This report utilizes standard modeling practices to produce state-level estimates of marijuana production and value, utilizing known data and conservative parameters.

State-Level Allocation

The overall production estimate of the federal government of 10,000 metric tons is allocated to all 50 states on a proportional basis derived from the average seizures of cultivated plants by DEA’s DCESP from the three previous years, 2003 through 2005. This allocation is based on a standard statistical assumption often referred to as “the law of large numbers”; given a sizable sample of data, unknown variables are assumed to balance out. Specifically, this report is based on the assumption that states with larger and more intensive eradication programs have correspondingly larger and more intensive marijuana cultivation activity.

Plant Yield

Plant yield has been estimated on a conservative basis of 200 grams (approximately 7 ounces) per outdoor plant and 100 grams (approximately 3.5 ounces) per indoor plant. These yields are considered conservative compared to frequent reports by police stating the potential yield of seized marijuana plants to be 1 pound per plant.

Plant Sex

Production estimates are based on the assumption that all seized plants are females. Male marijuana plants have little if any market value and are usually discarded by growers in mid-summer when plants reveal their sexual characteristics. The presence of any male plants included in the DCESP eradication figures is offset by the exclusion of additional seizure data from the Bureau of Land Management and the National Park Service.

Crop Value

This report also places a value of domestically grown marijuana at $1,606 per pound. This price level is conservative compared to frequent reports from police that value seized marijuana between $2000 and $4000 per pound. Explanation of the source of this crop value follows below.

Seizure Estimates

Finally, this report estimates that regardless of the size and intensity of state-level eradication programs the seizure of outdoor cultivated marijuana plants represents only 8% of all outdoor cultivated plants and that seizures of indoor marijuana plants represent only 2% of all indoor plants.

Discussion of Key Parameters

Higher seizure rates would reduce the overall production estimate. However the seizure rates used in this report produce a combined production estimate that is consistent with the federal government’s widely reported estimate of 10,000 metric tons. Law enforcement in Kentucky suggest that they have eradicated up to half of that state’s marijuana crop, however in light of conclusion in the Federal Research Service Report that authorities seize less than 10% of available marijuana and the context of their remarks (see below) this may merely be wishful thinking.

The Kentucky eradication program’s results were reported in an Associated Press wire report on November 25, 2006 by the Lexington Herald-Leader:

“Police cut and burned 557,276 plants this year, up nearly 50,000 from the 2005 total and the most since 1995. Arrests also were up: 475 in 2006 compared with 452 in 2005. And if each plant they destroyed would have produced one pound of pot with an estimated worth of $2,000, that would mean $1 billion was prevented from entering the illegal drug market. . . .

“If police are finding that much marijuana, [Lt. Ed] Shemelya, [head of the marijuana-eradication program for the Kentucky State Police] said, it means there is a lot more they aren't finding. Even with additional flight time, he said, police can't cover all the primary pot-growing area of southern and eastern Kentucky and probably don't find more than half the crop.” [16]

While higher yields have been documented they represent optimal production likely offset by less accomplished producers, in any event the use of a higher yield would increase the total production estimate beyond the government estimate of 10,000 metric tons.

Higher prices have also been reported, but they also represent optimal rather than average market prices more appropriate for this estimation procedure. For example, on October 31, 2006 the Los Angeles Times published an Associated Press story of a report by the California Department of Justice that:

“Authorities seized a record number of marijuana plants this harvest season, uprooting nearly 1.7 million plants valued at more than $6.7 billion” [17]

indicating a value of $4,000 per plant.

A seizure in Epsom New Hampshire was reported in the Boston Globe on November 3, 2006:

“Police said they shut down what might have been the largest indoor marijuana operation in state history, seizing nearly 1,400 plants potentially worth over $4 million from a house.” [18]

The same seizure was reported in the Manchester Union-Leader:

“A massive marijuana-growing operation discovered in the basement of an Epsom home had the potential of yielding $4.2 million to $7 million on the streets, making it the single largest marijuana seizure in state history, police said yesterday. State police narcotics investigators found nearly 1,400 infant plants. . .” [19]

This latter report indicates a value of $3,000 to $5,000 per plant.

Furthermore the market prices frequently quoted by law enforcement in news accounts often represent retail or end-user prices whereas the price level used in this report is meant to provide an estimated value at the producer level. The price and yield indices used in this report represent a value of $702 per outdoor plant and $351 per indoor plant. These are conservative estimates that take into account less than optimal yield and production by many producers due to inexperience, lack of access to high-yield genetic stock, lack of sophisticated technology, cultivation for non-market personal use, and cultivation in marginal locations lacking sufficient space, sunlight, water, or fertilizer for optimal production.

Derivation of Price Index

The price of marijuana used in this report is based on data derived from the National Survey on Drug Use and Health (NSDUH) over a 5 year period, 2001-2005. [20] The farm price of marijuana was derived using a two stage process. The first stage involved producing an average retail price over this five year period. Survey respondents were asked what they paid for marijuana and what quantities they purchased. Midpoint prices per gram were derived for each category of purchases of less than one ounce, and a weighted price per gram was calculated with data from each of the last five years of survey data. For example, in 2005 the per gram price index was calculated at $6.14 per gram, which is a price of $173.93 per ounce or $2782.92 per pound. The same model produced the following retail estimates:

Table 1. Retail Price Indices Derived from the National Survey on Drug Use and Health

Stage Two involved reducing the Pound price index from a retail index to a producer level index. The producer index was calculated at 58.75% of retail value.

The framework producing this figure was based on assumptions that a wholesale price would be 83.5% of retail, a distributor price would be 67.5% of retail, a farm price would be at 50% of retail, and that the producer price index would be set at halfway between the farm and distributor prices to reflect differences in supply networks in terms of the number of intermediaries between end-use customers and producers. These are simplifying assumptions that are generally consistent with market conditions as reported in the press and government reports.

This model produced the following price indices for a pound of domestically produced marijuana:

Table 2. Additional Price Indices Derived from the National Survey on Drug Use and Health