This is the formula Canada is using to figure out how legal weed will boost its economy

Preeti Varathan

The pot economy is way bigger than we think.

Weed makes money—not just for dealers or pharmacists or college students with a hobby, but for the overall economy. In Colorado, legal sales of marijuana reached nearly $1 billion in 2015.

In California, the industry is projected to make $7 billion a year. In Canada, one of the largest producers of medical marijuana is trying to go public, after reporting $14.1 million in annual sales.

Economists, statisticians, and consultants have tried to figure out just how big the market is. Now, an actual government body—the Canadian government—is attempting that, too. Why? Canada will likely legalize recreational weed by 2018.

The model to measure consumption

The statisticians of Canada will struggle to track the bulk of weed consumption. They need a model. It is pretty simple, made up of no more than four variables and some basic math.

For any given year, you need to know:
1. How many people are consuming marijuana
2. How many days of the year they consume it
3. How many grams they consume each day
4. The price of a gram

If, say, 100,000 people consume a gram of weed every day of the year at $8 a pop, households spent more than $292 million on pot that year.

Of course, that isn’t marijuana’s contribution to GDP. To figure that out, you also need to account for any weed smuggled out of Canada or sold overseas, and deduct any legal and illegal imports.

Finding the data in the weed

Tracking the production, sale, and use of medical marijuana shouldn’t pose much of a challenge. The market is tiny, with only 73 licensed producers in Canada. Legal producers advertise their products online, fill prescriptions by mail, and send monthly reports on output, sales, and inventories to Health Canada.

Recreational weed is far trickier— the government’s only sense of how much people consume comes from self-reported health surveys. The 2017 iteration of the Canadian Tobacco, Alcohol and Drugs Survey can help Statistics Canada estimate consumption weed. But it won’t give a good sense of its cost.

Instead, officials will guesstimate the cost of production by looking to the medical-marijuana market.

The costs of growing—seeds, fertilizers, water, electricity—shouldn’t be all that different whether the output is legal or not.

However, the price of illegal weed is definitely different. For this, Statistics Canada is trusting self-reported responses from priceofweed.com, an anonymous crowdsourcing site that wants to pin down street values.

Why it matters

There are reasons to be excited by the prospect of legalizing weed, even if you’re not a fan or user.

Colorado collected $76 million in taxes from marijuana sales in 2014, and in the eight months following, another $87 million, most of which went toward education. (Colorado’s population is less than a fifth the size of Canada’s.)

The availability of legal weed will also likely make it cheaper to buy, since the price of illegal weed reflects the risk taken on by dealers worried about getting caught. In 2014, Washington state ran an experiment and sold large quantities of legal, recreational weed. The result? It rapidly became cheaper (paywall).

A preliminary analysis from Deloitte suggests legalizing marijuana would add $22.6 billion to the Canadian economy annually—that’s more than 1% of Canada’s current GDP.