The evidence from Table 1.7 suggests that the perceptual effect of state medical marijuana liberalization was relatively unrealized until after the Ogden Memo. It is thus unsurprising that studies only covering a time period prior to 2009 find insignificant effects of MML enactment on use for both adolescents and adults.19 Another mechanism by which MMLs may affect marijuana consumption is through increasing availability or decreasing prices. Research by Pacula et al. recognized that, if these are important channels through which MMLs generate spillovers, estimation needs to account for heterogeneity in the specifics of MML provisions. Accordingly, more recent studies have, in addition to using a binary measure of MML enactment, also included indicator variables for allowance for the legal operation of retail dispensaries and allowance for home cultivation by patients and/or caregivers. Still, findings have varied . While this approach is an improvement to treating MMLs as a homogeneous set of policies, it still relies on the assumptions of the DID approach and thus suffers from similar limitations. For example, including a categorical measure of “home cultivation allowance” implicitly assumes that all home cultivation laws are created equal. As Table 1.1 shows, this is clearly not the case. A binary variable for whether a state allowed patients or caregivers to cultivate would take a value of one for both Colorado and Vermont. However, a caregiver in Vermont was limited to growing for only one patient, and thus could only legally cultivate three plants; a caregiver in Colorado could grow for an unlimited number of patients,vertical farming supplies and could thus theoretically be legally protected for maintaining a large-scale grow operation with hundreds of plants.
Additionally, it is unclear whether the dummy variables for any specific policy measure should “turn on” when the law is passed, when it becomes statutorily effective, or when it becomes effective “on the ground” . This is especially problematic for the measurement of dispensary legalization. As shown in Table 1.1, some states did not explicitly permit dispensaries but they did not explicitly prohibit them either. And for states that legalized state-licensed dispensaries in their initial MML, there were often substantial implementation lags between lawenactment, the licensing of dispensaries, and the opening of dispensaries . Even if the date of first dispensary operation is correctly identified, production-related realities may lead to further lags before the full effects on access and price are realized. These lags are likely not random, but will be correlated with unobservable local attributes as well as enforcement efforts at the federal level. This paper shows that there is substantial heterogeneity both across states and over time in the extent to which users and suppliers have actively participated in state medical marijuana programs. Changes in perceived federal enforcement had far greater effects on medical marijuana take-up than MML enactment alone, and these effects were concentrated in those states that imposed relatively lax restrictions on legal producers. This indicates that medical marijuana participation is largely driven by the expected benefits associated with access to legal supply. A few other findings deserve mention.
First, states with MMLs allowing chronic pain as a qualifying condition on average have significantly higher registration rates. This is unsurprising since these states have a larger pool of eligible applicants. However, the fact that the federal memos did not have a differential effect on registration rate trends in these states with laxer qualifying standards suggests the federal policies did not differentially affect physician willingness to recommend a “marginal” patient. Second, higher registration fees significantly reduce medical marijuana participation. This is consistent with anecdotal evidence that registration fees represent a barrier to take-up for many patients , and future work should assess whether there is age or demographic heterogeneity in the elasticity of participation with re- spect to application costs.20 From this paper’s analysis, changes in medical marijuana registration rates seem to follow a pattern largely consistent with economic models of rationality. Overall, both across- and within-state variation in medical marijuana patient registration rates is primarily driven by differences in the costs of obtaining marijuana. Given evidence that supply spillovers from legal medical marijuana markets to illegal markets largely occur through diversion from registered patients to unregistered consumers , changes in registration rates may more precisely reflect the spillover effects of MML policy compared to binary indicators for various dimensions of MML regulations. The conclusions of this paper can be used to inform the methodologies employed by future work studying the effects of MMLs on substance use and other related outcomes. Using a binary measure of MML enactment to identify the effects of marijuana liberalization relies on a coarse measure of the impact of MML policy on the marginal user. By instead evaluating the effect of MMLs through changes in registration rates or the policy aspects that induced such changes, future work can more accurately assess the complex and dynamic effects of liberalization policies on marijuana consumption and its associated health consequences in the general population.
Since 1996, growing evidence of the potential medical benefits of cannabis and increasing social acceptance of the drug have led twenty-three states and Washington D.C. to enact medical marijuana laws , which legalize the use and cultivation of marijuana for medical purposes at the state level. Several of these states have also recently expanded legalization to allow the commercial sale of marijuana to adults for recreational purposes. Prior research has sought to estimate the effects of these policies on marijuana consumption by comparing MML states before and after law passage to states without such laws, but findings have varied.1 However, this approach assumes that the law’s passage had an equal and immediate effect on demand-side or supply-side channels that would increase consumption. The absence of reliable data on prices and transactions makes this assumption difficult to verify. This paper instead uses improved data and a novel instrumental variables approach to directly study the effects of growth in the size of legal markets for medical marijuana on recreational use. Newly collected data on per capita medical marijuana patient registration rates show that changes in market size are driven by policies changing supply costs and not MML enactment alone, and that growth in the legal market has the unintended consequence of significantly increasing recreational marijuana use among both adults and adolescents. Evidence suggests that changes in the supply of medical marijuana, driven by policies changing the costs faced by legal producers, generate these spillovers to adolescent markets. A simple model of supplier behavior argues that if growth in the legal market is driven by lower production costs, then the price and availability of marijuana in the illegal market will track changes in the legal market. Specifically,cannabis indoor greenhouse the model implies that changes in federal enforcement will have larger effects on marijuana availability in states where legal producers are subject to relatively lax production limits. To con- firm the model’s predictions, I exploit two policies that changed federal enforcement against medical marijuana suppliers as cost shifters. Empirical evidence from medical marijuana patient registration rates confirms that supply costs drive changes in the legal market. The Ogden Memo caused an additional 2% of the adult population to register as medical marijuana patients in states with loose supply regulations, compared to an additional 0.2% in states with strict regulations. Similarly, the Cole Memo significantly reduced legal market growth in loosely regulated MML states but had no effect in states that strictly regulated supply. To estimate the causal effect of changes in medical marijuana supply on marijuana consumption, I instrument for market size with the interaction of initial state regulatory laxness and changes in federal enforcement. Results show that reaching the median state’s legal market size would significantly increase the prevalence of marijuana use in the past month from 7.2% to 7.7% for adolescents aged 12-17 , from 17.3% to 18.9% for 18-25 year-olds, and from 4.4% to 5.2% for adults over age 25.
The significant effects found for youths are in contrast to the null findings of prior research.This paper contributes a novel approach for estimating heterogeneous effects in markets with limited legal access. However, this approach has some potential limitations. First, the identification strategy relies on the assumption that federal enforcement changes did not impact demand differently in states with different supply regulations; a number of robustness checks address this potential threat to identification. Second, since the measures of marijuana use are self-reported, the estimates may be subject to reporting bias. Evidence from arrest rates is used to support that the results are not driven by changes in reporting behavior. Third, the approach does not account for potential cross-border spillovers of marijuana supply. This would tend to bias the estimates downward, but evidence using Montana as a case-study indicates that this bias is small. The paper proceeds as follows. Section 2.2 explains state variation in medical marijuana policies, outlines a simple model of supplier behavior, and shows that medical marijuana registration rates are a valid measure of legal marijuana market size. Section 2.3 outlines the methodological approach, section 2.4 describes the data, and section 2.5 presents the empirical results. Robustness checks are included in section 2.6, and section 2.7 concludes. With the Compassionate Use Act in 1996, California became the first state to pass a medical marijuana law , removing criminal penalties for the use, possession, and cultivation of medical marijuana. The state law directly contradicts the federal ban on marijuana use and distribution established in 1937,3 which remains in place today due to concerns cited by the Office of National Drug Control Policy about legalization’s effects on marijuana use and abuse . The potential increase in youth consumption is of particular concern as some research suggests use of marijuana during early adolescence predicts increased risk of dependence, lower educational attainment, and cognitive impairment.Despite federal prohibition of marijuana, as of 2015, twenty-two additional states and Washington D.C. have enacted laws providing some protections for the use of medical marijuana; five of these states have also legalized the sale of marijuana to adults aged 21 and older for non-medical purposes. Table 2.1 shows a summary of state laws and various dimensions on which they differ.5 These state regulations vary greatly in how medical marijuana can be supplied. This permitted producers to operate with virtually no quantity limits and little state oversight. Other states had more restrictive supply limits, allowing only home-cultivation by the patient himself or by the patient’s designated caregiver, who was limited to supplying only one patient. Finally, some states legalized state-licensed dispensaries, which could serve many patients but were subject to substantial monitoring and limited production quotas. Different production allowances can be expected to have heterogeneous effects on price, availability, quality, and product variety in the legal market. While laxer production limits should lead to lower access costs for registered medical marijuana patients, they may also have the unintended effect of increasing spillovers to youths. Adolescents largely do not have legal access to medical marijuana,6 but evidence from cigarette markets shows that youth access laws are limited in effectively reducing teenage consumption due to the presence of social markets . As costs facing legal users in the formal market significantly affect availability to underage users through these secondary markets , changes in the size of the state medical marijuana industry may better predict changes in adolescent cannabis use than the passage of the law alone. Previous work has mostly ignored the wide variation in MMLs and their implementation. Given the heterogeneity in state supply restrictions, differences in the findings of prior work may be partly due to which MML states are used for identification. Pacula et al. recognized the importance of accounting for differences in the specific dimensions of MML policy, but there remains debate over how to categorize these regulatory differences and interpret their effects. For instance, Pacula et al. find evidence that only MMLs that legalized dispensaries saw significant increases in recreational marijuana use. However, their finding that dispensary laws have significant effects even without the existence of operational dispensaries raises questions as to how to interpret these results . And, as shown in Table 2.1, there is heterogeneity even within states that allowed dispensaries in the strictness of production restrictions. Another potential explanation for the varied findings of past work is the incomplete consideration of the role of federal policy in determining the size and structure of medical marijuana markets.