The Hazy Economy of Cannabis
When Canada legalized recreational marijuana, a team of statisticians set out to decode how much exactly the weed business is worth
IN 2008, after decades advising national statistical agencies to count only legal market activity in their annual reports, international accountancy mavens at the United Nations Statistics Division—the global trendsetters who tell countries how to do their books—decided that the wages of sin ought to be included too.
That spawned a frenzy of number-crunching. By 2014, novel line items appeared in the accounts of most European Union countries, estimating the economic value of prostitution and illegal drugs. (It’s a work in progress. For example, in 2016, the UK clarified its books to reflect the fact that sex workers tend to conduct business forty weeks a year rather than fifty-two.) The United States, famously prim when it comes to certain kinds of sinning, does not count illegal activity in its national books. Nor does it count cannabis despite the fact that the substance is now legal in a raft of states.
Canada, too, excludes sex work and illegal drug activity from its spreadsheets. But, when Ottawa announced that it would be legalizing recreational cannabis in 2018 (the medicinal stuff had been legit since 2001), the country found itself needing to figure out just how much our basement toking was contributing to the national economy. So Statistics Canada, our most staid government agency, embarked on a nimble-footed, years-long quest to do the math of pot, complete with its own original taxonomy and an astonishingly tender amount of detail—a fervour that has gained plaudits from some of the UN’s select club of national accountants.
Our groundbreaking methodology—which includes sifting through waste-water and poking through memories of pot prices paid sixty years ago—was the subject of a packed session at the international accountancy community’s biannual meeting in Copenhagen in 2018 and is seen as a potential model for other countries.
Anthony Peluso, until recently an assistant director at Statistics Canada, was charged in 2017 with overseeing the intricate process of figuring out the current and historical value of the weed economy in Canada. That extends to labour statistics, manufacturing, imports, exports, policing, health care, and so on. Peluso, though silver-haired, could be mistaken for actor Stanley Tucci. It’s the magnificent black eyebrows and the roguish glint that I can see in his eye even over Zoom. But it’s also the comedic impulse. For example, even months after he retired (he’s now a private consultant in Ottawa), Peluso’s Facebook profile page descriptor was “Professional cannabis connoisseur.” And, because he no longer has to comply with what he grinningly calls the “communications hygiene” of a government agency that has no obvious sense of humour, he can give us a peek behind StatCan’s cannabis curtain.
IT’S ancient, this urge to count things. About 10,000 years ago, even before they developed written language, as best as we can tell, early Sumerians in the fertile valley between the Tigris and Euphrates Rivers used “count stones,” tiny symbols of the quantities of things, to monitor inventory. How many sheep were in storage? How many sheafs of wheat? Then, about 5,000 years ago, they made the logical leap to the first writing systems. Again, the invention seems to have been aimed originally at administrative tallying, which is to say, keeping track of stuff. It had political ends. Sumerians counted food, money, and trade, the underpinnings of the cities and governments they were inventing.
Those early records evolved into the complex financial statements we keep today. Since the Second World War, a key figure has been the measure of gross domestic product (GDP), the monetary value of all the goods and services produced in a particular jurisdiction in a given time period. It is widely interpreted as a proxy for wealth.
What you count matters. In her book GDP: A Brief but Affectionate History, Diane Coyle, Bennett Professor of Public Policy at the University of Cambridge, describes just how emotional it is for countries to change their approach. In 1987, Italy, whose citizens are famous scofflaws when it comes to reporting income and paying taxes, announced that it was adjusting GDP upward by about a fifth to reflect the underground—but not necessarily illegal—economy. Overnight, Italy became the fifth-largest economy in the world, surpassing the United Kingdom. National euphoria ensued. Italians dubbed it “il sorpasso,” the overtaking.
Adding cannabis into national accounts may not be quite that consequential, but it’s still tricky. Coyle told me that governments like to pretend that calculating production value is a very technical subject, “but it overlaps with ethics all over the place.” And cannabis statistics, she points out, are one of the places where the technical plainly overlaps with the ethical. Using pot was once so stigmatized that it bore criminal consequences, and now, all of a sudden, it’s part of the formal assessment of our national well-being. The situation lends itself to tiptoeing.
In the back halls of StatCan, this spilled over into how the statisticians were allowed to refer to the project, for fear of access to information requests from journalists looking for unseemly jollity, Peluso says. Cannabis wasn’t the same minefield as prostitution would have been—he calls cannabis “illicit activity-lite”—but it carried cultural baggage all the same.
“You know, the whole Cheech and Chong thing,” Peluso says. “They didn’t want it to be seen to be treated frivolously. They wanted it to be seen as a serious policy that we were measuring seriously. Even in internal communications, they didn’t like it if you made some cannabis-related joke.”
Like what? A “joint” communication was frowned upon, he recalls. Or a lift of the eyebrow with the greeting: “High, how are you?” No banter, however mild, was acceptable.
Yet Peluso knows that the project had an intrinsic comedic arc, he tells me, hands alternating between waving for emphasis and pressing against his lips to suppress mirth. It was clipboard-toting civil servant meets spliff-smoking hippie. In order to count everything correctly, statisticians, including those who had never touched a rolling paper, had to grapple with the minutiae of how the plants were grown, prepared for market, and consumed. Was it seeds or flowers? Fresh flowers or dried? Oil or extract or infused beverage?
The teams had to invent codes to capture classifications for new line items. Among them: 71.0105, in the classification of instructional programs for cannabis culinary arts and cannabis-chef training, and 71.0110, for cannabis-selling skills and sales operations.
It was obvious that there had to be new categories for cannabis taxes, but what about economic assessments of cannabis-related uses of police, courts, hospitals, and preventive health care? That led to a whole slew of new classifications under “functions of government.” And then there were changes to business investment, imports, exports, and household spending. The effort tangoed across dozens of divisions and other federal departments, consolidating data from both the social and the economic sides of the agency.
Apart from hammering out semantic protocols, StatCan faced two central hurdles in determining how to count cannabis: How much do Canadians use? And what does it cost? But the economists at StatCan wanted to calculate those numbers not just for the final quarter of 2018, when cannabis became legal, but for every year back to 1961, which is as far back as the national accounts go, at least in their current form. The reasoning was that cannabis amounts to an uptick of about $6 billion a year in economic activity. Without adjusting backward, it would seem as if Canada had had an unusually great 2018, an accounting offence StatCan’s economists couldn’t countenance.
Other countries didn’t have such qualms. In 2014, after European Union countries added illegal drugs and sex work into their accounts, as well as incorporating some other shifts mandated by the new international guidelines, their GDPs rose, Diane Coyle writes. The United Kingdom’s jumped by about 4 percent, Spain’s by 2.5 percent. Those of Finland and Sweden likely gained even more, she says.
But, in Canada, that wouldn’t do.
“It would look like GDP was just taking off in that quarter when that wasn’t happening,” says Conrad Barber-Dueck, an economist in the national economic accounts division. “All that was happening was that production was moving from an illegal basis to a legal basis.”
So the cannabis team dug back through decades of surveys on drug use, addiction rates, law enforcement, and health data to figure out how much cannabis Canadians were consuming back in the day. It started small, with as little as twenty-four tonnes a year in the early 1960s. By 2015, it was close to 700 tonnes. Until the 1990s, when the US war on drugs ramped up, a lot of that came from abroad. Now, we’re a major exporter.
Still, StatCan craved more detail. So, in 2018, analysts hooked up with researchers at McGill University’s department of chemical engineering for a year-long scrutiny of wastewater in Halifax, Montreal, Toronto, Edmonton, and Vancouver. (Halifax clocked in with the highest cannabis load per capita and roughly triple the usage of Vancouverites. Go figure.) That pilot project has now been suspended for lack of money, says Barber-Dueck.
The latest figures show that more than 2 million Canadians use cannabis at least once a week, and more than a third of those use it every day. But what have they been paying? Barber-Dueck says that the team ploughed into historical databases of weed prices, talked to law enforcement officers, and canvassed longtime illegal growers, mining their memories. British Columbians were especially forthcoming. “People are pretty open about it and have been for years,” Barber-Dueck says.
As the legalization date approached, the team created the crowd-sourcing app StatsCannabis, complete with a cannabis logo. “Statistics Canada needs your help collecting cannabis prices,” the app pleads, adding, “Your data is protected!”
The technique had its drawbacks, Peluso notes. Heavy users of cannabis are the most frequent participants in the surveys by default. But they’re also filling out the survey right after they’ve made a purchase.
“When you survey heavy users of a psychotropic substance, the error band is always a little bit bigger. You’re picking up people whose—How shall I put it?—whose awareness might be slightly compromised.” Again, the grin.
DRUG DECRIMINALIZATION continues to pick up steam around the world, and other countries are taking note of what Canada has done. “We may not dominate in a whole bunch of stuff,” Peluso says, “but sometimes we get into these little things and we do them well.”
There was the international session in Copenhagen. And, before he retired, Peluso gave a presentation to Mexican economists. (This March, lawmakers in Mexico’s lower house passed a bill to legalize recreational cannabis.)
In the US, president Joe Biden has gone on record in favour of decriminalization. Rachel Soloveichik, the research economist at the Bureau of Economic Analysis who is exploring methods of inserting illegal activity into the national accounts, is in the throes of writing a working paper on cannabis. “Some of the stuff Canada did is very innovative,” she says. “As you can probably imagine, surveying this type of topic is not always easy.”