Effects of Taxes and Costly Regulations on the Licensed and Unlicensed Cannabis Markets

• Agricultural Economics Workshop

Date and Location

Thursday, October 15, 2020, 4:10 PM - 5:30 PM

Abstract

Cannabis has become a major commodity in much of North America, and is one of the most highly taxed and regulated agricultural products. Yet there is little research on the economic implications of cannabis taxes and regulations, which limit the availability of cannabis from legal licensed suppliers. Taxes and regulations generally raise the price and reduce the availability of licensed cannabis, which may increase the demand for unlicensed cannabis. In many states, the result is that licensed cannabis is more expensive and less available to consumers than unlicensed cannabis. This paper explores the impacts of several taxation and regulation alternatives that would likely increase the quantity of licensed cannabis relative to cannabis from unlicensed suppliers. Given the lack of cannabis data and confidence about the most important parameter estimates, we document confidence intervals around our simulation outcomes. Our simulated outcomes focus on policy-relevant market shares, government revenues, and welfare aggregates.