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Weeding out the Dealers? The Economics of Cannabis Legalization

Author

Listed:
  • Emmanuelle Auriol

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Alice Mesnard

    (University of London [London])

  • Tiffanie Perrault

    (McGill University = Université McGill [Montréal, Canada])

Abstract

We model consumer choices for recreational cannabis in a risky environment and its supply under prohibition and legalization. While legalization reduces the profits of illegal providers, it increases cannabis consumption. This trade-off can be overcome by combining legalization with sanctions against the black market, and improvements to the quality of legal products. Numerical calibrations highlight how a policy mix can control the increase in cannabis consumption and throttle the illegal market. In the US, the eviction prices we predict to drive dealers out of business are much lower than the prices of legal cannabis in most of the states that opted for legalization, leaving room for the black market to flourish. Analyzing the compatibility of several policy goals sheds light on the less favorable outcomes of recent legalization reforms and suggests a new way forward.

Suggested Citation

  • Emmanuelle Auriol & Alice Mesnard & Tiffanie Perrault, 2023. "Weeding out the Dealers? The Economics of Cannabis Legalization," Post-Print hal-04234940, HAL.
    • Handle: RePEc:hal:journl:hal-04234940
    DOI: 10.1016/j.jebo.2023.09.027
    Note: View the original document on HAL open archive server: https://hal.science/hal-04234940
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    References listed on IDEAS

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