With the reclassification, 26 states where cannabis is currently illegal will need to decide whether they want to take action to stop the sale of cannabis in their state or figure out how to regulate the newly legal drug.
A few states such as North Carolina have laws on the books saying cannabis will automatically become legal once the federal change goes into effect.
But the regulation of cannabis is nothing new in Colorado and Washington. These two states have more than a decade of experience writing and enforcing laws to control the marijuana marketplace.
I’m an economist who specializes in forecasting how various regulations affect industries such as legal recreational marijuana, alcohol and tobacco. Let’s take a look at how Colorado and Washington approached the problem – and what other states can learn from their experience.
Early adopters
In 2012, Colorado and Washington became the first two states to legalize marijuana, but their regulatory approaches were different.
Colorado implemented laws more favorable to competition by allowing unlimited marijuana retailers. Competitive markets with many businesses are generally believed by economists to be better for consumers because they lower prices and increase the quality of the goods and services offered.
At first glance, you’d expect Colorado’s laws to lead to significantly lower marijuana retail prices. But during 2022, average marijuana prices were actually slightly higher in Colorado than in Washington. Regulations in each state have changed only modestly since 2012. So why didn’t Colorado’s freer marketplace lead to lower prices, as an economist would expect?
Limited versus unlimited retail licenses
I believe the explanation lies in three important ways the policies of the two states diverge: the cap on total number of licenses allowed by each state, how big a company can be, and vertical integration. In the case of marijuana sales, vertical integration means that the same business may own farms, distributors and retailers.
When Colorado first legalized recreational marijuana, it allowed unlimited cannabis licenses for growers, distributors and retailers. This fostered an environment of intense competition.
In comparison, Colorado has 680 retail licenses, or about 14 dispensaries per 100,000 people, roughly three times the number in Washington per capita.
Based just on the number of retail licenses, Colorado’s marijuana industry looks more competitive than Washington’s, but the second policy difference – how big companies can be – complicates that picture.
With the reclassification, 26 states where cannabis is currently illegal will need to decide whether they want to take action to stop the sale of cannabis in their state or figure out how to regulate the newly legal drug.
A few states such as North Carolina have laws on the books saying cannabis will automatically become legal once the federal change goes into effect.
But the regulation of cannabis is nothing new in Colorado and Washington. These two states have more than a decade of experience writing and enforcing laws to control the marijuana marketplace.
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