When debating the subject of marijuana legalization, a frequent topic that seems to arise is the size of the marijuana market. How much, exactly, do Americans spend on the “Schedule I” substance? How much of a monetary benefit could the nation reap from its legalization?

A recent report by Green Wave Advisors found that the “U.S. retail marijuana sales revenues could reach ~ $35 billion/year by 2020, if full legalization occurs in all 50 States and D.C.”  Nerdwallet recently published estimates by a Harvard University economist, who valued the market at $14 billion. Data from other researchers says the size of the market as higher than, lower than, or somewhere in between these estimates. Which data is correct, though?

Any estimates out there that provide a valuation of the marijuana market make certain assumptions. These assumptions are discussed below, in detail, as well as a baseline estimate of the size of the marijuana market based on research we compiled from the U.S. Department of Health and Human Services (HHS), Green Wave Advisors, Rand Corp, and other resources.

Marijuana use in the U.S.

One of the major problems with trying to have a national conversation about marijuana and its market size is that we really don’t know much about national consumption habits. Marijuana has long been considered taboo, and some people may not necessarily want to admit to using the substance at all, let alone admit to using it on a frequent or regular basis. We do, however, have a few good answers to questions like: How many Americans smoke weed? How often do they smoke, and how much? And, how much does the substance cost?

Based on the results of the 2012 National Survey of Drug Use and Health, the good folks at HSS estimate that 18.9 million Americans over the age of 12, or 7.3% of the population, “used marijuana” in the month before the survey was conducted. This is up 30% from 2007. Further, 7.6 million, or 40% of those who said they smoked the previous month, said that they used marijuana on 20 or more days that month, and 5.4 million said they used marijuana daily or almost daily over the preceding 12-month period. Even if these estimates do not represent every single marijuana user out there, they do convey that there is a large demand for the substance.

Assumptions and limitations of marijuana use data and statistics

With so much demand, it’s intuitive that the market would be huge — but we’d be damned if we stop at intuition. In assessing the size of the market, we had to make some crude assumptions, such as:

• The HHS data, which asks survey respondents about marijuana use in the previous month, is representative of any given month of the year.
• A small portion of the population accounts for the majority of marijuana consumption. According to a 2013 research report from the Rand Corporation, marijuana consumption follows the 80:20 rule, where 80% of demand comes from 20% of users. Rand Corp. also estimates that heavy smokers consume two to three times as much weed as casual smokers.

So, how big is the market?

Based on HHS data, with 7.6 million people smoking 20 times a month, and 11.3 million smoking once a month (which is the lower-end of the consumption estimate), we have a baseline of 163.3 million smoking events per month (pardon the awkward language).

This means Americans smoke between 49 million grams (at 0.3 grams per instance used) and 147 million grams of weed per month (at 0.9 grams per instance used). In ounces, this equates to a range of between 1.73 million ounces and 5.18 million ounces per month, respectively. This works out to between 20.76 million ounces per year at the lower end and 62.16 million ounces per year at the higher end.

Now, the last thing we need is price. According to the aptly named priceofweed.com, which crowdsources what people are paying for weed and maintains a price index with the data, an ounce of medium quality weed currently costs about $258 in the U.S.

So, based on these numbers, Americans smoke somewhere between $5.36 billion and $16.04 billion worth of marijuana each year.

Again, this is a pretty crude estimate and it’s very conservative, but hopefully it helps illustrate the lower bound of the market’s value. Americans are smoking at least this much weed. Between under-reporting, the likelihood that frequent users smoke multiple times a day, and the likelihood that average consumption per instance is actually much higher than the 0.3 to 0.9 gram-per-use estimate, the true size of the market is probably much larger — that $35 billion estimate by Green Wave may even be on the conservative side.

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