Analysis: Legalization lowers marijuana prices

Legalizing cannabis nationwide is a matter of justice, but it's also a matter of pocketbooks. A new analysis published in the American Journal of Agricultural Economics found that national legalization would likely lower cannabis prices in more expensive U.S. markets. Simply put, weed is cheaper where it's legal. Cannabis enthusiasts wondering how their votes in the next election might affect the future of cannabis should take note.

An overwhelming majority of American voters support legalizing cannabis, and support remains high in states with established recreational markets. Some of these voters are lucky enough to stop by their local store or place an order, but many others continue to obtain their cannabis through the illegal market.

This analysis suggests that states with legal cannabis could benefit from national legalization just as much as states without cannabis legislation—not only by changing laws, but also by changing access to legal cannabis from other states.

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Tracking cannabis prices in different states

This analysis by North Carolina State University economist Barry Goodwin focused on cannabis prices in U.S. markets. Goodwin collected data from 15 states with varying levels of cannabis laws to see if the cost of cannabis in one state affects prices in another. The weekly wholesale price data comes from Cannabis Benchmarks, which conducts a nationwide survey of cannabis prices each week.

Cannabis is still illegal at the federal level, so transporting or selling it across state lines is still a crime. Even if two states have cannabis laws in place, cannabis trade between them is still explicitly illegal. Understanding how cannabis prices are integrated between states also helps you see how the illegal market affects cannabis prices across the country.

California sets cannabis pricing standard

The results show that California is a huge price leader nationwide. And prices have fallen sharply since legalization. In Los Angeles, an ounce of shake cost just $23 per legal ounce this month.

California has long been an epicenter of cannabis production and culture, producing far more cannabis than it can consume, much of which (millions of pounds) is illegally exported to other states.

I believe that California, as a leading cannabis exporter, plays a price leadership role.

Goodwin, 2024

Goodwin noted that prices began to decline in 2018 when legalization took effect in California and penalties for cultivation decreased.

Starting in 2018, prices tended to drop significantly, which in turn was a time of expanding cannabis legalization in many states.

Goodwin, 2024The blue lines show that prices in states where cannabis has been legalized fall over time. More farms and stores cause prices to fall faster. (Goodwin, 2024)The blue lines show falling prices in states where cannabis is legalized and enough farms and stores are permitted to meet demand. (Goodwin, 2024)

Previous research also shows that a third of California cannabis growers never applied for a cannabis license because the regulatory hurdles and entry costs to participate in the legal market were too high. Yet they continued to grow. The flooded market overwhelmed demand and drove down prices. During the pandemic, prices rose again in 2020 and fell even further afterward.

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The results show that California's influence on prices extends across much of the country, even to the most geographically distant states like Maine. In most states, cannabis prices are far higher than in California.

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Goodwin explains: “The likely mechanism leading to the integration of cannabis markets is the thriving illegal cannabis trade that existed long before recent state-level legislative action to legalize cannabis use.”

When prices in other states get too high, California's illegal market prices for cannabis become competition for the regulated market and drive prices down. However, due to the legal risks, the cost of transporting the cannabis increases significantly, so prices must be significantly higher to compensate.

This means that prices in the country are hardly adjusted to Californian prices, but are still much higher.

The only exceptions are a few western states that have their own cannabis production history and mature recreational markets – Colorado, Washington, and Oregon. In these states, prices are already well below those in California, which is likely why they are not affected by California prices.

However, Goodwin notes that “policy changes that ease restrictions on interstate trade would likely further integrate markets, making higher-priced markets more likely to align to form a national cannabis market.”

In other words, nationwide cannabis legalization or other measures that allow interstate cannabis trade could significantly lower your cannabis prices.

The positions of the main candidates on cannabis reform

Those who want to push for cannabis legalization can help by voting in November. Florida, for example, is voting on Amendment 3 to legalize cannabis for adults.

Vice President Kamala Harris and her running mate, Minnesota Governor Tim Walz, recently became the first party to support federal cannabis legalization. While Harris has prosecuted marijuana crimes, her position has become more progressive over time. During her tenure as vice president, she championed cannabis-friendly legislation, including the MORE Act, pardons for prisoners convicted of cannabis, and cannabis reclassification.

As a presidential candidate, Harris has expressed her support for removing cannabis from the list of controlled substances entirely, writing on X (formerly Twitter): “The War on Drugs has been a dismal failure. It's time to legalize marijuana and bring justice to people of color harmed by failed drug policies.”

Cannabis freedoms increase supply and lower prices. (Goodwin, 2024)Cannabis freedoms increase supply and lower prices. (Goodwin, 2024)

Trump has also taken a more pro-cannabis stance lately, supporting adult-use in Florida as well as federal reclassification and SAFE banking.

However, during his previous term, he directed the Justice Department to crack down on cannabis-related offenses and used part of his salary to run an advertising campaign about the negative effects of marijuana. On the other hand, he sponsored a bill to protect states' cannabis-friendly laws.

While Harris supports legalizing cannabis nationally, Trump has framed the issue as a matter of protecting state laws for or against marijuana. Cannabis was not a topic of the presidential debate earlier this week.

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