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

39 Pages Posted: 13 Jan 2020 Last revised: 28 Jan 2020

See all articles by Ashutosh Bhave

Ashutosh Bhave

University of Texas at Dallas, Naveen Jindal School of Management, Department of Marketing, Students

B. P. S. Murthi

University of Texas at Dallas - Department of Marketing

Date Written: November 16, 2019

Abstract

The impact of legalization of marijuana for recreational use in Colorado has been studied to assess its effect on crime rates, hospitalizations, traffic accidents, incarceration rates and other related aspects. However, one connection that has not been studied is the effect of legalization of marijuana use on cigarette consumption, which is a source of significant healthcare expenditure. The US spends $170 billion per year on healthcare expenditures related to tobacco use. In this study, we assess the impact of legalization of recreational marijuana in Colorado on cigarette sales using retail scanner data from A.C. Nielsen. We use multiple methods - difference-in-difference (DID) model as well as synthetic control methodology - to show that marijuana and cigarettes are complements and legalizing recreational marijuana is associated with an increase in cigarette consumption by about 4-7%. We check the robustness of our results using different dependent variables, placebo dates of intervention in the DID model, and placebo counties in the synthetic control method. In addition, we control for tobacco industry’s response to legalization such as price changes in cigarettes, and effects of increase in tourism due to legalization. Overall, we show that legalization of marijuana for recreational use may have significant spillover to increase in tobacco use that could lead to increased health care costs in future. Surprisingly this connection to smoking has not been articulated in the arguments to support legalization and several states are attempting to pass laws for the legalization of marijuana for recreational use. We advise caution in passing such laws since we estimate the nationwide health care costs associated with such an increase in tobacco consumption will be about $10 billion and may equal or exceed the touted monetary benefits of marijuana legalization in many states. So our message for lawmakers in other states attempting to legalize use of marijuana for recreational purposes to examine the effects of such co-dependence carefully.

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

JEL Classification: M31

Suggested Citation

Bhave, Ashutosh and Murthi, B. P. S., A Study of the Effects of Legalization of Recreational Marijuana on Consumption of Cigarettes (November 16, 2019). Available at SSRN: https://ssrn.com/abstract=3508422 or http://dx.doi.org/10.2139/ssrn.3508422

Ashutosh Bhave (Contact Author)

University of Texas at Dallas, Naveen Jindal School of Management, Department of Marketing, Students ( email )

Dallas, TX
United States

B. P. S. Murthi

University of Texas at Dallas - Department of Marketing ( email )

Dallas, TX
United States
972-883-6355 (Phone)
972-883-2799 (Fax)

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