DIY Assessment of Marijuana Market Numbers

Morgan Fox at Cato Institute sees great profit potential from legalizing marijuana because “experts” tell him that the market in this commodity may be worth as much as $120 Billion a year, which is more than wheat and corn combined. An impressive claim indeed, but is it true?

You are going to hear many numbers like this in the coming year. In my continuing quest to make our democracy work better, I am going to lay out some DIY math that will help you discern in a few easy steps which estimates are believable and which are not. Given the ideological nature of marijuana legalization debates, within 5 minutes of my posting this, someone somewhere on the Internet will write “I don’t care about evidence, I believe X”. If that’s you, skip down to the comments section now and start bloviating, what follows is data, nuance, the encouragement of independent thinking and a lot of other stuff you will find upsetting.

But for the blessed and admirable rest of you….

Step 1: Convert the estimate of the financial value of the U.S. marijuana market into something more understandable, for example number of ounces or joints.

Start with your market number. For the sake of argument, in this case let’s take Fox’s upper estimate of $120 Billion/year. That’s too big a number for any of us to relate to or understand, so Step 1 is to convert it into ounces or joints of marijuana.

The price of an ounce varies based on where you are, whether you buy in bulk, and what grade you purchase. But $120/ounce isn’t a bad estimate for a national average in any case, and here it makes the math easy so let’s use it. If marijuana costs $120/ounce, Americans would have to purchase 1 billion ounces a year to reach the $120 Billion dollar estimate. Already you will be suspicious of Fox’s market number because this works out to over 3 ounces per American (1 billion ounces divided by slightly over 300 million people), assuming that everyone uses marijuana, including newborns, people in comas and emphysema patients.

For many people knowing ounces gives them a sense of how much pot we are talking about. For others, an estimate of joints is more helpful. Drug policy wonks estimate the size of a joint at .454 grams because that is not a bad estimate and it makes the math easy (1 pound = 1000 joints). So using this “standard joint” metric, an ounce of marijuana yields 1000/16 = 62.5 joints. Data from dispensaries and users indicate that most experienced users actually roll slightly bigger joints than “standard size”. To acknowledge that and again make the math easy, bump the joints/ounce ratio up to 50 and you get in the example we are working with 3 ounces X 50 joints = 150 joints per American (again, counting every man Jack and girl Jill one of the them) per year if the $120 Billion figure is correct.

Step 2: Divide your ounce and joint estimates by the number of people who are current pot smokers.

We can’t stop at Step 1 because not all Americans smoke pot, indeed the vast majority don’t and never have. The federal government National Survey of Drug Use and Health gives somewhat suspect estimates of the use of heroin, methamphetamine and the like, but it’s marijuana numbers are pretty good so take your estimate of the number of current pot smokers from there. The survey’s current reported number of Americans who have smoked pot in the last month is 17.4 million. You can add a bit to that depending on how much you think people lie. For the sake of our example let’s make the math simple again and assume that another 7.6 million Americans fibbed about not using marijuana in the past month, giving a total of 25 million current users.

When you divide 25 million marijuana users into one billion ounces, you get 40 ounces per user per year. If you were not doubtful of the $120 Billion figure yet, the implication that the average U.S. pot smoker is sucking down two and a half pounds of marijuana a year should set off alarm bells for you. Again using our simple math above, this works out to 40 ounces X 50 joints/ounce = 2000 joints per user per year.

Step 3: Divide your estimate of amount of marijuana use per user by days of use.

Current pot smokers report that they use marijuana an average of 60 days a year. Using our current example, 40 ounces/60 days of use means that the average user would have to go through 2/3 of an ounce of marijuana on each day that they used marijuana. That’s .67 X 50 or 33.5 joints per day of use. And there’s a terrific bridge for sale in Brooklyn too.

Step 4 (Optional): Do some sensitivity analyses.

I have made the math above transparent so that you can fiddle with the numbers as you see fit and see what happens. You could for example alter joint size or number of users up or down see how that affects the validity of whatever market estimate you are looking at. There is no amount of tweaking of assumptions that will make the “experts” whom Morgan Fox says he believes sound credible, but such sensitivity analyses may help you determine whether other estimates you hear are believable to you.

Comments

  1. says

    You know, speaking as someone who is very much pro-marijuana legalization, anyone who thinks the market for pot is bigger than the market for wheat or corn is pretty obviously out to lunch.

    This is why it’s a cause I no longer spend much time fighting for. One side is wrong and not credible and the other side isn’t credible yet is right.

    • Anonymous says

      kudos for the last line “One side is wrong and not credible and the other side isn’t credible yet is right.”. money.

      • says

        all for data driven decision and the like. Some thought went into this article. However, in terms of out to lunch….if you think a good average amount of an ounce to base this data on is $120 than you, sir/madam, are out to lunch. The average is at least double that (and that is conservative). Changes the numbers a bit.

        • Keith Humphreys says

          Norman: See the comment from me below on ounce prices. I picked $120 as I said because it made the math easy in this case, it might be 10% or 20% higher (Those tweaks wouldn’t change the fundamental conclusion at all), but absolutely not double — the market is more variable than any one person’s experience would suggest and your personal experience is not nationally representative.

          • says

            Can you point the research that actually derives the numbers? I called about 30 people in various parts of the country and cannot find ANYWHERE that an ounce of pot costs less than $280.

          • says

            Hoping that Mark Kleiman forgives this breach, but in the manuscript for his upcoming book on marijuana (referenced in comments below), it is said that the price for MJ per oz. varies between $70 and $230. I didn’t see any annotation or citation.

  2. Dan Staley says

    Yet another reason I read this blog.

    Nonetheless, I think something like ‘doses’ or ‘discrete uses’ (with a better term) or the equivalent to ‘drinks’ is better than ‘joints’. Then we can see that the potential market can be calculated almost in our minds.

    Second, IMHO we should also include in economic argumentation the benefits to agriculture and ecosystems if we change the schedule or legalize MJ. Why? We will be planting hemp as a fiber crop again the day after we change. That will have tremendous benefit across scales. In my view this is an important outcome and should be made more widely known much more often.

    Lastly, whether we choose to highlight the money saved on the drug war in the next breath is an exercise best left to the reader.

  3. Dave Schutz says

    If the government taxes the stuff to a $120/ounce price, the Mexican cartels will still smuggle it in and sell it for a little less. If it’s legal, but pricey – we have a home brew exemption for beer, can we expect that people won’t grow it at home, a lot? So – even if $120 were the price in the virginia State Distilled Liquor and Mary Jay Stores, we can expect there’d be a whole lot of product consumed without sending big dollars to Governor McDonnell.

    • says

      …sure, just like a substantial minority of the alcohol and tobacco consumed in this country is bought on the black market. Oh wait, what’s that you say, that’s not the case?

      Sorry, I’m being overly snarky: it’s certainly a legitimate point that consumers are price sensitive and that it’s possible to tax a product up to the point where they will seek out less-taxed markets for it. But the bar for that is really, really high: convenience, predictability, reputation, quality and lack of legal risk also figure into the pricing equation for buyers. And it turns out that even for a literally addictive product like tobacco which is often taxed at 100% or more than its base price, most people will choose the corner store over the grey market (driving across state lines, buying from Indian reservation commissaries) most of the time, and over the black market (which for tobacco basically does not exist) practically 100% of the time.

      • Keith Humphreys says

        Doctor Memory: black market (which for tobacco basically does not exist)

        You are quite wrong about that, there is a thriving and large black market in untaxed cigarettes in U.S. that is extremely well-documented.

        In contrast, for alcohol in the U.S., the black market is indeed small.

        • says

          Actually black-market, or grey market per my examples above? And as a percentage of the total market for tobacco, how large is it? (I’m guessing fractions of a percent, although I have certainly been wrong once or twice before in my life. :)

          • John G says

            In Canada, notably Ontario, there is a *huge* black market for cigarettes – estimated at 30 – 40% of the market. It’s a serious public health problem (kids are picking up smoking again now that it’s cheap again) as well as public revenue problem. The cigarettes these days are mainly manufactured on reserves and sold off-reserve illegally but very commonly. A decade ago they were smuggled in through a border-straddling reserve in NY/ON/QC. The ‘aboriginal relations’ aspect makes the problem very hard to resolve, since it gets mixed in with other sensitivities.

  4. says

    You could have saved some time and trouble by searching for the upper estimate, and you would have hit upon this CNBC article which covers the various estimations of marijauna markets. Turns out the $120 billion is arrived at by CNBC by taking inputs from this paper(PDF) by a Prof. Gettman at GMU, who applied a supply-side analysis viz. “the average, annual domestic marijuana crop totaled some 65 million plants at a weight of 22 million pounds (10,000 metric tons). In addition, he calculated that another 50 percent was harvested in neighboring Mexico and Canada.” and then using a yield estimate of 7 oz per plant and the upper price estimate of a 1 gram joint of $20 (as per the HHS chart referenced), worked out the upper number of $120 billion. If you notice, the expert actually cited in that article, Jeffrey Miron, expresses clear skepticism of that big an estimate.

      • jonathan says

        $570/oz is really high, but most people (end users) don’t buy in that sort of quantity… and you pay a premium for smaller quantities. $50 – $60 per 1/8th oz is a pretty standard price for good stuff in metro areas, which works out to $400 to $480/oz.

        I’ve never heard of $120 for a *single* ounce in my lifetime… maybe if you bought multiple ounces at a time you could get that deal, but I’ve never been around that sort of sale to know for sure.

        • sven says

          I don’t doubt your account for the region in which you live but those prices are quite a bit higher than what I have ever heard for my area. Someone has probably already mentioned this but there is a website which tracks regional prices based on user-reported information.

          http://www.priceofweed.com/

          I can’t speak to the accuracy of their information but the range indicated for my regions conforms to what I have heard and is very different from other parts of the country. This website also suggests that $120 is quite low relative to what most people would be paying.

          • Keith Humphreys says

            Remember people who use the web (and the subset who post MJ prices to the web) are not representative of the country as a whole or of pot smokers as a whole.

    • mironyoukidding me says

      Jeff Miron and “Prof Gettman” are idiots and in the pockets of Rob Kampia (but not in his pants, those are reserved for interns at MPP).

  5. DCA says

    Here is a simple supply-side calculation (from Paul Starrs and Peter Goins, A Field Guide to California Agriculture): for California, in 2008, 5.3 million plants seized in raids. Assume this is 5% of the total; then the total not seized is 101 million. Assume 4 oz/plant; then California’s production would be 400 million ounces. For the reasons given in the post, this is hard to believe, but it is also hard to see what is wrong with this supply-side approach, unless the seizure rate is a lot higher.

  6. Ken Doran says

    Someone should write a book about this stuff, sort through the best available numbers. Call it, “Everything You Always Wanted to Know About Marijuana Legalization But Were Afraid to Ask”, or something like that.

    • Keith Humphreys says

      The book to read will be “Marijuana Legalization: What everyone needs to know” which will be out soon. It’s by Mark Kleiman, Jonathan Caulkins, Angela Hawken and Beau Kilmer.

  7. marcel says

    As someone old enough to remember 2nd stage (I think I have the numbering right) feminism from the early 1970s, I have to ask: why “man Jack” and “girl Jill”?

  8. Bruce says

    I recently saw a figure that the market for all alcoholic beverages in the U.S. is roughly $100 billion a year. Of course, there are far more drinkers than pot smokers, not least because of the law.

    So … whatever the real pot market is, if you did legalize it, how long would it take for the numbers to converge?

  9. says

    While my personal experience with marijuana usage is many years in the past (the statute of limitations having long since run), I have but one question: Whatever happened to the $15 ounce?

    Now, this question is only partially a weak attempt at humor. My recollection is that the per ounce price held stable for many years even through times of extreme inflation in the economy, generally. Given the apparent ease that marijuana can be grown (based on hearsay, not personal knowledge), why wouldn’t the price drop well below $120.00 an ounce?

    • RobG says

      Well, probably several things have happened to the fifteen dollar ounce.

      First, an ounce then is not an ounce now. The potency of modern marijuana is much higher than it was several decades ago. A casual user today would very rarely buy more than 1/8 ounce at a time, whereas buying an entire ounce wouldn’t have been rare a few decades back. (If you’re talking about far enough back, people used to smoke the far less potent leaves, whereas everything but the buds gets discarded today.)

      Second, the ease of growing has actually declined in most places. More marijuana is grown in indoor facilities, and less in low-maintenance outdoor plots, than was the case a few decades ago.

      Third, probably a little bit of inflation.

    • pmp says

      An eighth (of an ounce) is $50. That’s standard. Just like gas is $3.xx. I’ve occasionally been able to get an eighth for $40. I’ve smoked better stuff for $60. But $50 is the going rate.

      Hennessy’s presumption of $120 oz. does not reflect the reality that I live in and the one that has been my milleu since the late ’90s. Now, if Hennessey is speculating about post-legalization prices, that’s another story. But at that point he may as well talk about $60 ounces (aka $2/gram) but this is usually dismissed as th unattainable paradise of drug addicts and libertarians.

      It’s Hennessey’s supposition that strikes me as unrealistic.

  10. says

    Interesting post Keith. So what’s your ballpark for the smoked/eaten marijuana market? My understanding is that prohibition puts some legal barriers up to industrial uses like paper in most places. Any estimates as to the potential market there?

    • Keith Humphreys says

      Ryan: The best work on this I have seen is in the forthcoming book “Marijuana Legalization: What everyone needs to know” which will be out soon. It’s by Mark Kleiman, Jonathan Caulkins, Angela Hawken and Beau Kilmer, and I am going to go with them until someone puts out something better. I am afraid if misquoting them, but I think their estimate for the value of MJ production under illegality is single digit billions.

      As for hemp Canada’s experience has been surprising to me, very little profit — don’t know why, maybe there are more competitors for hemp than there were after the war when hemp was big business.

  11. EngineerScotty says

    The above market valuation is based on marijuana’s illegal status. Legal pot certainly wouldn’t cost anywhere near $120 an ounce.

    • Keith Humphreys says

      Absolutely correct. I thought of adding that in but decided it was worthy of a separate post someday. But briefly, legalization would have two effects, reducting the price and increasing the use (There are some people who deny the law of demand applies to drugs, but no one credible). The combined effect would be a lower value market than we have today.

      That doesn’t effect estimates of current market size so the point isn’t a problem in itself, but it is a problem for analyses that assume incorrectly that for example project tax revenue under marijuana legalization can be project from current illegal market size.

      • matt says

        Certain US markets are quasi legal, no? and the best weed still goes for $200 an ounce with a good connection. Would legalization make that much of a price difference at the upper end of the quality spectrum? At the lower end, commodification would seem to reduce price but how big is that market?

        On a sort of related note, I too thought 120/ounce was “crazy talk”, but if we assume high end pot averages 400/oz and low end pot is 70/oz, keith would be saying that that the low end market consume 5 times the weight of the high end market (assuming a perfectly bifurcated market). If the average is 500/oz that goes up to 7.5x. Since they smoke less potent weed, and–as Keith assures us—low end consumers smoke more often, I don’t think it’s unreasonable to say they are consuming 5-7 times as much weed as high end pot consumer. In that light, $120/oz seems like a reasonable overall average.

        This is probably apple to oranges, but would you be surprised to find that Americans drink 5-7 times as much MGD and Bud Light as they do craft brews? (I’m not saying that’s the actual number, just comparing for argument’s sake. I think it’s probably even higher than that)

  12. Gus says

    In the first place, $120/ounce? What is this, 1988? In the second place, the reason the financial value is so high is its illegality. Really good pot is easy to grow at a very low cost. There will be a large number of people who are too lazy to learn how to grow their own, so there will be a sizable market, but the total value of the crop will be cut by a factor of 100 (a number I pulled out of my ass, but I think it’s realistic). If people learn how easy it is to grow, it will be hard to get much tax revenue out of it. Maybe we could tax grow lights, seeds, etc.,

  13. Steven says

    An ounce is $300-$350. If you can find me one for $120, I’ll take it. (I’ll leave the joint calculations alone b/c I don’t know anyone who smokes joints anymore, much less half-gram joints – the weed is usually too potent for that.). Usage varies widely but let’s use a reasonable figure of “several” (say 3-5) ounces a year. Built from the user/demand end, then, the figure is likely somewhere between $30-50 billion. Where would that rank it among cash crops?

  14. alkali says

    The numbers make more sense if you take into account that one guy who lived across the hall from me freshman year and smoked about a billion bowls a year.

  15. Anonymous says

    Please let me know where you are purchasing your weed for $120 an ounce. Every single person I know who smokes pot will beat a path to your door.

    • Ted says

      This. The rest of the math seems right, however. Of course, if we change the math to set the price of weed at $240/oz, keeping other numbers equal, we’re still looking at smoking 1/3 of an ounce per day.

  16. Mark-tastic says

    Yeah…that whole $120/oz thing is by far the low range, i.e. brickweed (that may or may not have been up someone’s bum, but i digress). The problem with the current market is a lack of a middling price point, so you either see $140/oz dirt or $400/oz kind and very few in-betweens.

    At least, that’s what I’ve heard….

  17. David Z says

    I can easily understand why you skipped over your evidence for the assertions you made regarding the National Survey of Drug Use and Health. This piece is pretty long and needs to stay simple – any detail regarding your assertions here would be a distraction. Subject to the various caveats in the comments, your logic seems pretty clean to me. Now that that’s complete, upon what do you base your claim that the National Survey is bad on heroin and meth, but good on pot? Thanks.

    • Keith Humphreys says

      The survey does not include people living on the street and in jail, which are large components of the users of heroin, meth and cocaine but a very small proportion of the MJ population. Also because MJ use is so much less stigmatized, people lie about it less often than they do meth, cocaine, heroin etc.

  18. says

    The actual value of the marijuana market is indeed hard to pin down exactly. One can examine the issue from the supply side, the demand side, or some combination of the two, but until we bring this commodity into the legal, regulated market, we will not know for sure. Regardless, it would be better to have the money from this market going into the hands of legitimate business people and local treasuries than violent criminal syndicates, even if it is the lowest value estimate available. CNBC did an interesting breakdown last year, from which I drew the estimates in question: http://www.cnbc.com/id/36179677/How_Big_Is_The_Marijuana_Market

    • Ebenezer Scrooge says

      Some of us do not consider the likes of Altria to be “legitimate business people.” A good compliance operation might keep one out of jail, but doesn’t wash away the slime.

      OTOH, I have no problem with money flowing to local treasuries and away from violent criminal syndicates, although it is awful hard to pry any cash flow out of the clutches of a criminal syndicate, once it has gotten its mitts on it. The highly-regulated three-tier alcohol distribution system, archaic as it is today, was absolutely necessary to get the criminals out of the alcohol market after Prohibition. Or at least (as for the Bronfman family) to de-criminalize the criminals.

      Legalization may be necessary, but it is not sufficient.

    • Anonymous says

      the reason u cannot regulate marijuana is cuase i would personaly rather get it from a friend than buy it from a goverment regulated corporation that will end up putting some addictive substance in it to keep u comeing back cuase marijuana is not adictive but after there done with it it will be adictive .to say thats bullshit thats like saying tobacco comes with all those tars and shit,to say they wont do that is to say they wont feed us food that isnt good for us YEAH RIGHT ganeticly modified shit people wake up grow your own food and other treats ur self.quiet depending on this repressive goverment to do it for you im not saying the goverment dont protect us but whos gonna protect us against our own goverment.

  19. says

    If you go to priceofweed.com you’ll see that buyers self-reporting prices note that you can’t even get an ounce of low-quality marijuana in low-cost markets like Oregon and Washington for $120. Most smokers use a much higher quality marijuana, which goes for around $400/ounce. Also, though you didn’t note it, it’s safe to assume that the market of consumers would expand, probably a little but perhaps quite a bit, if marijuana were legal and readily available at the local corner store.

    So, I’d say Morgan might be a little steep in his estimate, but he’s closer than you think, Keith.

    • Keith Humphreys says

      See note to Sven below — if web users are truly a representative slice of the world of pot, we would have legalized 20 years ago.

  20. fostert says

    Umm, the numbers work out pretty well. Let’s say 10% of the population are regular smokers. I live in Boulder, and the number is about 40%. But for the rest of the country, it is about 10%. That means we smoke 30 ounces a year. Do we do that? No, we smoke about twelve ounces a year, but the pot costs $320 per ounce because we like our kind bud. I can tell you this, I’m considered a lightweight in Boulder, and my consumption is the numbers I posted. I’d say Morgan’s numbers are spot on.

  21. Keith Humphreys says

    Many people have commented about the ounce price saying it doesn’t match their personal experience. This brings up an important analytic point, which is that no one can tell what the average ounce price is nationally based on their personal experience, which is why policy analysts use national data. If your local experience is different than national data, it means that your local experience is different than national data.

    Just north of the Mexican border, you can buy commercial grade (4-6% THC) marijuana for $200-$500 per *pound*. The price for the very same marijuana is triple that in the Northeast. Sensimilla costs much more than run of the mill marijuana all over the country (double or triple the national average price), but it’s a small part of the market so if that’s what you buy you get a distorted sense of average prices nationally. Most people don’t realize that marijuana is overwhelmingly smoked by lower income people (That’s obvious if you count days of use, people miss it because they often just count users) and there is a whole market of lower-grade, lower cost cannabis (e.g., $70/ounce) that supplies it. The sense of average prices of middle class people (not to mention the subset of Americans who read drug policy analyses on the Internet) thus tends to be way higher than national average prices.

    • TomPositano says

      I think your analysis is faulty because you only attack the upper estimate. Even if the market value is $40-50 billion… that’s huge.

      • Keith Humphreys says

        Sven: What would be your case that the sample of people who use the Internet and post marijuana prices are representative of all pot users in terms of education, income, geography and drug use? Let’s face it, if the web were a representative place to understand pot in the US, marijuana would have been legalized in a 90/10 vote a decade ago : )

        • sven says

          “Sven: What would be your case that the sample of people who use the Internet and post marijuana prices are representative of all pot users in terms of education, income, geography and drug use?”

          I think we may have our wires crossed somehow. I am not presenting these figures as somehow authoritative. I hoped, in fact, to suggest the opposite.

          I started my previous comment by saying, “This website is far from scientific” precisely because such issues are present. In my earlier comment I explicitly stated that, “I can’t speak to the accuracy of their information” nor have I. In both cases I tried to make clear that I had little confidence in the results. I posted the link because I found the effort itself interesting, not because I think the information is valid.

          Frankly, I posted the comment because I thought you (and the other readers) would have something close(r) to the reaction I did. Which was: “Damn, It is amazing what people will/can/are doing with the internet.” I am not confident in their results but would love to see someone try to estimate their error.

          • Keith Humphreys says

            Sven: I get you and apologize for mis-attributing the claim to you when it should have been to Dan Riffle – I am still struggling a bit with the “stepped” comment system.

    • jackattack says

      As far as I can tell you don’t link anywhere to this “national data”, you just assert that it says that the price of an ounce is about $120.

      Also, if people’s experience is different than national data, then maybe their experience is different from the average, but another possibility is that the data is poorly collected. How is this data collected, and at what point in the supply chain is this $120 number for? The end consumer? I find this very hard to believe without some links to high quality data.

      • Keith Humphreys says

        Jackattack: That is fair comment. The best source I can recommend isn’t out just yet, so perhaps it is unfair of me to rely on it now (“Marijuana Legalization: What everyone needs to know” which will be out soon. It’s by Mark Kleiman, Jonathan Caulkins, Angela Hawken and Beau Kilmer.)

        But remember that what the post gives is a DIY (emphasis on Y) method and I specifically suggested sensitivity analyses of assumptions — as I said myself in the comments, in my opinion the ounce price average might be as much as 20% higher than $120 (which would not change my fundamental conclusion by a long shot). If you think it’s even more plug your number in, look at the results and see if you believe them.

      • matt says

        This is a very old data point, but I had no problem finding 100 dollar ounces in Minnesota in 1996. It was crappy, but available. The price would’ve been a lot less near the Mexico border. The more I think about this, the more I”m prone to lean towards Keith’s ballpark.

        Also, total random observation. There’s been almost no price inflation in weed in the 20 years I’ve been around the stuff. Good weed pretty much goes for 50-60 bucks per eighth ounce. Crappy weed less. But the 60 dollar eight and 400 dollar ounce has been around for as long as i’ve been smoking pot. If anything, it’s gotten slightly cheaper.

  22. says

    I live in SoCal, even semi-south of the border ( a Fed line with car-stop is North of me), and we are awash in excellent pot. I’ve heard people talking to bank clerks, in the adjacent line, about grow rooms they knew of and casually mention. I went to see a sunset, and the guy next to me had a small bud stuck on the back of his shirt. The price is coming down, because everyone has some.
    But my real message is that the medicine stores have opened up the barrio and the lower income classes to the good stuff – really for the first time. From my hearsay, it’s the barrio who is smoking the mexBrick, but are switching to da kind.

  23. says

    When I say price is coming down, I ask around, since I’m out of that circuit for the last 20 years …
    But the stores have great stuff for $40 an eigth on sales. Our local freebie paper has 3-6 pages of ads with THC contents and prices. But off-market people in the know can buy a single ounce for around $200 $250 that would cost $320 in a store sale. This in the land of plenty.
    I know that in NoCal, there is so much that the money is made by those who can move it out.

  24. says

    The medical Marijuana business is under attack by the Feds, and may be driven back underground. We now have many people with permits that will have to go underground to buy. There are a few places with lists of people that smoke. Businesses that verify MM IDs that actually cross name to number. Each individual MM doctor has a list. Are these lists protected as patient/doctor confidentialities? Can these lists be sold to MM deliveries that act covertly without the benefit of advertising?
    If we drive marijuana back to a sophisticated delivery system, we will never get a true tax base when it becomes legal and attempted regulated.

  25. pfroehlich2004 says

    These calculations seem reasonable but I do have one objection, specifically, your claim that the vast majority of Americans don’t and never have smoked pot.

    You are correct that the vast majority of Americans are not current marijuana users (well over 90%). MTF Data on lifetime prevalence of marijuana use among 12th-graders has averaged at around 50% since surveys began in 1975. Given that marijuana use didn’t sudddenly start in 1975, we can reasonably conclude that roughly half of American adults under the age of 60 have tried pot at least once.

    It may be true that a majority of Americans have never smoked pot, if one includes children and the elderly, but this is certainly not a vast majority.

    http://monitoringthefuture.org/data/10data/pr10t15.pdf

    • Keith Humphreys says

      pfroehlich2004 said It may be true that a majority of Americans have never smoked pot, if one includes children and the elderly, but this is certainly not a vast majority.

      No argument with you there.

  26. Paul Brunick says

    I want to make a small point in agreement with Mr. Humphreys, by way of expressing a very deep skepticism about this post.

    First, there’s a much simpler proof belying the high-end estimate. If there are indeed 25 million current users (more on that below), they would have to spend an average of $5,000 per annum to swell the industry to $120 billion a year. That’s $100 per week, and while that might be a plausible figure for heavy users using home-delivery services, I agree there’s that’s far too high to be the *average* spending rate.

    Now, I take this post (and the site’s “brand” commitment to empirical honesty) to be in good faith, so I want to make a bigger point about some major methodological errors below. Humphrey’s “DIY math” involves four variables: (A) current users, (B) market rate per ounce, (C) joints per ounce, and (D) current users’ annual days of use. We’ll take them one at a time.

    (A) Current users — First, Humpreys, you’ve flat out reported the wrong statistic: 22.6 million is NSDUH’s latest figure for current users of ALL illict drugs; marijuana is only 17.4 million!

    Second, you’ve allowed for a marginal error rate of ~10%. Countless unrelated surveys have shown that users under report socially disapproved behaviors even when those behaviors are legal; when those behaviors are *illegal*, when the person conducting the *voluntary* drug-use survey works for the *federal government*, you can be sure the rate of under reporting will be significant. Indeed, after NSHUD made some revamped their sampling procedures in 2002, there was a one-year spike in current marijuana users from 21.1 million to 25.7 million: a +20-percent increase based on internal methodology alone!

    Third, the figure you cite (attempt to cite) is a *monthly* figure, a fact quickly obscured in this analysis of *annual* consumption. The number of current users would have to be raised to include seasonal users and those currently abstaining for a fixed period of time. On the other hand, you’d probably also want to account for once-in-a-blue-moon and first-and-only users, whose marijuana consumption is negligible for their numbers.

    In short, this data point would be problematic even if weren’t *doubly* misreported.

    (B) Market rate — As all the Comments make clear, market rates vary widely. Some New York City delivery services charge up to $60 per 1/8th ($480 per oz), so for at least one major urban market the proposed figure ($120 per oz.) is off by a factor of 4.

    (c) Pot-per-joint — Really? I suppose this is a useful device for visualizing consumption, but practically you’re only introducing more error into the equation (the pot content of a “joint” blended with tobacco and one of pure weed is so different as to make the category meaningless).

    (D) Average days of use: First, this statistic does not appear in the National Survey of Drug Use and Health. Humphreys, not only do you need to cite your sources — you *cannot* combine figures from different surveys like this! Not even IF they define “current users” identically, which I seriously doubt. And, as you likely know, marijuana consumption obeys a classic “80/20 rule”: a small percentage of heavy users account for the vast majority of consumption; thus the confusion of monthly versus yearly users (A) returns with even greater distorting effect in this average-days-of-use figure. To these, we can add yet another likely sampling error: even amongst users who voluntarily admit to drug use, I suspect that many low-ball their usage figures (whether intentionally, innocently or out of willful self-delusion).

    I’d add at least one other variable to your equation: (E) the percentage of marijuana purchased but never consumed. Think about how much marijuana is confiscated in arrests, lost (“dude, where’s the weed?”), abandoned (before traveling in a car or plane, before returning to one’s residence), or destroyed (weed through the washing-machine, weed scattered across the floor, weed flushed down the toilet by disapproving parents and spouses)

    So all of these variables have a huge margin of error — in the case of (C), it’s demonstrably as high as %400 — and when you multiply margins of error together, they compound each other. Of all the figures I’ve read, your “33.5 joints per day” is one the most meaninglessly dubious of all. As I said, I agree that the $120 billion figure is too high, though let’s be very clear as to how Cato’s Morgan Fox presented that figure: “experts estimat[e] its annual value to be between $10 and $120 billion.” You see, Mr. Humpreys, THAT is you make an empirically honest argument. You’ll notice Fox didn’t write “with some estimates as high as $120 billion,” which would have been perfectly true and more rhetorically effective; he instead made clear, by reporting on the wide range of reports, that the size of the industry is difficult to nail down, so difficult that the estimates range by an order of magnitude.

    By contrast, Here’s what you have done: cherry-pick a single figure that Mr. Fox never even claimed to be accurate; cite a data point from NSDUH that was both out of context and plainly, categorically wrong; introduce unsupported and plainly dubious figures about average market-rate and annual days of use; combine surveys in clear violation of *basic* best practices; and top it off with an incredibly smug lecture about “data” and “nuance”! So thanks for the “reality” check.

    – My God… Before hitting Submit, I thought, “I should probably read the About Us.” You recently finished a stint as _Senior Policy Advisor_ at the White House Office of National Drug Control Policy? It made me laugh out loud for about two seconds — and then, suddenly, feel deeply depressed.

    • AnonymousHeironymous says

      Sir, you reply troll with the best of them! Your post was much better than ours. And when we say Troll that’s not an insult, it’s a compliment.

    • Keith Humphreys says

      Paul Brunick: First, Humpreys, you’ve flat out reported the wrong statistic: 22.6 million is NSDUH’s latest figure for current users of ALL illict drugs; marijuana is only 17.4 million!

      Thank you! Good catch, I have fixed the post. Note that if we use that number the underreporting you think is widespread could be much much larger and the math above would still hold.

      You are wrong about days of use, you can get this from NSDUH.

      As for your point that market rates vary widely, yes, that’s why I said the same thing in the post and gave an average. To say that in some places the price is higher than average is certainly true…and other places it’s lower, that’s what we mean by an average.

      I am glad to see you say “I agree that the $120 billion figure is too high”, so you have arrived at the same result as me by some means in any event…which makes both your indictment of the methods I used and the snark in your comment a little odd.

  27. AnonymousHeironymous says

    I call shenanigans

    All estimates are just that, estimates.

    Definition:An approximate calculation or judgment of the value, number, quantity, or extent of something.

    Using this as our starting point, one might ask how do you use fuzzy math to disprove imaginary numbers? Because that’s what you’re doing above.

    Step 1: Collect Data.
    Collect a sample of other estimates so you can get a comparison between those estimates to triangulate a realistic number, or a seemingly realistic number, for an invisible black market value. It would be helpful if you also solicit anecdata or surveyed people to get an actual average to test the sample against. Tell people how arrive at the convenient price of $120/ounce of “low grade” weed. I think this is largely due to the fact that it produces an easier formula for you.

    Now, using your own assumptions:
    Lower grade weed is bought in quantities like $5, $10, $20 and so on.

    Here’s what a break down of that looks like: (Google it yourself, you can even get a better sample of what people are paying by using cannabis tracker* I address the Keith’s belief that this data can’t be used at the end of the comment.)

    .25 grams= $5
    .5 grams= $10
    1 gram= $20
    1/8th ounce=3.5 grams = $40-$60 (already you can see how the numbers start shifting when you go up in quantity, so an easy estimate is just admitting that this is fuzzy math)
    1/4th = 7.0 g = $70-$90
    1/2 ounce = 14g = $180-260
    1 ounce = 28g = $200-$600
    1 pound = 16oz=$2000 – 6500 (could be even higher)

    As you can see, if you’re calculating at bulk prices you will arrive at a completely skewed number compared to the piecemeal pricing. I think it’s silly to use joints as a metric, there’s no reason for it. Let’s say that only 10.2% (Google it yourself) of the population over 12 have used cannabis in the last year. The entire population is 312,632,647 (Google it yourself). That would be about 31,888,530 of people admitting to using cannabis. That doesn’t even count the people who lied.

    120 000 000 000 / 31 888 530 = $3,763.11/person. Considering some buy much more and much less this sounds pretty reasonable for some estimated numbers. With those numbers, it would be about a pound and more per person if everyone was buying in wholesale.

    I don’t know where you get the 60 days per year average use rate, the only sources I can find with a statistic similar to that all refer specifically to teens. But even if we use this number, that’s $3,763.11/60days = $62.71/day per person, roughly between an 1/8th and 1/4th (an amount that many medical users use per day, consider Irv Rosenfeld’s 9oz/month government supply which works out to about 8.4 grams or 18.5joints a day)(Google CNN Money Irv Rosenfeld). Although I’m still at a loss to understand the relevance of this “daily” number that’s a product of averaged averages, it’s possible to smoke that much weed. However, it seems much more probable that the average is a median starting point, and there are many more people who consume cannabis more frequently than once a week (60/365).

    *You don’t get to exclude people who are on the internet not all of whom are middle class. Certainly, some of the people online (and if snooping through cannabis forums can be believed) are poor and in some cases, may be in poverty… with computer access (library, friends, using public, free, or neighborly wi-fi, netzero, etc.). Contrary to popular belief, the ownership of low-mid electronics is not an accurate measure of wealth. Poor people also drive cars and use cell phones. This analysis like everything else is not based in fact.

    When you “fiddle” with numbers you can get whatever results you desire.

    Here are other questions that make this a weak analysis:

    How much of this $120/ounce weed is resold? Then pieced apart into smaller bags for a profit which goes to the inflated street value.
    How much is shared? Much like alcohol it’s a social drug.
    How many first time users?
    How do you measure an average dose when people are using everything from joints, to blunts, to bongs, to hash, to vaporizers?
    How do these numbers square with the fact that weed is decriminalized in many places in the US up to a certain amount? Weed is decriminalized in Oregon up to an ounce and it’s $200+ is still what you’re looking at paying.

    His numbers are a range and I question those because these numbers are also based on seizures, arrests, and self-reporting. I don’t I agree with your numbers or your methodology.

    In this post you have proven that you can, in fact, have your own facts and opinions.

    • AnonymousHeironymous says

      *I don’t I agree with your numbers or your methodology.

      That should be I don’t agree. I think Paul above makes my point better than I did. But the point here is, you are not proving your argument.

  28. says

    Answers.com gives the farm gate price of tobacco in Kentucky at $1.50 a pound or 9 US cents an ounce. Is there any reason to think the farm gate price of fully legalised marijuana would be very different? From what I´ve heard, hemp is basically an undemanding weed that will grow anywhere, so its long-term cost of production may be lower than tobacco´s. Suppose them to be the same, and assuming Fox´s very high estimate of 1 bn ounces current US consumption. This could be satisfied at a raw material cost of $94m. Double it for a possible higher cost of growing and double again for processing and distribution and double again for luck and you are still shy of $1 billion: two orders of magnitude lower than Fox´s. A fully legalised marijuana market would look quite different from an illegal one.

    • noseeum says

      While the cost to grow an ounce of marijuana might be about the same as tobacco, or even less, we’re still dealing with an entire different market. There is about 2/3 of an ounce in one pack of cigarettes. A pack a day smoker is going through A LOT of tobacco. So considering the volume differential, I think it would be reasonable to charge a much higher price per ounce for marijuana. You still have to pay your employees, pay for shipping, etc. Those costs get much cheaper per ounce of tobacco.

      Still, I can’t imagine there being a justification for anything near even $50 an ounce if it were legal. Perhaps for the crazy hydro laboratory stuff. There would always be a market for exotics. But I would think standard weed would have to go below $50 in a fully legal market.

  29. Bruce says

    One billion ounces sounds like a heck of a lot of pot.

    By coincidence, though, I just last night read this fascinating story about the explosion in prescription amphetamine use — http://www.thefix.com/content/pay-attention-adderall-add-big-pharma7004?page=2.

    It says the DEA licensed the production of 26 million kilograms of amphetamines in 2011.

    That’s very roughly 100 billion ounces, if my math is right. And the speed doesn’t have to waste weight with gratuitous plant matter.

    But don’t worry, it’s non-addictive!

  30. Andrew says

    My local pot dispensary in the SF Bay Area charges $60 for ONE EIGHTH of their top-grade stuff. The bottom-grade stuff isn’t dramatically cheaper. So I call shenanigans on the $120/ounce figure. Maybe the lowest-quality skunkweed in the poorest part of the country sells for $120/ounce, but I doubt it because the poorest part of the country doesn’t have pot dispensaries, and the higher risk of dealing where it’s highly illegal would drive up the price. Also, poor people tend to pay more, not less, for consumer goods than rich people do.

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