Estimating the Value of the UK Cannabis Market

The Office of National Statistics (ONS) have examined methods of estimating the effects of illegal activities on the UK economy, and proposed some illustrative examples for discussion.

If their estimates of "street value" of all illegal drugs transactions had been included in Gross Domestic Product in 1996, it would have added between £3.9-£8.6 billion (0.5-1.1% of GDP). The estimated street value of cannabis sold was between £2,012 million and £5,524 million. The differences depend on what proportion (between 5%-20%) of the total drugs imported are assumed to be seized by HM Customs and the police.

In practice, they conclude, the inclusion of illegal activities would not significantly have altered the national accounts, but it could have the capacity to do so.

Methods

"Street Prices": the ONS took a mean between the regional police data (ounce prices, as quoted above), and regional prices given by the national drugs advice agency Release (almost all £15 per 1/8oz). These were converted to £/gram, and the same figure multiplied by a thousand taken as "street" kilogram prices, giving £3,460/kg for herbal cannabis and plants, and £3,415/kg for resin.

Numbers of drug users were estimated based on 1996 British Crime Survey data; 1,734,000 regular cannabis users (used in last month), and 1,387,000 occasional (used in last year), totalling 3,121,000 users in that year.

Average expenditure figures were simply assumed, "derived from price data and making assumptions about the quantity used". Regular users were assumed to spend £600 per year, occasional users 1/6th as much. This gave a UK total spent on cannabis of £1,179 million/yr.

Value of Imports:. A street value of £263.5 million for the imported cannabis seized by HM Customs was derived from seizure data, the ONS "street value" prices above, and an assumption that a cannabis plant = 100g, to be sold at the same price as imported bush. Four imported "street values" were estimated, based on assumptions that Customs" seizures were 5%, 10%, 15% or 20% of the total.

Table 18

ONS Implied values of imported cannabis by assumed seizure rate (£m)
Seizure rate	Herbal	Plants	Resin	Street Value
5%	2008.3	3.8	2994.4	5006.5
10%	951.3	1.8	1418.4	2371.5
15%	598.3	1.1	892.0	1491.4
20%	422.8	0.8	630.4	1054.0

 

Police Seizures were assumed to be between 0.5%-2% of the supply total, (10% of what Customs seized), and thus un¦important at this stage, except for estimating home growing.

Import Prices were given as £750/kg for herbal and £800/kg for resin, derived from 50% of the lower end of the range of "distributor prices" in police and customs data. They were about 20%-25% of the "street price".

Distribution Margins could be derived from the differences between import price and street price, around 80%, or from a formula devised by the International Financial Action Task Force to estimate money laundering, which assumes that the margin is 70%. Both extremely theoretical estimates are better considered during the final "balancing" of the accounts.

One of the authors" purposes was to examine the validity of these assumptions by comparing supply and consumption estimates. The assumptions can then be amended so that the two sides balance.

Alternative Assumptions

Our research indicates that regular cannabis users spent an average of £68.50 per month, or £823.20 per year in 1996-7. Almost all of our respondents were regular users by the BCS definition. If we accept that "occasional users" spend 1/6 as much as the regulars, and the numbers of users, our total UK spending estimate would be £1,617.8 million/yr.

As kilo cannabis prices, the ONS estimates are far too high (typically they would be £2,000 - £2,300/kg), but if the "street price" is the final amount paid before consumption, it would rarely be a kilo price. As gram prices they are too low, closer to a "distributor price" somewhere in the chain of supply, or our price weighted by the quantity bought, £3.21/g (See Table 25). At that price, the value of seizures would have been £246.27 million.

Using the gram equivalents to our 1/8 oz deal prices from 1997, the implied street value of seizures in 1996 would have been £330.70 million.

(Herbal, 30,535.9kg x £4280 = £130.7m, 472 plants = 47.2kg x £4280 = £0.2m, Resin, 46,137.4kg x £4330 = £199.8m. Accepting that plants being imported were all for sale, and capable of producing 100g each, which we do not usually consider to be the case with home grown plants).

Table 19

IDMU Implied values of imported cannabis by assumed seizure rate (£m)
Seizure rate	Herbal	Plants	Resin	Total Value
5%	2483.3	3.8	3796.2	6283.3
10%	1176.3	1.8	1798.2	2976.3
15%	739.8	1.1	1130.9	1871.8
20%	522.8	0.8	799.2	1322.8

 

Home Grown As noted above (Section 5), we cannot support some of the assumptions made by the ONS in deriving their estimated street values of homegrown. Our estimates are approx. 1/10 of theirs. Our initial figures are between 1/4-1/3 of the value of imports, which fits with our consumption data (up to 30%).

Table 20

ONS Implied values of all UK Cannabis Supplies by assumed seizure rate (£m)
Customs Seizure rate	Imported	UK Grown & Sold	Total Value
5%	5006.5	7960.0	12,966.5
10%	2371.5	3690.0	6,061.5
15%	1491.4	2630.0	4,121.4
20%	1054.0	1960.0	3,014.0

 

Table 21

IDMU Implied values of all UK Cannabis Supplies by assumed seizure rate (£m)
Customs Seizure rate	Imported	UK Grown & Sold	Total Value
5%	6283.3	773.1	7,056.4
10%	2976.3	384.7	3,361.0
15%	1871.8	255.0	2,126.8
20%	1322.8	190.5	1,513.3

 

Balancing the supply and consumption estimates

 

To make a coherent picture of the effect of the illegal drugs market on GNP, the ONS consumption estimate of £1,179 million/yr spent should equal supply estimates of between £3-£12 million/yr (imports plus domestic production, less production costs and distribution margins). The residuals, or difference between estimates, are large, and so the accounts must be "balanced" by comparing the elements which make up the estimates, judging the reliability of the data and adjusting the assumptions where they create inconsistent figures. This is a complex process which need not be entirely followed here.

Their initial consumption estimate is multiplied by between 1.75 and 5, justified because cannabis is popular among groups who may be under-represented in the British Crime Survey, especially students, and expenditure by occasional users may also be higher than supposed. Home Office on the drug-testing of arrestees indicates that the BCS under-reports cannabis use.

Because cannabis is bulkier than other drugs (and smellier), the lower Customs and Police seizure estimates are the less likely. The authors consider that estimates of successful imports and home grown sold can be reduced by up to half.

Values can then be made to sum zero by adjusting the assumed distribution margins, which were always speculative.

Table 22

ONS Estimated Cannabis Values after balancing (£million)
Seizure rate	5%	10%	15%	20%
Con-sumption	5,524	3,436	2,805	2,012
Imported	569	269	170	120
Domestic Produced	186	147	129	100
Distribution of Imports	1,937	880	594	394
Distribution of Domestic	2,833	2,140	1,912	1,398
Total Supply	5,524	3,426	2,805	2,012

All Residuals = 0

 

Comments on the estimates

All our initial supply estimates are lower than those derived by the ONS, largely due to the very different assumptions made about amounts of home grown reaching the commercial market. Our consumption estimate is higher, because our respondents" reported spending was higher. The residuals between estimates are smaller, so less drastic adjustments would be required to make the books balance.

We have not tried to closely follow their complex balancing process with our figures, since all of their results are purely for illustrative purposes, and the actual purpose of the exercise is to compare their initial assumptions with the data available. The adjustments they have to make in balancing are much larger than the differences between their initial estimates and ours.

Our evidence would support increasing any consumption estimates based on BCS data, and higher assumptions about spending among both regular and occasional users.

We would take a good deal more note of "own use" home grown production. Because plants can be very noticeable, the relatively higher police seizure figures seem more likely. Both would result in smaller values for the remainder of marketable home grown.

Import and distributor prices are unreliable because it is unclear what point of the distribution chain they actually represent. The "import price" is likely to vary according to the level of involvement of distributors in the importation - those who took part or invested in the smuggling project would get better deals. There may also be differences according to the quantity being imported, amounts in tons being relatively cheaper than amounts in tens of kilos. The "import price" estimates of £750 for herbal cannabis and £800 for resin seem low.

Simply following the ONS increases of the consumption estimate, the first stage of their balancing, (multiplying the original estimate of £1617.8 million/yr by 1.75 3, 2.5 or 5 according to seizure rate), using our data and assumptions, gives street values of £2,831.5, £4,044.5, £4853.4, or £8,089 million. The lower figure (20% assumed seizure rate) is close to theirs, the highest (5% rate) is considerably higher. The convergence of estimates may support a relatively high seizure rate.

The highest of these estimates would give a "street value" of cannabis sold of over £8 billion, around 1% of Gross National Product. The lowest value would be £2 billion.

Home	Survey 2005	Site Search
All contents of this web site & any links to other sites etc, is for educational & research purposes. IDMU at no time seeks to encourage illegal activities. Information that we gather is available to any interested parties. All sections of this site and its contents are protected under copyright laws. © IDMU Ltd 1994 - 2007