Federal cannabis legalization could significantly reduce prices in high-cost U.S. markets, according to a new analysis published in the American Journal of Agricultural Economics.
The study, conducted by an economist from North Carolina State University, found that cannabis is typically cheaper in states where it is legal.
The study notes that while a super-majority of Americans favor cannabis legalization, many still rely on the illicit market to obtain their supply. Even in states with legal markets, national legalization could benefit consumers by increasing access to legal cannabis from other states and driving prices down.
Goodwin’s analysis examined cannabis prices in 15 states with varying levels of legalization. Using data from Cannabis Benchmarks, which provides weekly wholesale price reports, he discovered that California plays a leading role in setting cannabis prices across the country. The state’s massive production capacity and established legal market have caused prices to plunge, with consumers in Los Angeles able to purchase ounces of cannabis for as little as $23.
However, federal law continues to prohibit the transport and sale of cannabis across state lines, even between states where it is legal. This restriction contributes to a fragmented market with significant price disparities. Goodwin’s research shows that the price integration between states, driven largely by the illicit market, affects national cannabis prices in a notable way.
California has long been a hub for cannabis production, supplying much of the nation’s illicit cannabis despite its robust legal market, states the report. Goodwin found that the state’s overproduction—millions of pounds annually—exerts considerable downward pressure on prices in states across the country, even reaching distant markets like Maine. Many states see higher prices than California, which experienced a price drop following legalization in 2018. Prices briefly spiked during the COVID-19 pandemic but fell again as the market flooded with supply.
One-third of California’s cannabis cultivators never entered the legal market due to high regulatory and financial barriers, yet they continue to produce substantial quantities, feeding the illicit market and driving prices down further. When legal cannabis prices rise too high in other states, the illicit supply from California becomes a cheaper alternative, creating competition that forces regulated prices to decrease.
While many states are affected by California’s price leadership, some western states—such as Colorado, Oregon, and Washington—are exceptions. These states have long-established cannabis markets with prices comparable to or lower than California’s, making them less vulnerable to California’s influence.
Goodwin’s research suggests that federal policy changes allowing for interstate cannabis commerce could further integrate markets and help bring prices down across the nation, leading to a more unified national cannabis market.
The full study can be found by clicking here.
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