Causes of Cross-State Differences in Legal Market Cannabis Sales
Written on 04 November 2020
by Ruth Fisher, PhD
Legal cannabis markets have existed for several years now in a good number of states. If we compared legal market cannabis sales across states and over time, what would that look like? Do states exhibit similar patterns in cannabis sales, or are they different? And if they are different, why?
I cobbled together estimates of legal market cannabis sales data by state over time. As a general disclaimer, the market data estimates provided in this analysis should be taken as rough estimates only. I pulled together information across a bunch of different sources to create a dataset that is as complete as possible. However, data vary enough by source to make absolute estimates less reliable; I would, however, place somewhat good faith in the relative differences.
Figure 1 provides estimates of annual legal market cannabis sales across states and over time.
Information on total sales aren’t very interesting, because a lot of the variation across states is likely due to differences in populations sizes. Let’s instead control for number of people and look at total sales per capita. Figure 2 provides estimates of annual legal market, per-capita cannabis sales.
Comparisons of cross- state differences in legal market cannabis sales per capita reveal wide variations in activity across states and over time. Interestingly enough, the differences actually seem to be increasing – not decreasing – across time and space.
The different levels of activity in Figure 2 beg several questions, such as:
- What determines the level of per capita cannabis sales in a particular state?
- Will cross-state differences in per capita cannabis sales persist over time, or will levels eventually converge across states?
A closer examination of legal cannabis markets across states may provide insights as to why there are cross-state differences and whether or not we should expect any differences to persist over time.
Figures 1 and 2 provide time series data. We can get a different perspective by examining how cross-state markets compare for a particular point in time, that is, by looking at cross-sectional data. Figure 3 presents cross-state estimates of 2018 cannabis sales and 2019 average prices.
There’s a slight inverse relationship between legal market sales and average price. However, prices don’t seem to explain much variation in cannabis sales (r = -0.42, R2 = 0.18, p-level = 0.002), so we have to look elsewhere for explanations for differences in states’ legal market cannabis sales.
Let’s take a step back and consider (i) why people use cannabis, and (ii) which factors affect these decisions about using cannabis. Any differences across states in reasons for using cannabis and/or in availability of close substitutes may explain some of the cross-state variation in cannabis use.
Historical Determinants of Cannabis Use
I find four salient points in the information depicted in Figure 2.
- Over time, all states show increasing per capita legal market cannabis sales.
- In each state where cannabis was legalized, per capita cannabis sales started at a different level.
- Growth rates in cannabis sales have varied across states.
- Differences in per capita legal market cannabis sales have increased.
There are certain general determinants of cannabis use that could explain the first point. However, we must turn to differences in state market environments to see what’s causing differences at the state level for explanation for points two, three, and four.
Let’s start with general determinants of cannabis use to understand the upward trend in sales over time. What determines how widespread an activity will be in society? Generally speaking, more people will engage in an activity when: (i) it satisfies a common need, (ii) there are few substitutes, (iii) it is legal, (iv) it is socially accepted, and (v) it poses a low threat to physical harm. Let’s unpack these a bit.
Cannabis satisfies common needs
Cannabis satisfies a range of common needs for people, including:
- To recreate or relax
- To relieve stress or cope with problems
- To address medical conditions
Due to the nature of laws and regulations enacted, cannabis use is generally classified as being either for medical or for recreational purposes. However, reasons why people use cannabis don’t fall cleanly into one of these two categories. That is, these two categories are overlapping and not clearly separable from one another. Also, while markets continue to draw both new recreational and new medical users, recreational cannabis sales are generally expected to outweigh medical cannabis sales as markets mature. Finally, market analyses have shown that many medical patients tend to switch over to adult use (recreational) markets once recreational use become legal.  As a whole, then, these expectations and patterns for market growth and blending lead me to believe that predictions of future cannabis use will be more robust when estimated as single, combined cannabis markets, rather than as separate, medical and recreational markets.
Since cannabis satisfies a variety of needs that most people experience on a daily basis, it’s reasonable to believe cannabis sales will continue to increase across states and over time.
Cannabis has many, easily available substitutes for satisfying people’s needs, including, for example,
- Other legal and illegal drugs
Studies have shown that once states have legalized cannabis for medical use, sales of both pharmaceuticals and alcohol have dropped. Studies have also shown that people are combining cannabis with exercise and meditation to enhance their experiences. It appears, then, that as cannabis becomes legally available and accepted, it is increasingly being used as either as a substitute for or a complement to other prevalent forms of medical treatments and stress relief that have historically substituted for cannabis use. Since we are still in the early stages of legalization and social acceptance, we can be confident that cannabis sales will continue to increase as these trends continue.
Cannabis legalization is becoming more widespread
Cannabis has historically been illegal in the US. Legalization started with medical use in California in 1996, and as of November 4, 2020 (see Figure 4), 
- Cannabis is legal for adult use in 15 states
- Cannabis is legal for medical purposes in 35 states, including those states with legal adult use cannabis
- CBD only is legal in 6 states
- Cannabis is not legal in any form for either medical or adult use in 11 states.
Again, cannabis use has increased as legalization and social acceptance have increased (see Figure 2). Legalization and acceptance will surely continue, in which case cannabis sales should continue to rise into the future.
Cannabis is still largely socially stigmatized
The use of cannabis has been heavily stigmatized since its use started becoming widespread during the early 1900s. Long-term stigmatization has turned much of society against cannabis.
Social activists have been lobbying in favor of legalizing cannabis for medical and adult use purposes at least since the 1960s. Two events that I believe dramatically increased the legitimacy and social acceptance of cannabis during the early 1990s were the discovery of the endocannabinoid system in our bodies and the use of cannabis to alleviate symptoms from AIDs.  As we have continued to gain a better understanding of the ECS, limits on the risks associated with cannabis use have also become better understood and are further decreasing the stigma surrounding cannabis use. As the stigma has slowly waned, cannabis use has increased.
The risk of physical harm associated with the cannabis use is low
Due to decades of anti-cannabis propaganda, many people believe cannabis use carries serious health risks. People are afraid that even casual cannabis use will lead them to become addicts, use harder drugs, or potentially become mentally ill.
An understanding of the more realistic risks associated with cannabis use is slowly starting to penetrate, as scientists better understand how cannabis works in the body, and as more people gain experience with cannabis for medical and adult use purposes. As the perceived risk of using cannabis has decreased, cannabis use has increased.
Summary of general determinants of cannabis use
Cannabis satisfies common needs for recreation, relaxation, and medicine. As cannabis has provided an increasingly attractive bundle of attributes for more diverse populations, cannabis use has displaced the use of more traditional substitutes. Cannabis is still stigmatized in large portions of the population, but cannabis acceptance has been increasing as
- New information about its workings is discovered
- More realistic understandings of its risks of use penetrate
- New applications for health and wellness are discovered
- More people gain direct experience with its use
As cannabis legalization and acceptance have spread, cannabis use – in terms of both breadth (number of different users) and depth (user per person) – has generally increased throughout the US.
The various factors just discussed provide reasonable explanations for why cannabis sales have generally been increasing over time, as seen in Figure 2. However, these reasons do not explain why cannabis sales patterns differ across states. To better understand cross-state differences, we must examine region-specific determinants of cannabis use.
Region-Specific Determinants of Cannabis Use
In the previous section, we considered general determinants of cannabis use by people across the US that have led sales to increase over time: (i) it satisfies a common need for recreation, stress relief, or medication; (ii) it has increasingly been replacing substitutes historically used to meet these needs, (iii) it is increasingly legal, (iv) it is increasingly socially accepted, and (v) people increasingly recognize it poses a low relative threat to physical harm.
To the extent that people in different regions of the country differ in their choices or propensities regarding recreation, relaxation, or medication, then patterns of cannabis use will differ across states. In particular, region-specific factors — such as geography, culture, demographics, and legal/regulatory environments — may all contribute to regional differences in per-capita sales of cannabis. Let’s examine these issues in a bit more detail.
Types of activities involving cannabis use
One may characterize recreation as those activities in which people engage during their non-working and non-sleeping hours. Recreation may encompass physical, social, or passive activities. While people across the country all engage in recreation, some regions are known for recreational activity, namely tourism and travel destinations. To the extent that people use cannabis for recreation purposes, regions with tendencies toward greater recreational activity may exhibit more cannabis use.
One may characterize relaxation as those activities in which people engage to decrease stress or otherwise cope with day-to-day life. Relaxation may include, for example, drinking alcohol, taking drugs, smoking, engaging in religious activities, or engaging in exercise or meditation. To the extent that people in certain regions use close substitutes for cannabis in their relaxation activities, these population may show greater incidence of cannabis use.
One may characterize medicine as those products or activities people use or engage in to increase health or wellness. Medicine may include, for example, seeing doctors or therapists, using pharmaceuticals, using vitamins and supplements, or using different types of body products. To the extent that people in certain regions use close substitutes for cannabis for medical purposes, these populations may show greater incidence of cannabis use.
Geography affecting cannabis use
Geography describes the natural attributes of a particular region. Some regions are close to water – lakes, rivers, or oceans – while other are more arid. Some regions are densely populated, while others are sparse. The geography of a region will shape the particular activities in which the local populations engage. While everyone engages in recreation, relaxation, and medicine generally, geography affects the particular activities in which people choose to engage. To the extent that people in certain regions engage in activities that are more easily complemented by cannabis use, these populations may show greater incidence of cannabis use.
Culture affecting cannabis use
Culture is the set of norms, values, beliefs, and social standards that guide the activities of a group of people. Differences in local cultures affect the particular activities in which people engage to fulfill specific needs. To the extent that cultures in certain regions predispose people to cannabis use, these populations may show greater incidence of cannabis use.
Demographics affecting cannabis use
Demographics are statistical characteristics describing a population of people. Surveys of self-reported cannabis use suggest younger people are more accepting of cannabis for recreational use, while older people are increasingly turning to cannabis to address medical needs. Populations comprised of larger portions of people in younger or older age groups may show greater incidence of or growth in cannabis use.
General legal and regulatory environment
The legal and regulatory environment associated with a population describes the extent and nature of laws and regulations to which a population are subjected. Populations that are less heavily regulated would be expected to engage in more cannabis use.
Summary of Historical Determinants of Cannabis Use
Patterns in historical cannabis use establish a past from which to predict future use. General factors have led to increases in cannabis use over time across the nation: common needs to engage in activities for recreation, relaxation and medical purposes; the existence of close substitutes for which cannabis may easily substitute; increasing legalization of cannabis activity; decreasing stigmatization of cannabis activity; and decreasing perceptions of harm associated with cannabis use. All of these general factors are expected to lead to increasing future cannabis use across the US.
Aside from national factors causing cannabis use to increase over time, region-specific factors have contributed to differences in historical patterns of cannabis use across US states. These region-specific factors include particular activities in which people engage to satisfy recreation, relaxation and medical needs, as well as particular geographies, cultures, demographics, or regulatory environments that have led to differential use of cannabis across states. Since region-specific factors will continue to perist over time, so too should cross-state differences in per-capita cannabis use. In fact, as national trends toward increasing use of cannabis eventually slow, the impact of regional differences may very well force per-capita differences in cannabis use across states to grow over time.
 Johnston, L. et al (2015). Monitoring the Future: National Survey Results On Drug Use. The University of Michigan Institute for Social Research. Retrieved from http://www.monitoringthefuture.org/pubs/monographs/mtf-overview2015.pdf
 Terry-McElrath, Y; O’Malley, P; and Johnston, L. (2009). Reasons for Drug Use among American Youth by Consumption Level, Gender, and Race/Ethnicity: 1976–2005. J Drug Issues. Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2902005/pdf/nihms121077.pdf
 See, for example, McVey, E. (2019, May 30). Exclusive: US retail marijuana sales on pace to rise 35% in 2019 and near $30 billion by 2023. Marijuana Business Daily. Retrieved from https://mjbizdaily.com/exclusive-us-retail-marijuana-sales-on-pace-to-rise-35-in-2019-and-near-30-billion-by-2023/
 McVey, E. (2018, July 16). Chart: Can medical marijuana programs survive in states with recreational markets? Marijuana Business Daily. Retrieved from https://mjbizdaily.com/chart-can-medical-marijuana-programs-survive-in-states-with-recreational-markets/
 See, for example, Bradford, A. and Bradford W. (2016, July). Medical Marijuana Laws Reduce Prescription Medication Use In Medicare Part D. Health Affairs. Retrieved from https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2015.1661
 The correlation seems to be well-established, however the causation is less clear and may go in either direction. See, for example, Alcohol Consumption Drops With Cannabis Legalization Abound (2019, July 12). Financial Buzz. Retrieved from https://www.prnewswire.com/news-releases/alcohol-consumption-drops-with-cannabis-legalization-abound-300883954.html
 Pesce, N. (2019, May 2). Cannabis users who mix weed and workouts tend to exercise more. Market Watch. Retrieved from https://www.marketwatch.com/story/cannabis-users-who-mix-weed-and-tend-to-workouts-exercise-more-2019-05-01
 Gill, J. (2018, Apr 23). This Is What Happens When You Combine Weed and Meditation. Vice. Retrieved from https://www.vice.com/en_us/article/vbxj58/this-is-what-happens-when-you-combine-weed-and-meditation
 Map of Marijuana Legality by State (2020, May). DISA Global Solutions. Retrieved from https://disa.com/map-of-marijuana-legality-by-state
 Grinspoon, L. (2005, Aug 16). History of Cannabis as a Medicine. MAPS. Retrieved from https://maps.org/research-archive/mmj/grinspoon_history_cannabis_medicine.pdf, Klare, J. (2016, Apr 15).Part 1: A brief History of Cannabis Activism. Marijuana Times. Retrieved from https://www.marijuanatimes.org/part-1-a-brief-history-of-cannabis-activism/
 Grinspoon, L. (2005, Aug 16). History of Cannabis as a Medicine. MAPS. Retrieved from https://maps.org/research-archive/mmj/grinspoon_history_cannabis_medicine.pdf, Alger, B. (2013, Nov-Dec). Getting High on the Endocannabinoid System. Cerebrum. Retrieved from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3997295/
 Share of consumers in the United States who currently smoke marijuana as of July 2019, by age group. Statista. Retrieved from https://www.statista.com/statistics/737849/share-americans-age-group-smokes-marijuana/
 Turner, A. (2019, Jun 7). Marijuana use among baby boomers rose tenfold over decade as seniors seek out pot for medical treatment. CNBC. Retrieved from https://www.cnbc.com/2019/06/07/marijuana-use-among-baby-boomers-rose-tenfold-over-decade-as-seniors-seek-out-pot-for-medical-treatment.html