Intermediate consumption and gross value added

An important part of the CEA was to estimate the size of the licensed and unlicensed cannabis industry. In economic accounting, the size of an industry is represented by its gross value added. Gross value added represents the difference between an industry’s output (or domestic production) and intermediate consumption. Estimates of domestic production were previously estimated. In order to calculate the gross value added of the industry the value of the intermediate consumption used to produce both licensed and unlicensed cannabis needed to be estimated. Intermediate consumption refers to the inputs that are used to produce cannabis. Inputs include water, electricity, pots, soil, fertilizer, space rental - representing the production function of the cannabis industry.

Estimates of intermediate consumption for licensed cannabis production were taken from a recent survey administered by Statistics Canada where the agency asked licensed producers to provide estimates of their expenses. The average expense to revenue ratio across all licensed producers obtained from this survey was applied to the volume of licensed cannabis produced in order to obtain an estimate of the intermediate consumption. The gross value added of the licensed cannabis industry was calculated as the total value of output less the value of intermediate consumption (or inputs).

(4) GVAlc=DPlc-IClc (397.6-318.1=79.2)

Estimates for the unlicensed industry were more difficult to find and had to be estimated. Various research studies indicated that the ratio of inputs to outputs for unlicensed cannabis was around 35%. Statistics Canada used this ratio for the entire 1960 to2017 time period. The gross value added of the unlicensed cannabis industry was calculated as the value of total output less intermediate consumption.

(5) GVAulc = DPulc-ICulc (4559.5-1595.8=2963.6)