Early impacts of marijuana legalization: An evaluation of prices in Colorado and Washington (2017)

Following the legalization and regulation of marijuana for recreational purposes in states with medical markets, policymakers and researchers seek empirical evidence on how, and how fast, supply and demand changed over time. Prices are an indication of how suppliers and consumers respond to policy changes, so this study uses a difference-in-difference approach to exploit the timing of policy implementation and identify the impacts on marijuana prices 4-5 months after markets opened. This study uses unique longitudinal survey data of prices paid by consumers and a web-scraped dataset of dispensary prices advertised online for three U.S. medical marijuana states that all eventually legalized recreational marijuana. Results indicate there were no impacts on the prices paid for medical or recreational marijuana by state-representative residents within the short 4- to 5-months window following legalization. However, there were differences in how much people paid if they obtained marijuana for recreational purposes from a recreational store. Further analysis of advertised prices confirms this result, but further demonstrates heterogeneous responses in prices across types of commonly advertised strains; prices either did not change or increased depending on the strain type. A key implication of our findings is that there are both supply and demand responses at work in the opening of legalized markets, suggesting that evaluations of immediate effects may not accurately reflect the long run impact of legalization on consumption.