Cannabis cannibalization: Is the recreational market appealing to patients in Colorado?

Abstract

Almost two decades after having legalized marijuana for medical purposes, Colorado was thefirst state to experiment its full legalization for all adults aged 21 or older in 2014. The newcompetition entering the medical market created a natural experiment, which allows to measurethe impact of recreational marijuana on existing medical sales. I explore this experimentalframework applying dynamic panel data techniques to county-level tax revenues from 2012 until2015. In particular, this work investigates the relationship between the number of suppliers in themarket, leisure seasonality, and the sales variation of medical marijuana due to the retailoperations. I find that growth in the legal recreational market substantially reduce medical salesin touristic areas, whereas the effect in other regions appear to be marginal.Additionally, accounting for market size, this study shows how entry choice in this highlyregulated market is affected by degree of tourism within the area. The effect of supply’sgeographical concentration on prices is also explored, and the results suggest that the twomarkets are currently affected in multiple ways. Building on microeconomic and behavioralmodels, this study shows how successful price discrimination is achieved by policymakers onmarijuana users through the dual-licensing scheme.Taken together, the thesis attempts to shed light not only on the potential benefit of the full legalization, but also on its critical limits, which should be monitored for a successful implementation.