But the switch to a recreational market may see medical operators’ sales cannibalized by the opening up of the industry according to a study by author Davide Fortin at Copenhagen Business School.
Fortin looked at the Colorado market, which, after implementing a medical cannabis program, voted to allow for a full recreational program as well.
“Despite higher taxes, new retail suppliers can freely sell marijuana to any adult without medical recommendation,” Fortin wrote. “Their product can thus be considered a close substitute, resulting in new competition that affects the activities of the existing medical marijuana centres.”
The study found that, after allowing for recreational sales, the number of medical dispensaries dropped and were replaced with shops that could sell to all adults — with the highest amount of sales loss from tourism areas.
“Tourism appears to generally affect marijuana sales across touristic counties and municipalities in both markets,” Fortin wrote. “In fact, both sales per capita and geographical concentration of marijuana suppliers are greater in touristic areas.”
That information led Fortin to hypothesize that, prior to legalization, tourists made up a large part of medical cannabis sales and have now mostly turned to the recreational market. Approximately 90 per cent of recreational sales in Colorado mountain communities are from visitors to the state.
Fortin also speculated that sale decreases for medical dispensaries in non-tourism locations is due to non-patients who previously bought cannabis through friends with medical access and are now simply buying for themselves in the recreational market.
Colorado’s dual-licensing program also has different taxation rates applied to recreational and medical cannabis sales.
“Sales taxes on [recreational cannabis] in Denver are just over 21 per cent, while its taxes on [medical cannabis] are about 7.6 per cent,” wrote Fortin. “According to my sample, the average difference of price per gram between the two segments is about 33 per cent.”
Overall, the cannibalization of the medical market was found to be only at 20 per cent of all sales, with the number of medical patients not decreasing after legalization, the majority of the market share lost came from the black market.
Fortin questioned whether all regions should even look at adopting legalization from a purely economic point-of-view.
“If the state is not touristic and the surrounding states have legalized its medical use, the regulatory costs could exceed the tax benefits,” Fortin wrote in the study. “In this case, a very liberal MMJ framework with permissive conditions could satisfy the majority of marijuana users while limiting the black market.”