Four Ways to Understand Marijuana Demand

Marijuana was another election winner.

Displaying our change in attitudes, voters said, “Okay,” to legalizing marijuana in Oregon, Alaska, and Washington D.C. By contrast, reflecting an older voting population and the need for 60 percent approval because it would have amended the constitution, Florida said “No” to medical marijuana.

Where are we going? Marijuana markets are being transformed by a change in demand.

Changes in Marijuana Demand

Let’s start with the size of the demand side of marijuana markets.

Below, by state, we have the percent of marijuana use among persons aged 18 to 25. Looking at the numbers more specifically, one of the lowest user states (in white) is Utah with 3,091 marijuana users per 100,000 citizens while (in red) Vermont is among the highest with users numbering 9,849 per 100,000 citizens.

Next, let’s see where legalization is changing the demand side.

Asking why the demand side is changing, we can cite new attitudes that an economist might call an increase in utility:

As always, the closer you look, the more you see. For marijuana demand, you can see below that the heaviest users—approximately one-fifth of Colorado’s legal pot buyers—constitute close to two-thirds of their estimated demand:

From: Colorado Department of Revenue

Finally, because price affects quantity demanded, we should note that Alaska plans a $50 per ounce tax, Oregon, $35 at the point of sale while Colorado’s sales tax has been close to 30 percent of the purchase price. As we wondered for Colorado, will high sales taxes nudge some demand back to the black market?

Our Bottom Line: Determinants of Marijuana Demand

Legalizing marijuana creates an economic idea bonanza. When a substance is no longer illegal, the utility, the number of buyers and the attractiveness of a black market substitute all change while the demand for complementary goods increases. In addition, taxation enters the picture.

And… We haven’t even started to look at the supply side!