufacturing process for crack cocaine and permitted demand to be met by retail dealers or even consumers themselves. Commission Hearing, supra note 6, at 109 (statement of Charles R. Schuster, Senior Research Advisor, Addiction Research Center, National Institute on Drug Abuse); Allen and Jekel, supra note 51, at 16. However, as a practical matter, few retail dealers of crack cocaine manufacture the drugs they distribute. For example, in the District of Columbia, only 11-12 percent do so, compared with double that number, 23 percent, of PCP dealers. Reuter et al., supra note 28, at 60-61.
These free-lancing individuals continue to represent a significant portion of retail cocaine distributors, both powder and crack, even with well-established demand and a relatively mature drug distribution market. Freelance distributors also engage in wholesale distribution. DEA Report, supra note 11, at iv, 12. Many individual cocaine dealers are users who deal to maintain access to the drug or to secure money to purchase cocaine when they otherwise lack financial resources or legitimate employment opportunities. Id. at 2; Allen and Jekel, supra note 51, at 17; Mieczkowski, supra note 37, at 60, 75; Inciardi and Pottieger, supra note 58, at 257, 260.
Considerable and nearly unquantifiable freelance distribution occurs in close circles of friends and family as cocaine is shared, borrowed, traded, begged, or otherwise sold. Mieczkowski, supra note 4, at 18. But substantial street retailing by individual dealers also occurs. In the District of Columbia, for example, approximately 45 percent of distributors of cocaine, both powder and crack, work alone. Reuter et al., supra note 28, at 61-62. Some individual dealers may choose, after selling with a group, to go independent, believing they can earn higher profits on their own. Skolnick et. al, supra note 6, at 1, 20.
A number of limitations hinder the ability of an individual dealer to market his/her drug as successfully as more organized groups, particularly street gangs. Not only is an individual seller more likely to use drugs, thus limiting entrepreneurial effectiveness and ability to evade detection by law enforcement, but the individual seller generally is prevented from entering areas controlled by a neighborhood group with a monopoly on trafficking. Individual dealers generally lack the protective structures of organized gangs that are useful particularly against competition and "ripoffs." Moreover, individual dealers are less protected from undercover operations and informants and lack shared marketing information regarding drug pricing and sources. Id. at 20-21 (noting particular dominance of urban street gangs in Los Angeles). This study involved interviews in 1988 of a sample of 39 California inmates and wards and 42 city and county police, state narcotics officers, and correctional officials.
Freelance distributors are not without some degree of organization, however, to protect their interests and to regulate the marketplace. As researchers in New York City note:
[F]ree-lancers frequently enter into various short-lived forms of cooperation to protect one another, to assign "spots" [curbside selling locations], and even to raise funds for special events. Each, however, retains his own suppliers and manages his own returns. Johnson et al., supra note 11, at 361.
2. Small, Non-Gang Groups
Individuals, sometimes gang members acting apart from the auspices of the gang, informally will band together in small groups (typically three members) for the purposes of distributing cocaine. Belenko, supra note 11, at 107; Hamid, supra note 74, at 59. These groups may have advantages over larger, gang-directed groups because their limited size presents a more difficult target for law enforcement, making group leaders less likely to be discovered. Reuter et al., supra note 28, at 24. In addition, the ease and relative cheapness of the ingredients used in manufacturing crack cocaine allow for distribution groups to begin operating with little initial working capital.
The phenomenon of gang members operating independently from the gang itself complicates the classification of distributors as non-gang or gang-related. See Klein et al., supra note 29. Indeed, some researchers suggest that the rise in gang-related activity and the onset of crack cocaine, though coincidental, are not correlated. Instead, they suggest that the groups distributing crack cocaine are entrepreneurial in nature and not traditional street gangs, even if they so designate themselves. Belenko, supra note 11, at 108; Klein et al., supra note 29; J. Moore, "Gangs, Drugs, and Violence," in M. de la Rosa, B. Gropper, and E. Lambert (Eds.), Drugs and Violence: Causes, Correlates, and Consequences 160-176 (1990).
3. Urban Street Gangs
Researchers and law enforcement officials consistently report that certain urban street gangs are involved significantly in both powder and crack cocaine distribution. Some of these gangs are relatively well organized, similar to traditional organized crime, enabling them to move relatively nimbly into and through drug distribution markets. Other gangs, like other unstable, transitory, criminal groups (particularly those involving youths), lack a significant degree of organization or discipline, although they play a significant distribution role in the drug markets. DEA Threat Assessment, supra note 13, at 34.
a. Primary Street Gangs
Four sets of gangs - Jamaican Posses, the Crips and the Bloods, Haitian gangs, and Dominican gangs - are large distributors of both powder and crack cocaine, although they were not organized initially to distribute drugs. These gangs are large, well financed, relatively well organized, well connected in their respective communities, and tend to use violence both to enforce gang discipline and to consolidate market share. Although these larger gangs initially distributed crack cocaine only in large urban areas such as Los Angeles, Miami, and New York City, they now are believed to have established operations nationwide in numerous small and mid-sized cities and towns. DEA Report, supra note 11, at 1, 4. These gangs do not represent the entire population of gangs believed to deal in illegal drugs but are the most widely known and illustrate how gangs often deal in illegal drugs.
The four primary sets of gangs employ similar but not identical methods of distributing both powder and crack cocaine. A brief discussion of the history and structure of each primary group's operations follows.
Jamaican Posses primarily comprise immigrants from Jamaica who have entered the United States since 1980. Many members initially belonged to posses established in Jamaica, but membership increasingly includes Hispanics and Blacks. Posse membership in the United States in 1988 was approximately 11,000 individuals in about 35 posses. U.S. Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms, 1 Caribbean Based Organized Crime 1 (June 1993).
Jamaican posses distributed crack cocaine initially in New York City and Miami where they had established trafficking organizations for powder cocaine, heroin, and marijuana. DEA Report, supra note 11, at 4-5; Hamid, supra note 74, at 34-35, 57. By mid-1987, the posses also became the primary East Coast distributors of crack cocaine, setting up distribution rings in 12 cities. Belenko, supra note 11, at 105-106 (citing news sources). Operations later spread westward to Dallas, Kansas City, Alabama, Kentucky, Mississippi, West Virginia, the Florida panhandle, and even south-central Los Angeles. DEA Report, supra note 11, at 1; Barton, supra note 57, at 28-31.
Posses are fragmented and competitive, resulting in relatively undisciplined and unstructured organizations. Indeed, centralizing tendencies have been "strenuously disavowed," at least by those directing marijuana distribution in previous incarnations of the posses. This fragmentation and the experience of many posse members in political revolts in Jamaica in the early 1980s are believed to have led to considerable violence committed by and among posses. Nevertheless, some centralizing of crack cocaine operations has been apparent since the late 1980s. DEA Report supra note 11, at 5; Hamid, supra note 74, at 61.
Typical roles within Jamaican Posses include boss (top of the chain of command), manager (oversees operations of retail sellers), courier (transports drugs or money between managers and sellers), seller (distributes drugs at retail level), lookout (protects sellers from law enforcement, competitors, customers), and steerer (directs customers to sellers). Lookouts or bodyguards commonly are employed to protect the drugs and financial interests. While generally only trusted workers are employed, enforcers are required to keep discipline because of disagreements and confrontations leading to violence that arises over profits, losses, and thefts. DEA Report, supra note 11, at 6-7.
Posses, while historically associated with crack cocaine distribution at all levels, increasingly are removing themselves from the violence and exposure to law enforcement entailed in the day-to-day operation of crack houses and street selling, focusing instead on supplying sellers with larger quantities of cocaine. Id. at 5.
The Crips and the Bloods are rival gangs in Los Angeles whose membership comprises primarily Black youth. Although not formed initially to distribute drugs, the gangs nevertheless are believed to engage in considerable drug trafficking. Skolnick et. al, supra note 6, at 10, 17 (Skolnick calls them "cultural" gangs established primarily around neighborhood identity. As the involvement of these gangs in crack cocaine distribution increases, law enforcement and others have grown skeptical of their "cultural" basis). They had lucrative drug distribution organizations (concentrating primarily on distributing powder cocaine, marijuana, and PCP) already in place at the time crack cocaine was introduced into the United States. DEA Report supra note 11, at 9-10; Skolnick et. al, supra note 6, at 5, 8. But see the discussion infra for contrasting views within the literature regarding the degree of organization of street gangs.
The Crips and the Bloods primarily distribute cocaine in the West and the Midwest. See DEA Threat Assessment, supra note 13, at 34. They began distributing in Los Angeles where gang leaders and membership were based. DEA Report, supra note 11, at 9. The gangs since have expanded operations into as many as 40 cities across the United States, including Birmingham, Denver, Detroit, Las Vegas, Phoenix, and Seattle. This expansion eastward and northward resulted from pressures by law enforcement and competition, and occurred as the gangs sought to take advantage of higher retail prices in smaller retail markets. DEA Threat Assessment, supra note 13, at 34. Gangs originally established operations in cities and towns in which friends or family were located. Older members often "fronted" drugs to younger ones to facilitate the entry of new sellers into the retail distribution. Belenko, supra note 11, at 105-106 (citing news sources); DEA Report supra note 11, at 1, 9, 10.
Loosely organized into small units or "sets" of members, Crips and Bloods are present at all levels of distribution. Gang members serve as retailers dealing multiple grams or ounces on the street or in crack houses, a limited number of wholesale distributors (some of them former retail sellers), and regional traffickers, some with the ability to broker multi-million-dollar deals with Colombian importers. DEA Report, supra note 11, at 9-10; Skolnick et. al, supra note 6, at 6, 18.
Haitian gangs have been identified among the primary distributors of powder and crack cocaine in Miami, New York City, and the District of Columbia. Belenko, supra note 11, at 106 (citing news sources); DEA Report, supra note 11, at 2, 9; but see Reuter et al., supra note 28, at 24 (indicating gangs "seem to play a minor role" in the District of Columbia). Haitian gangs often recruit retail sellers from recent, often unemployed, Haitian immigrants. Gang involvement in crack cocaine distribution is facilitated by easy access to powder cocaine that increasingly is transported through Haiti by Colombian cartels. DEA Report, supra note 11, at 9.
Dominican gangs are among the primary distributors of powder and crack cocaine in New York City and Massachusetts. Id. at 2; Belenko, supra note 11, at 106 (citing news sources). Bosses operating from the Dominican Republic often recruit Dominican immigrants located in the United States to staff retail distribution positions. The DEA identifies Dominican gangs as "always armed" and technologically sophisticated, using booby traps and walkie-talkies in their operations. The DEA also reports that the Dominican gangs are highly competitive and violent, resulting in less-structured, less-disciplined organizations. DEA Report, supra note 11, at 8.
b. Secondary Street Gangs
Numerous local street gangs, including Black organizations in Detroit, West Indian groups in Brooklyn and Harlem, and Black and Hispanic organizations in Los Angeles and northern California, are involved in crack cocaine and powder cocaine distribution to a lesser extent than the primary gangs discussed above. DEA Report, supra note 11, at 5; Mieczkowski, supra note 37 (data for Detroit); Hamid, supra note 74 (data for Brooklyn and Harlem); Skolnick et. al, supra note 6 (data for Los Angeles and Northern California).
In New York City, the prior involvement of Caribbean nationals with marijuana and cocaine led them into crack cocaine distribution when marijuana demand fell, marijuana supplies increasingly were interdicted, and, in contrast, powder cocaine became plentiful and in high demand. The relative ease of packaging crack cocaine and the increasing popularity of crack smoking, particularly among West Indian communities, also contributed to the gangs' involvement. Belenko, supra note 11, at 109.
c. "Entrepreneurial" or "Business-Model" Gangs
A second class of gangs, "entrepreneurial" or "business-model" gangs, can be distinguished from the primary and secondary "cultural" gangs discussed above. Cultural gangs are established primarily for social purposes, with drug distribution a subsidiary purpose of the gang. The shared ethnic, racial, and neighborhood characteristics of cultural gang members are of paramount importance. Skolnick et. al, supra note 6, at 8, 11, 13, 15.
Entrepreneurial gangs, on the other hand, are established to further the financial objectives of the organization and not the gangs' cultural or neighborhood objectives. As with cultural gangs, entrepreneurial gangs rely extensively on people who have grown up in the gangs' territory or neighborhood. They exhibit considerable differentiation of roles within the organization, including bosses, couriers, street retailers, lookouts, and steerers. Id.at 8, 11, 13, 15. Drug supplies typically are "fronted" to sellers, and employees often receive benefits that include bonuses, food, lodging, and drugs. Johnson et al., supra note 11, at 56, 62.
Entrepreneurial gangs have two models of organization. The first, the "vertical business" model, involves a multi-layered, hierarchical organization headed by a small number of people who control most aspects of employee distribution, including location of sales, prices, and profits. The "franchise business" model involves a dealer who distributes on consignment moderate quantities of drugs to several dealers, each of whom controls a separate organization. In either model, employees may frequently shift roles within the organization, and turnover may be high. Control of organization employees and competitors is established through the use of a variety of disciplinary methods and violence that can be "ruthless" and "pitilessly savage." Id. at 62-65; Skolnick et. al, supra note 6.
G. ROLE OF YOUTH AND WOMEN IN CRACK COCAINE DISTRIBUTION
Research indicates that youth, even children, are prevalent in crack cocaine distribution organizations. See, e.g., Commission Hearing, supra note 6, at 10, 14 (statement of Jeff L. Tymony, Executive Director, Halfway House for Adults, Wichita, Kansas); J. Fagan and K. Chin, "Initiation into Crack and Cocaine: A Tale of Two Epidemics," 16 Contemporary Drug Problems 579-617 (1989); Inciardi & Pottieger, supra note 58, passim; Allen & Jekel, supra note 51, at 17; Mieczkowski, supra note 4, passim; T. Mieczkowski, Crack Dealing on the Street: An Exploration of the YBI Hypothesis and the Detroit Crack Trade (1990) (paper presented at Annual Conference of the American Society of Criminology, Baltimore, Maryland 1990); Skolnick et. al, supra note 6, at 22; J. Inciardi, "Trading Sex for Crack Among Juvenile Drug Users: A Research Note," 16 Contemporary Drug Problems 689, 689-90 (1989) (citing media reports) (data derived from 254 interviews of crime-involved youth in Miami from October 1986 through November 1987). For example, retail dealers in New York City tend to be under 18 years of age. As one researcher notes, "[a]ges of distributors . . . continue to fall, and today many distributing groups are primarily groups of teenagers," a factor believed to lead to strains that "erupt in violence." Hamid, supra note 74, at 61.
New York City arrest data indicate that both powder cocaine and crack cocaine distributors are young, but those involved in distributing crack cocaine are younger. Of 339 powder cocaine distributors, 29 percent were 21 years of age or less, and 30 percent were 22-26 years of age. By comparison, of 618 crack cocaine distributors, the figures are 38 percent and 30 percent, respectively. Fagan and Chin, supra note 117, at 589-91, 597. But see also, pp. 602, 605 for a discussion on limitations of these data. Ten percent of the youths who distribute crack cocaine sold only to friends or worked for dealers as lookouts or steerers; two-thirds (67%) were street retailers; and 23 percent not only sold the drug but also manufactured, smuggled, or wholesaled it. Inciardi & Pottieger, supra note 58, at 260. Recent research suggests that the use of teenagers to sell crack cocaine may have plateaued, particularly as retail profits decrease and as social norms develop against "crack heads" and those who sell to them. Johnson et al., supra, note 11, at 363.
The DEA identifies crack cocaine distributors as responsible in large part for the increase in juvenile involvement in drug trafficking. DEA Report supra note 11, at 13; Inciardi & Pottieger, supra note 58, at 257-58 (same). In addition, considerable research suggests that crack cocaine dealers use juveniles in more visible roles, such as lookouts, steerers, and runners, in the belief that juveniles are more likely to escape detection and prosecution. Commission Hearing supra note 6, at 136-37 (statement of Robert Byck); DEA Report, supra note 11, at 13; Skolnick et. al, supra note 6, at 22. Young, unemployed or underemployed, illiterate, and otherwise impoverished persons are particularly susceptible to the allure of profits to be made from drug distribution. DEA Report supra note 11 at 2; Fagan and Chin, supra note 117, at 581.
Other macro-economic factors associated with crack cocaine distribution, such as the nature of the economy, social structure, and the urban environment, have made it more likely that youth will distribute crack cocaine than powder cocaine (see Chapter 5, Section C titled "Cocaine in Context" for more detail). Fagan and Chin, supra note 117, at 589-91, 597. But see also, pp. 602, 605 for a discussion on limitations of these data.
Similar reasons may be behind an increased use of women to distribute crack cocaine. The DEA suggests that women have greater roles in crack cocaine distribution relative to distribution of other drugs. Women are used to make straw purchases of firearms or to rent residences to use as crack and stash houses on behalf of a distributor so he or she can remain unknown (to the gun dealer or the landlord, as the case may be). DEA Report, supra note 11, at 13. In Miami, 12 percent of youth dealers are women. Inciardi & Pottieger, supra note 58, at 264.
H. PRICES, PROFITS, REVENUES
1. Marketing Strategies
As a glut of powder cocaine developed in the early to mid-1980s, prices for both powder cocaine and crack cocaine fell. Belenko, supra note 11, at 5; Klein et al., supra note 29, at 625; DEA Report, supra note 11, at 1. Consequently, retail crack cocaine distributors began using new marketing strategies to ensure an expanded market for crack cocaine. One strategy involved varying prices and quantities depending on the consumer's resources. Allen & Jekel, supra note 51, at 17. Some street gangs distributed free crack cocaine samples for first-time buyers or offered "double ups" (two doses for the price of one) to establish a market in smaller localities or new territory. Commission Hearing, supra note 6, at 42 (statement of Kevin M. Donnelly); DEA Report, supra note 11, at 10.
Perhaps the most significant marketing strategy involved selling crack in single-dosage units in plastic vials or baggies weighing between 0.1 and 0.5 gram apiece and affordably priced at between $5 and $20. Skolnick et. al, supra note 6, at 58-59; Belenko, supra note 11, at 4; DEA Report, supra note 11, at iii. In contrast, powder cocaine typically is retailed by the gram, Inciardi, supra note 30, at 470. i.e. five to ten doses, for less affordable prices ($65-$100). The affordability of crack cocaine expanded the consumer base into socioeconomic groups with less available cash.
Recently, innovations in marketing strategies have been targeted not at inducing new users but at increasing dealer profits. For example, in New York City the same "nickel" ($5) vials that might have contained 0.1 gram of crack might now contain 0.05 gram. Some report that vials with "V"-shaped bottoms are used to give a false impression of the quantity of drug in the container. Johnson et al., supra note 11, at 362.
Prices for crack cocaine and powder cocaine dropped dramatically during the 1980s. Since 1990, however, prices generally have remained constant or increased. Hamid, supra note 4, at 343-44. Short-term price fluctuations since 1990 have resulted primarily from law enforcement seizures, changes in demand, increased profit-taking by wholesalers, and worsening economic conditions.
a. Crack Cocaine
As indicated previously, crack cocaine generally is sold for $5, $10, or $20 in single-dosage quantities ranging from 0.1 to 0.5 a gram, Inciardi, supra note 30, at 485; Allen & Jekel, supra note 51, at 17. although quantities in some areas have gradually decreased as dealers seek greater profits per sale. Hamid, supra note 4, at 343. The relatively low price for a dose of crack cocaine makes it more affordable to lower-income persons. Mieczkowski, supra note 4, at 10. Five grams of crack cocaine, the quantity necessary to trigger the five-year mandatory minimum, represents between 10 and 50 doses and costs between $225 and $750 (based on DEA estimates of price per gram).
The DEA notes a typical range of street prices in 1992 of $10-$50 depending on the size of the rock or vial, with an average price of $10-$20. DEA Report, supra note 11, at iii, vi; U.S. Department of Justice, Drug Enforcement Administration, Illegal Drug Price/Purity Report: United States January 1990 - March 1993 3 (July 1993). The DEA also states 1992 crack cocaine prices were $45-$150 for one gram, $400-$2,800 for one ounce, and $14,000-$40,000 for one kilogram, when available in this quantity. DEA Report, supra note 11, at 13-14. In some saturated urban markets, the DEA reports even lower 1992 prices (Detroit: $3 per vial; Philadelphia: $2.50 per vial; New York City: $2 per vial). Other rural or small-town markets may command prices closer to $75 a rock, a factor that induces urban distributors to expand their operations. Id. at 13.
Other data show prices consistent with the DEA's national data. In Los Angeles, the late 1980s price for a quarter-gram rock varied between $10-$25. Klein et al., supra note 29, at 625 n.1. In Detroit, the $10 rock was "the unit of sale for most street-level distributors in the late 1980s." Mieczkowski, supra note 4, at 10.
b. Powder Cocaine
In contrast with the single-dosage quantities of crack cocaine sold by street retailers, powder cocaine usually is sold in five- to ten-dosage units (about a gram), typically for $65-$100 a gram. Inciardi, supra note 30, at 485. In Detroit, an "eight ball" (one-eighth of an ounce or approximately 2.5-3.5 grams) of powder cocaine sells for at least $125. Mieczkowski, supra note 4, at 10, 20. Five hundred grams of powder cocaine, the quantity necessary to trigger the five-year mandatory minimum, represents between 1000 and 5000 doses and costs between $32,500 and $50,000 (based on DEA estimates of price per gram).
DEA data indicate that powder cocaine prices in 1992 ranged from $11,000-$42,000 per kilogram, $350-$2,200 per ounce, and $15-$150 per gram. Prices tend to be lower in source cities such as Los Angeles and Miami. DEA Threat Assessment, supra note 13, at 2-3.
3. Profits and Revenue
Estimated profits from distribution of cocaine, whether powder cocaine or crack cocaine, are difficult to specify given the nature of the drug trade, regional variation in cost and sales price, and varying purity of the drug. Nevertheless, some generalizations are possible.
a. Regional and Wholesale Distribution
Individuals at the top of the drug distribution chain make considerably more money than others in the organization. Belenko, supra note 11, at 110; DEA Report, supra note 11, at 6, 17. DEA data for 1992 indicate domestic wholesalers can purchase a kilogram of powder cocaine from Colombian sources for $950-$1,235. Powder cocaine from other source countries such as Bolivia and Peru generally is more expensive, typically selling for $1,200-$2,500 and $2,500-$4,000 a kilogram, respectively. As noted above, a kilogram of powder cocaine can be sold wholesale, after dilution, for $11,000-$42,000, and can be marketed, after further dilution, in gram quantities for $17,000-$173,000. These figures, not considering distribution expenses, produce profits of $16,000-$171,000 per kilogram of powder cocaine. U.S. Department of Justice, Drug Enforcement Administration, Source to the Street: Mid-1993 Prices for: Cannabis, Cocaine, Heroin 6 (Sept. 1993) (hereinafter "DEA Source").
Estimates of expenses associated with distribution, other than the wholesale costs of powder cocaine noted above, are not reported frequently in the research literature. However, one estimate is that ten percent of the wholesale price and one percent of the street price represent the costs of distributing the drug. Skolnick et. al, supra note 6, at 35. Skolnick et al. go on to note that successful interdiction of cocaine hydrochloride smuggling that increases wholesale costs by an additional ten percent increases retail costs by only one percent. Id.
Law enforcement estimates suggest wholesale revenues are considerable. The DEA estimates that the Jamaican Posses gross $1 billion in drug proceeds annually. U.S. Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms, VII Jamaican Organized Crime, 2 (June 1992). Dallas police estimate that crack houses run by Jamaican Posses in that city gross $400,000 per day, or about $146 million annually. Phillip C. McGuire, "Jamaican Posses: A Call for Cooperation Among Law Enforcement Agencies," 55 The Police Chief 20, 20 (1988).
Jamaicans dealing crack cocaine in Kansas City operate an estimated 100 crack houses, each of which are required to turn $4,000-$10,000 a day in receipts on the sale of up to 1,000 "dimes" ($10 rocks). Barton, supra note 57, at 30-31. These figures represent $360 million in annual crack house sales in Kansas City alone.
b. Retail Distribution
Retail dealers of all drug types experience significant potential for profit-making early in the historical cycle of the drug when demand is high relative to the number of distributors. Reuter et al., supra note 28, at 25-26. However, as the drug era progresses and more dealers flood the market, retail dealers generally earn only modest sums of money largely because large supplies and stiff competition tend to lower prices. Additional reasons for the decline in profits include ripoffs, territorial changes, expenditures on or consumption of drugs for personal use, and loss of suppliers, dealers, and buyers through arrest. Hamid, supra note 2, at 343; DEA Report, supra note 11, at 17.
c. Actual Profits in Washington, D.C., and New York City
Considerable evidence indicates that crack cocaine users who distributed crack cocaine in the late 1980s earned substantially more than user/sellers of other drugs. Belenko, supra note 11, at 65 (citing Johnson et al. (1993)), 110. Studies from the District of Columbia and New York are illustrative.
District of Columbia. Reuter et al. (1990) examined the economics of drug dealing in the District of Columbia and found that profits from the sale of all drugs during 1985-1987 were $721 per month (median) for part-time sellers and $2,000 per month for daily sellers. These profits often were matched or exceeded by legitimate income (75% of dealers had regular jobs and a median income of $850 per month). This factor led the authors to conclude that the data showing legitimate and illicit income were "inconsistent with the hypothesis that individuals are driven to street dealing by sheer economic necessity." Reuter et al., supra note 28, at 62, 68.
In comparison, crack cocaine dealers in the District of Columbia earned median monthly net incomes of $833. The gross income figures are higher than for powder cocaine, while net income figures are comparable to those for powder cocaine. The authors also note most of this income is derived by individuals working as freelancers or in small groups because gangs and other highly organized systems are not predominant in the District of Columbia. Id. at 23-24, 62, 68.
Crack cocaine was the major source of drug income for 34 percent of street retailers in the District of Columbia, while powder cocaine was the major source of income for 32 percent. More dealers, however, sold powder cocaine (54%, including 34% who sold only powder cocaine) than sold crack cocaine (45%, including 25% who sold only crack cocaine). Id. at 58, 59. Note: Forty-one percent of the street-level dealers in the District of Columbia sold crack cocaine daily, and 39 percent sold powder cocaine daily, compared with 37 percent for all drugs combined. Only 20 percent of cocaine distributors (both powder and crack) sold only one day a week or less. Median time spent selling in the District was four hours a day for cocaine distributors (both powder and crack) compared with three hours a day for all drugs combined. The median number of sales per day was 16 for crack cocaine and 15 for powder cocaine, compared with 13 for all drugs combined. The median number of customers per day was 15 for crack cocaine and 12 for powder cocaine compared with 12 for all drugs combined. Id. at 59 and 61.
New York City. Johnson et al. (1993) examined the 1988 monthly cash income from drug dealing by 1,003 drug users in certain New York City neighborhoods. Bruce D. Johnson et al., "Crack Abusers and Noncrack Abusers: Profiles of Drug Use, Drug Sales, and Nondrug Criminality," 24 Journal of Drug Issues 117-141 (1994). This study summarizes interviews of 1,003 persons between August 1988 and July 1989 from New York City settings in which drug abusers could be conveniently recruited, i.e., Northern Manhattan streets, arrestees, inmates, probationers/parolees, and treatment clients. The data indicate that "nondrug users" who distribute crack cocaine generally sell fewer than four times a day but generally earn monthly cash income (from crack cocaine sales) that was considered "high" ($1,000-$6,000) or "very high" (more than $6,000). These findings suggest that "nondrug users" in fact are involved with distribution, perhaps wholesale distribution, that is not limited to user quantities. "Nondrug users" sold crack cocaine more frequently than any other drug; they generally sold powder cocaine only once a day, if ever, rarely sold marijuana, and never sold heroin. Three-quarters of "nondrug users" who sold powder cocaine had monthly cash income between $1,000 and $6,000. For crack cocaine distributors, regardless of history of drug use, 21 percent earned a monthly income of less than $1,000, 42 percent earned $1,000-$6,000, and 38 percent earned more than $6,000. A powder cocaine distributor earned monthly incomes evenly across all three categories. Id. at 28, 30.
The data also indicate that "heavy crack users" are frequent sellers of crack cocaine (60% sell more than three times a day) and earn "high" or "very high" monthly incomes from crack cocaine distribution (42% of distributors earn more than $6,000 a month and 40% earn from $1,000-$6,000). These heavy crack cocaine users sold crack cocaine more frequently than any other drug, but also sold powder cocaine relatively frequently, with "heavy crack users" earning more than the average drug user. Id. at 28, 30.
A variety of methods are used to pay retail distributors. In Jamaican Posses, lookouts and steerers tend to "contract" with a gang for their services, while couriers, street sellers, and managers of sellers tend to be paid employees. DEA Report, supra note 11, at 6. Kansas City law enforcement reports that Jamaican retail sellers flown in from Miami and New York City were paid $5 commissions for each quarter gram of crack cocaine they sold and $10 for each half gram. Barton, supra note 57, at 30. In Detroit, compensation includes salaries, commissions, bonuses, and permission to operate side enterprises (e.g., sale of drug paraphernalia). In addition, others, often users, are paid in drugs. Mieczkowski, supra note 37, at 73, 75, 80.
In Los Angeles, retail dealers often are provided drugs on consignment and permitted to retain one-quarter of the value of the drugs consigned for their own profits. Typical consignments amounted to $700-$4,000 of drugs, although as little as $100 of crack cocaine may be consigned. Consignment generally is provided to relatives of the wholesaler or to those who have established a satisfactory history of past transactions. Crack users typically are not consigned drugs. Skolnick et. al, supra note 6, at 18-19. Recent research on New York City crack cocaine distribution suggests that the consignment system is used rarely in that city. Johnson et al., supra note 11, at 361.
According to one study in the District of Columbia, 39 percent of crack cocaine dealers and 33 percent of powder cocaine dealers retain a portion of the drugs they have for sale for their own consumption. One-third of these retain half or more of the drugs. Reuter et al., supra note 28, at 60-61. In Miami, youths who sell crack cocaine frequently are paid in crack for their efforts. Thirty-five percent of lookouts and steerers, 85 percent of retail dealers, and 91 percent of wholesale dealers "often" (six or more times in the previous year) are paid in crack. Inciardi & Pottieger, supra note 58, at 263.
5. Drug Cutting to Increase Profits
Crack cocaine generally is not, contrary to popular belief, 100-percent pure. Inciardi, supra note 30, at 469; Belenko, supra note 11, at 4 (citing early official descriptions of the drug as nearly pure and recent evidence to the contrary); DEA Report, supra note 11, at vi; Skolnick et. al, supra note 6, at 26 (stating the "dry form of cocaine called `crack' or `rock' . . . is nearly pure"). Rather, the baking soda used in converting the powder cocaine remains as an adulterant in the crack cocaine after conversion, reducing the purity. Inciardi, supra note 30, at 469. DEA laboratory analysis during the mid-1980's showed an average powder cocaine purity of more than 80 percent. DEA Report, supra note 11, at 14. National Institute on Drug Abuse data show purity of gram quantities of crack cocaine ranging from 50 percent in Seattle to as high as 96 percent in Miami, where ammonia is used instead of baking soda in the conversion process. National Institute on Drug Abuse, Epidemiologic Trends in Drug Abuse: Proceedings of the Community Epidemiology Work Group 11-18 (June 1992) (hereinafter "NIDA Proceedings").
In addition, crack cocaine may be "cut" further or diluted, as is powder cocaine, to increase distributor profits. Although cutting crack cocaine is more difficult than cutting powder cocaine, some dealers attempt it with benzocaine, hicaine, lidocaine, or procaine. Cocaine may be cut before or after conversion into crack cocaine; in either event, some portion of the cutting agents may survive the conversion process, reducing the purity of the crack cocaine. DEA Report, supra note 11, at vi, 14; Mieczkowski, supra note 37, at 66, 67.
Cutting cocaine not only increases the distributor's profits but also may leave chemical substances in the cocaine that cause undesirable side effects for the smoker. Indeed, widespread cutting agents and chemicals of varying quality result in some users purchasing powder cocaine for their own conversion in order to avoid crack cocaine that is adulterated with substances such as toxic chemicals, soap, chalk, or plaster. DEA Report, supra note 11, at vi, 13.
DEA data show powder cocaine purity averaging 83 percent for kilogram quantities, 74 percent for ounces, and 64 percent for grams. DEA Threat Assessment, supra note 13, at 4. Purity of gram quantities ranges from a low of 15 percent in the District of Columbia to more than 90 percent in some midwestern and northeastern cities. NIDA Proceedings, supra note 171, at 11-18.
United States Sentencing Commission