Marijuana Liberalization and Public Finance: A Capital Market Perspective on a Public Health Policy

68 Pages Posted: 6 Nov 2019 Last revised: 7 Aug 2020

See all articles by Stephanie F. Cheng

Stephanie F. Cheng

Tulane University - A.B. Freeman School of Business

Gus De Franco

Tulane University - A.B. Freeman School of Business

Pengkai Lin

Tulane University, A.B. Freeman School of Business, Students

Date Written: August 2, 2020

Abstract

The staggered passage of state medical marijuana laws increases state bonds’ offering and trading spreads by 7-11 basis points. Consistent with medical marijuana laws causing an increase in states’ credit risk, states incur higher safety and public welfare expenditures and experience greater deficits following the law’s passage. Additional analyses show that the increase in spreads is stronger for states with greater corruption, more vulnerable demographics, and better cultivation environments. Overall, these results support economic theory on substance use, which suggests that legalizing marijuana for medical purposes expands the availability, reduces the perceived risks, and increases the local consumption of marijuana.

Keywords: Public Finance, Municipal Bond, Marijuana, Cannabis, Public Health Policy

JEL Classification: E60; G28; H74; H75; I18

Suggested Citation

Cheng, Stephanie F. and De Franco, Gus and Lin, Pengkai, Marijuana Liberalization and Public Finance: A Capital Market Perspective on a Public Health Policy (August 2, 2020). Available at SSRN: https://ssrn.com/abstract=3474119 or http://dx.doi.org/10.2139/ssrn.3474119

Stephanie F. Cheng (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Gus De Franco

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Pengkai Lin

Tulane University, A.B. Freeman School of Business, Students ( email )

7 McAlister Drive
New Orleans, LA
United States

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