Blue smoke and seers: measuring latent demand for cannabis products in a partially criminalized market

Patrick Anderson

Business Economics, 2020, vol. 55, issue 1, No 8, 26-40

Abstract: Abstract Cannabis, otherwise known as hemp or marijuana, is one of the nation’s fastest growing cash crops. In the late 1990s, proponents of legalization began a successful effort to decriminalize cannabis at the state level. By 2020, over half of the U.S. population will have the ability to purchase legal cannabis in their state of residence. Even in open markets, widely varying state laws and a patchwork of reporting make direct observation of consumer purchases impossible. Governments seeking tax revenue, businesses seeking reliable market indicators, and consumers wanting reliable suppliers all have an interest in filling this knowledge gap. We approach this question from a perspective of fundamental economics and describe a methodology to estimate demand for legal cannabis products across all 50 states. From these estimates, we construct a monthly index of demand for medical and adult-use products and find that the data illustrate (1) continual increases in demand since 2016; (2) significant product substitution, especially for alcoholic beverages; (3) emerging brand differentiation; and (4) the existence of far-reaching regulatory and tax obstacles in many states. We note that these obstacles often cause tax revenue to be substantially smaller (and the black market much larger) than anticipated.

Keywords: Marijuana; Cannabis; Legalization; Taxes; Demand; Regulation (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1057/s11369-019-00159-y

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