Executive's Desk: Using data to inform decisions has its benefits — and its risks

Over the past few years, I have seen more businesses tout their “data driven” approach. Using data to inform decisions definitely has benefits, but it also carries significant risks if the data themselves are not accurate or reliable.

Businesses should get to know an acronym already common amongst statisticians and data scientists: GIGO. It stands for “Garbage In, Garbage Out,” and it means that if the underlying data are inaccurate, unreliable, or incorrect, any conclusions based on that data will also be inaccurate, unreliable, or incorrect.

The quality and usefulness of your outputs — like strategy, investment decisions, profit projections — depend on the quality and usefulness of your inputs. An example from New Mexico’s nascent cannabis industry illustrates why businesses must view data with a certain amount of skepticism and should not rely too much on numbers alone.

Like other organizations, legal cannabis licensees in New Mexico need to make strategic decisions about expansion, contraction, capital investments, and so on, and those licensees look to industry-wide sales figures to spot market trends.

However, New Mexico cannabis licensees have two very different sets of numbers to evaluate. The first set of sales figures comes from the Cannabis Control Division, within the New Mexico Regulation and Licensing Department. RLD does not track or study sales figures for any other industry, but it has voluntarily assumed an accountant role for the cannabis industry. RLD’s press releases triumphantly trumpet increasing revenues, record sales, and a market clearly on the rise. Earlier in 2023, RLD heralded $300 million in recreational cannabis sales during the first year of legality.

The second set of numbers comes from the New Mexico Taxation and Revenue Department, the stingy organization that, we can be assured, carefully counts every penny. TRD should be collecting 12% of the total of recreational cannabis sales, because the state set the Cannabis Excise Tax at 12%. However, TRD has admitted that it has collected less than expected — less than 12% of what RLD has reported for overall sales. This indicates the possibility — or even the probability — that legal sales have not actually scaled the great heights that RLD has claimed.

In this situation, what is the smart, informed, “data driven” cannabis business to do? Should it believe the eternally optimistic RLD numbers? Should it take the cynical route and believe the more realistic TRD figures? Or should it declare both numbers unreliable and search for other market signals?

If the “data driven” cannabis business depends too much on garbage data, its strategic decisions based on that data could also be nothing better than garbage.

New Mexico’s cannabis businesses must confront circumstances where data is not neutral, not impartial, and perhaps not reliable. These businesses must make decisions not quite in the dark, but in a twilight, murky environment.

Other businesses might use this example to examine more closely whatever data drives their decisions. Are the numbers reliable, correct, and accurate? Or is it another example of Garbage In, Garbage Out?