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

68 Pages Posted: 6 Nov 2019 Last revised: 19 Apr 2021

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

Singapore Management University - School of Accountancy

Date Written: April 17, 2021

Abstract

Marijuana liberalization in the U.S. has gathered increasing support from legislators and voters in recent years. We provide initial evidence on its public finance effect. The staggered passage of state medical marijuana laws increases states’ borrowing costs by 7 to 11 basis points. States also experience greater deficits and incur higher marijuana-consumption-related expenditures following the law’s passage. These results are consistent with 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. Further analyses support this theory and show that the increase in borrowing costs is stronger for states that are susceptible to a greater increase in marijuana consumption (i.e., those with poorer monitoring and enforcement, more vulnerable demographics, and better cultivation environments).

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 (April 17, 2021). 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

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
+65 6826 4837 (Phone)

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