Drug Trafficking Under Partial Prohibition: Evidence from Recreational Marijuana
47 Pages Posted: 6 Sep 2017
Date Written: August 2017
The use of marijuana is banned federally yet the substance will soon be available to 21% of the United States population under state laws. This regime of partial prohibition creates the potential for externalities created by states with legal markets. Indeed, a chief concern among local and national policy makers is the trafficking of marijuana produced legally in one state to other states. We measure, for the first time, this extent of this trafficking. We use a natural experiment: Oregon began allowing recreational marijuana sales on October 1, 2015, after Washington, its neighbor, began allowing sales on July 8, 2014. Using comprehensive administrative data on the universe of Washington sales, we find that Washington retailers along the Oregon border experienced a 41% decline in sales immediately following Oregon's market opening. Retailers along Washington's borders with Idaho and Canada experienced no such decline. The decline occurred equally across weekdays and weekends, and was largest among the largest transaction sizes, suggesting that drug trafficking, not drug tourism, was to blame. Our estimates suggest that 11.9% of the marijuana sold in Washington was trafficked out of the state before Oregon legalized and 7.5% remains trafficked today.
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