A new study in Health Economics suggests that higher prices and taxes can reduce cannabis consumption among adult users in the United States. But the researchers also found that much of the effect may disappear if consumers switch to illegal products instead.
In the study, the researchers examined how different tax bases and tax rates affect both consumption and THC intake among adults who use recreational cannabis. The results are based on a nationally representative sample of 1,525 people over the age of 21 who said they had used cannabis in the previous 30 days.
Prices and taxes clearly affected consumption
Participants were asked to evaluate different combinations of pre-tax price, tax rate, tax base and THC levels for four types of cannabis products: legal flower, illegal flower, edibles and vaping concentrates.
The researchers found that a higher pre-tax price and higher tax rates clearly reduced consumption. At the same time, higher THC levels increased consumption.
The combined price elasticity of demand was between -0.4 and -0.5. For the different product types, elasticity ranged from -0.2 to -0.4, which means demand was relatively inelastic but still clearly affected by price changes.
Get the week’s important news from Cannabis.se in your inbox — interesting weekend reading! 🥦✉️
Tax rates appear to have a ceiling
According to the study, a tax rate equal to 80 percent of the pre-tax price did not reduce consumption any further compared with a tax rate of 60 percent or a similar level.
That suggests there may be a point where higher taxes no longer produce the same effect on consumption, at least in the model used by the researchers.
Different tax bases steer consumers in different directions
The researchers found no clear effect of the tax base on total consumption. However, it did affect which types of products consumers chose.
A tax based on potency, meaning THC content, reduced consumption of more potent products. A tax based on price reduced consumption of more expensive products.
That means the tax base does not necessarily determine how much cannabis is used overall, but it can shift demand away from specific product categories.
The black market can sharply weaken the effect
A key conclusion in the study is that higher legal prices do not always lead to equally large reductions in actual cannabis use. When prices for legal products rose, up to 89 percent of the reduction could be offset by consumers switching to illegal products.
The researchers describe legal and illegal flower as substitutes, while edibles and cartridges in some cases acted as complements to other products.
THC caps may also matter
The study also suggests that a direct cap on THC content could affect consumption. According to the researchers, such a limit can both reduce consumption and steer demand toward lower-potency products.
Overall, the researchers conclude that higher excise taxes can be used to curb both unit consumption and THC intake, but that the effect becomes much weaker if the illegal market remains easy to access.
Sponsor: Sensi Seeds are one of Europe’s most recognized names in premium cannabis genetics, offering a wide selection of feminized, autoflowering, CBD-rich and F1 hybrid seeds for customers who want quality, consistency and choice.