Sunday, September 08, 2013

Slouching toward legality...

Every now and then I see the claim marijuana is the "most valuable US crop".
Reuters reported Dec. 18 that public-policy analyst Jon Gettman estimated the value of the U.S. marijuana crop at $35 billion annually, with California, Tennessee, Kentucky, Hawaii and Washington each producing more than $1 billion worth of the illegal drug each year. Gettman estimated the annual California marijuana crop to be worth $13.8 billion.
The estimates were based on previous federal reports showing that the U.S. produced more than 10,000 metric tons of marijuana each year.  At $1,606 per pound, that makes the crop worth at least $35 billion, compared to $23.3 billion for U.S.-grown corn, $17.6 billion for soybeans, and $7.4 billion for wheat. [More]
First, this was 2006, so the commodity numbers are much lower than current prices, and it also uses street value - not "farmgate" - prices for weed. Finally, the estimate comes from a partisan source, not disinterested economists. Something smells funny about this claim (heh).

So as the nations moves fitfully toward legalizing cannabis, what are some better numbers to estimate the importance of this ag product and its possible effect on the economy?

Well, that turns out to be a tough question. I started by trying to find out large US consumption is. As you might guess, the estimates are even worse than NASS on the soy crop.
Consequently, all the data presented above suggests the most reliable estimate of annual supply is one that takes each of four most prominent estimates into consideration: 1) the 21,865 mt estimate based on seizures and domestic production; 2) the 17,000 mt estimate reported by the Library of Congress; 3) the 8,700 mt estimate generated by combining State Department and NDIC reports; and 4) the 9,830 mt consumption estimate above derived from National Survey data. The average of these four estimates of supply is 14,349 mt of marijuana available in the US on an annual basis. [More]
But a more recent (2010) Rand study refutes this number.
The $20 billion figure appears to come from multiplying a $525-per-pound2 markup by an estimate from the Mexican government that 35 million pounds were produced in Mexico and then rounding up. However, no data support the claim that U.S. users consume 35 million pounds (~16,000 metric tons [MT]) per year, let alone that they consume this much marijuana from Mexico. (This point is addressed in detail in Chapter Three.) This is three times the United Nations Office on Drugs and Crime’s (UNODC) (2009) upper bound for total U.S. consumption and nearly four times the amount estimated by the Drug Enforcement Administration (DEA) (DASC, 2002). [More]

Note the ~15,000 MT estimate is from the same guy who made the previous value estimate. His estimate that we import about 50% of consumption is also echoed by other sources, but that claim seems to be more widely accepted as a reasonable guess. Perhaps a better estimate:
No one can know the actual value of the domestic marijuana crop with any certainty, as most cultivation is hidden in the shadows, all the more since federal prosecutors began cracking down in states that have legalized medical marijuana. The authors' best guess is that it’s worth about $2.1 billion to $4.3 billion.How legalization would affect the value of domestic pot production and potential tax revenue is another complex question the authors attempt to untangle.While legalizing marijuana could double or triple consumption, the authors point out that it also would dramatically lower the cost of production, with growers adopting highly mechanized, large-scale techniques used by big agricultural companies.Under this scenario, marijuana could become the cheapest legal intoxicant, far cheaper than alcohol. The authors suggest a legal market dominated by high-potency marijuana would produce annual tax revenues of a few billion dollars nationwide.By comparison, alcohol and tobacco each bring in $10 billion or more per year, according to the book.So what about California, where the pot industry is a fixture in some counties and growers boast of producing the most potent and most valuable strains in the country?The authors don’t speculate. However, 2010 figures from the U.S. Department of Agriculture, the most recent available, rank grapes at the top in California, worth $3.2 billion annually, followed by almonds ($2.8 billion), strawberries ($1.8 billion) and lettuce ($1.6 billion).That means that if one values the nation’s marijuana crop at the high end of the authors’ estimate, about $4 billion, California would need to account for more than 75 percent of domestic production in order for pot to rank as the state’s top cash crop.Inflated valuations are not the sole domain of marijuana advocates. The authors suggest that there are incentives for law enforcement officials to pump up the potential value of marijuana to present their seizures in the most favorable light. [More]
By this time I have reached the conclusions that 1) any economic analysis regarding farm income, tax revenue, or economic  impact from legalization should be viewed with great skepticism, and 2) marijuana today probably is not close to being our most valuable crop. 

1 comment:

Anonymous said...

In Ontario our Premier Wynne said she smoked pot before she had kids and met her partner-girlfriend and leader of the opposition Liberal party leader Justin Trudeau says he smoked pot as a member of Parliament--maybe this explains some of the government actions-regards-kevin