A Study of the Effects of Legalization of Recreational Marijuana on Sales of Cigarettes

Abstract

In April 2022, the US Congress passed the Marijuana Opportunity Reinvestment and Expungement (MORE) Act which would remove criminal penalties for people who grow, distribute and possess marijuana, paving the way for legalization. Colorado was the first state to legalize marijuana for recreational use in 2012 and the product was available for sale in January 2014. Many states have since passed recreational marijuana legalization laws. The impact of legalization of marijuana for recreational use has been studied to assess its effect on crime rates, hospitalizations, traffic accidents, incarceration rates and other related aspects. However, the effect of legalization on cigarette sales has not been empirically examined even though medical journals have shown a positive relationship between marijuana and tobacco consumption. In all the arguments for and against legalization, there is no mention of the effect on cigarette smoking and its associated healthcare costs. We use retail scanner data from A.C. Nielsen from 2012-2017 to quantify the change in cigarette sales attributable to legalization. We use Synthetic Control method to show that legalizing recreational use of marijuana is associated with an increase in cigarette consumption by about 7.3%. These results have tremendous implications both for public policy and for the tobacco industry. The reversal of the declining trend in smoking patterns and associated healthcare costs of smoking give cause for concern. We conclude that states should exercise caution while attempting to legalize marijuana for recreational purposes.


Key Words: Recreational Marijuana Legalization (RML), Policy Change, Synthetic Control, Difference in Difference, Cigarettes

Keywords: Marijuana Legalization, Policy Change, Synthetic Control, Difference in Difference, Cigarettes

JEL Classification: M31