Fascinating Research Explores Impact of Recreational Marijuana on Illegal Markets

The accelerating number of states legalizing marijuana in recent years has provided policymakers and academics alike with the opportunity to study outcomes and assess the implications of the historic and ongoing legal changes brought about by shifting societal attitudes and preferences. 

One fascinating branch of emerging research that may be critically important to lawmakers in other states who are still on the fence about the wisdom of legalizing recreational marijuana involves the extent to which such legalization ends up impacting illegal markets that had previously existed.  (Kansas, of course, remains one of the few states where neither medical nor recreational marijuana has been legalized.)

Dr. Stephen Paolillo, who specializes in the economics of crime, presented his intriguing research (“Deal or No Deal: The Effect of Legalizing Recreational Marijuana on the Illegal Market”) at the KU Economics Department’s Guest Lecture Series on February 23 in Snow Hall.  Dr. Paolillo explained that his work fits into a broader robust literature on marijuana and crime.

Looking specifically at outcomes involving four Pacific Northwest states, his study attempts to quantify the extent to which illegal markets may have been reduced in size after recreational legalization. 

“Illegal markets of course are uniquely hard to quantify, but we can attempt to use arrests as a proxy when we look at what was happening before and after,” Dr. Paolillo said.

Using FBI Uniform Crime Report data, he quantifies the extent to which there was a downward drop in arrests for both possession and sales after recreational marijuana was legalized, noting that the impact was especially significant in the state of Washington.

He said that the northwest regional data provided a particularly interesting laboratory for analysis that includes certain cross-border implications given that Washington (2012), Oregon (2015) and Nevada (2017) had all legalized recreational marijuana; whereas Idaho has not – and in fact maintains some of the strictest anti-marijuana laws in the nation.

“The bottom line is that we find that legalization did in fact decrease illegal markets in major marketplaces; and that as we would expect, legalization may shift illegal markets into other states like Idaho which have maintained prohibitions.”

Dr. Paolillo, a postdoctoral researcher at KU’s prestigious Institute for Social and Policy Research, said that one key policy implication emerging from his work suggests that the potential for totally crowding out illegal markets exists for states after legalization, underlining the potential importance for allowing legal dispensaries to open without excessive restrictions.  He added that a great deal more research needs to be done on the spillover impact regarding surrounding states.