FortisBC Inc. (FortisBC) Application for a Certificate of Public ...

ness that are not about business. Interestingly, the
observation that there are additional risks and
our knowledge of the returns to the marijuana
How Many Grow-Ops Are Out There?
One of the enduring problems facing anyone
interested in the illegal, or “black,” or even
gray economy, is to derive an estimate of the underlying
level of total activity from the sample of
those that are detected. There are problems in doing
this. A few might be catalogued under some
broad headings:
• sample selection—only the unlucky or the
least capable are caught;
• varying intensity of effort on the part of the
authorities—more police “fishing” means a
higher catch, at least initially; and
• an uncertain feel for what the alternatives
are facing the agents who are thinking of going
into illegal production—can they find a
remunerative line of work in the legal sector,
or are their alternatives really all about
illegal alternatives to, say, marijuana production?
23
PUBLIC POLICY SOURCES, NUMBER 74
grow-op business provide a mechanism for determining
the number of marijuana grow-operations.
This is discussed in the next section.
This section proposes one calculation method to
infer the number of grow-ops in British Columbia.
More generally, it is a technique that could be used
in a number of situations both current and historical.
Although one may disagree in detail with every
aspect of the analysis, it also provides a target to
classify the underlying variables that may be important
to any analysis of uncounted activities.
The approach
The underlying characterization is of the grow-op
as a profit maximizing activity in which the value
of output less costs, relative to the value of assets,
yields the rate of return to assets. For each crop of
a grow-op, all costs are fundamentally variable,
so that we can write the rate of return as relative
to costs. 24
If the industry is in equilibrium, then the return
on capital (or costs) is equated to the rate of return
22 That is, with only a 90 percent chance of realizing your sales, the expected rate of return becomes:
((0.9 x ( 1 2 x $76,000) - 24,500)/24,500).
Appendix BCUC IR1 74.1
23 There is still plenty of disagreement about the number of marijuana grow operations in British Columbia. Mark Hume of
The Globe and Mail of January 12, 2004 reports: “Police estimate 2,000 to 3,000 grow-ops are producing BC bud in Greater
Vancouver” (p. A2). On January 31, 2002, however, the Vancouver Sun’s Scott Simpson reports that the head of the Vancouver
drug squad, Inspector Kash Heed, “could not estimate the number of growing operations in Vancouver, but said the
number for the Lower Mainland has been pegged as high as 15,000” (http://www.mapinc.org/mjcn.htm). Interestingly, on a
different page of the January 12, 2004 Globe and Mail, Peter Cheney reports police estimates that there are now 15,000 marijuana
grow operations in Ontario (p. A6).
24 The alternative is to assume that the capital is used for a number of crop cycles. This would have the effect of increasing the
value of output relative to the asset base. Consequently, this assumption biases the return to growing marijuana downward.
The “true” returns on invested capital are likely to be higher.
Marijuana Growth in British Columbia 12 The Fraser Institute