Background: Criminalization levies a “risk tax” on illicit drugs through drug enforcement. Cannabis legalization aims to undercut illegal prices to subvert black markets. However, drug prices vary not only by legality but also by source. We examine sourcing premiums to assess whether legal cannabis, in general, is competitive with illegal cannabis.
Methods: Self-reported cannabis prices in the US were collected through the Global Drug Survey between 2017 and 2022. We analyzed the price of 1 gram and the quantity-adjusted price-per-gram using OLS with state-level fixed effects, adjusting for quantity, age, gender, and survey wave to assess whether legal markets are competitive at the price of 1 gram (N=13,430, N=4,727), and remain competitive for larger purchases (N=4,727).
Results: At the level of 1-gram we find that cannabis from illegal sources is sold at a substantial discount compared to legal sources. Adjusting for quantity discounts, this gap is reduced. Adding an interaction between source and quantity discount the gap widens again, and results suggest a steeper quantity discount for legal cannabis.
Conclusion: Our results suggest that illegal cannabis in the US is priced significantly lower or at the same level as legal cannabis. However, steeper quantity discounts can make legal cannabis competitive on price in larger quantities.