As more states permit the sale of cannabis for adult use, you have to wonder about the economic impact of recreational cannabis on medical use.
The situation is complex
A significant number of states have already legalized the sale of cannabis products for prescribed medical use. But, those states do not have consistent regulations making it difficult to clarify the market.
Some states only permit the sale of cannabis derivatives. In its March 2016 report, The Network for Public Health reported on Jurisdictions with Limited Access Medical Marijuana Laws (at that time). Obviously, states have not granted complete license and were freely availability even for medical use.
The way markets work
— CannabisCoin (CANN) (@CannabisCoins) April 18, 2016
In a pure and free market, supply and demand level. The cannabis industry meets an unusual market. For example, the recent legalization of medical marijuana use in Pennsylvania presents an ideal example of the problem.
In Pennsylvania, you have two dense population centers in Philadelphia and Pittsburgh. There is a huge rural space in between these cities. So, approved patients who want to take the high road legally will create a market around those centers.
Those patients bothered by the dispensary price or disappointed in the offerings may stay with their submarket sources. Upstate and mid-state Pennsylvanians will not rush to the cities.
The real economic impact
There will be a market for medical marijuana even under restrictions. And, the numbers will produce significant revenues and taxes. However, it will not eliminate or significantly reduce the black market.
In the real and current world, marijuana legalization will lead to a decrease in the price, more so as the process broadens. Depending on the taxes set, prices will drive the market above or below ground.
Legalization of adult-use marijuana will increase users, some of them new and most of them regulars. And, assuming that the social costs of usage will appear slowly and without clarity, the usage market will increase.
So, it remains important to remember some keys:
- Marijuana is used in one form or another by a large number of Americans.
- Users regularly under-report their consumption.
- Legal prohibition means little if you consider the current market.
- Studies show the price of marijuana is inelastic meaning price is “irrelevant for the more common users, juveniles.”
The ultimate impact
It’s very difficult to determine what kind of economic impact will be made. Why? There are no absolutes in the cannabis market. Conditions are fragile, dynamic, and volatile than many markets. The reality is that legalization has only confused the supply and demand.
Economists and advocates have stereotyped users and broadly misidentified the market. They have ignored economic models regarding the economic impact of recreational MJ on medical use, as well.
Additionally, they do not admit the fundamental difference in market forces between those who want marijuana and those who need it.