The story starts out with Tuco, Walter White orders Jesse Pinkman to search for a nw distribution network to sell Walt's famish blue meth. Jesse's friend Skinny Pete tells him about Tuco. Skinny Pete and Jesse find themselves in Tuco's headquarters with a pound of Walt's meth, believing they will be able to negotiate a deal with Tuco. Tuco's henchmen frisk them and lead them into Tuco's office.
After being shown the meth, Tuco invites Jesse to snort some of the product to prove he isn't a cop. Jesse relunately does so, clearly not having much choice in the manner. Tuco is extremely impressed by the quality of the meth and says he'll buy it on consignment. Jesse begins to realize Tuco does not wish to pay the $35,000 for the product, and Tuco threatens Jesse and Skinny Pete with a knife after Skinny Pete tries to intervene in the negotiation.
Desperate, Jesse snatches the stuff and tries to run for it, but is stopped by Tuco's armed guards.
Tuco plays it off like he was cool with what just happened, even offering Jesse the $35,000 he wants "up front." He stuffs stacks of cash from his safe into a bag and holds it out to Jesse, but when Jesse reaches for the bag, Tuco smashes poor Jesse in the face, screaming "I run the meth in town!", he than continues to beat Jesse up, to near death. Proving Tuco to be unstable and unpredictable.
After Walt learns of the events that occurred in the hideout, he decides to take matters into his own hands. Arriving at the hideout, he presents himself as "Heisenberg" to Tuco. Walt gives Tuco another bag of crystals and asks for $50,000; Tuco laughs at the offer, saying that Walt is not doing the math correctly. Walt explains to Tuco that $35,000 is for the meth that Tuco stole, and another $15,000 is for Jesse's pain and suffering. Tuco realizes that Walt and Jesse are partners and he sarcastically congrats Walt for bringing him more Meth.
"You got one part of that wrong.. This is not meth," Walt said dramatically, and he hurls a piece of the crystal at the floor, causing an explosion and leaving the hideout in ruin—Walter, being a scientific genius, has substituted his meth with crystallized fulminated mercury.
With the rest of the bag of explosives in his possession, Walt threatens to throw the entire bag and kill himself and everyone in the room unless Tuco complies, Walt knowing he's dying of lung cancer anyway.
Tuco is impressed by Walt's "balls," and he tells Walt that he's won his respect and agrees to pay the $50,000, explaining that the Meth taken from Jesse sold better on the streets than any other product he's had. Walt then tells Tuco that he'll pay Walt and Jesse "up front" for future purposes and demands that Tuco now buy two pounds of his meth instead of one, which Tuco agrees to without hesitation.