How to calculate the value of New York’s marijuana market

Marijuana and rolling papers. (1ncognito via Flickr)
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Marijuana is a $1.65 billion industry in New York City, according to a report released today by Comptroller John Liu, with the potential to become a $1.7 billion industry if it were made legal here.

It is the first time a city official, or maybe anyone, has attempted such a study of the city's weed trade.

"This is the only such estimate we are aware of," emailed Julie Netherland, the New York deputy state director for the Drug Policy Alliance, when I asked if she'd ever seen such a number before. "If we come across another, I’ll let you know, but we haven’t seen anything like what Liu released."

Frank Braconi, the comptroller's chief economist, said that he, too, had never come across a similar estimate.

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So how did Liu's office come up with that number?

First, Liu limits the size of New York City's market to those 18 and older, since if marijuana were ever made legal here, it wouldn't be sold to minors.

In New York City, there are about 6.5 million New Yorkers of age, plus about 900,000 commuters, who in turn have about 600,000 spouses or domestic partners. About 10.4 percent of all those people (or 830,000) are believed to have smoked pot in the past year, according to a report by the Substance Abuse and Mental Health Services Administration.

Then Liu and his researchers "assume the average marijuana user smokes 5 ounces of marijuana per year," which is more or less on par with estimates in Colorado and Washington, where recreational marijuana is now legal, and in Australia, where the usage pattern is similar.

Based on six different price quotes for marijuana in New York City derived from High Times—including $420 for an ounce of strawberry cough and $350 for Burmese Kush—Liu's office concludes that an ounce of marijuana in New York City in 2013 costs about $400.

Take about 830,000 consumers, multiply it by a consumption rate of 5 ounces per person, at a cost of $400 an ounce, and you get about $1.65 billion.

Braconi and his co-authors argue that in the (unlikely) event that marijuana were legalized in New York City, but not the surrounding area, that number would go up slightly, thanks to the purchasing power of tourists and of metropolitan-area residents who don't work here but might come here to buy their drug legally.

Tourists, according to the report, would  "add the equivalent of 10,000 resident marijuana consumers," and metropolitan area residents who come to New York City only occasionally would add the equivalent of about 70,000.

"If you create a system where there's a legal market in New York City and an illegal market around it, you're kind of changing the incentives around where people purchase," said Braconi.

Liu argues that the city could then tax consumption to the tune of about $400 million and use that money to help fund the City University of New York.

Recently, there have been some efforts, led mainly by state senator Liz Krueger, to legalize recreational marijuana in New York State, but so far, they're haven't really gone anywhere.

Liu is proposing to make the sale of marijuana legal, and to use the proceeds to fund higher education.

You can read the whole report here.