“Marijuana on Main Street? Estimating Demand in Markets with Limited Access,” published in American Economic Review, August 2016.
Economists Liana Jacobi of the University of Melbourne and Michelle Sovinsky of the University of Mannheim look at how limited access affects usage rates among Australians of different ages. The Australian data is especially useful because it includes statistics on accessibility and prices. Recreational marijuana is currently illegal in Australia, though some states began introducing medical marijuana laws in 2016. As in America, marijuana is the most commonly used illicit drug in Australia.
The authors look at the role accessibility plays in usage and how tax revenues are affected when marijuana is regulated like alcohol and sold to people above the age of 21. They also examine how taxation can curb use among youth. Jacobi and Sovinsky extrapolate their analysis to include the United States, a country with similar cultural behaviors and economies.
- The U.S. could raise between $4 billion and $12 billion annually by taxing legal marijuana. These numbers are based on a tax levy of about 25 percent, which is what the state of Colorado charges. This rate could maximize state revenues without incentivizing the black market.
- When people have more access to marijuana (through legal and illegal means) more people use it.
- When marijuana is illegal, both access and usage drops as people age. Access is better among the young. Men have better access, and use more, than women. Legalization, therefore, improves access for larger numbers of older people and prompts a larger proportion of older people to begin using.
- If marijuana use was legalized and individuals had easy access to the drug, usage rates would rise by approximately 50 percent in the U.S. If that happened, about 19.4 percent of U.S. adults would use marijuana.
- To prevent teenagers from increasing consumption after marijuana becomes legal for adult use, the price would have to rise fourfold. That is unfeasible because it would encourage a return of the black market. Instead, a tax of 25 percent would stop roughly one-third (34 percent) of potential new teenage users from starting to use marijuana. To stop 40 percent of potential new teenage users, prices would have to almost double. Prices would have to almost triple to cut the number of new teenage users by half.