Legalization and Innovation in the Cannabis Market

55 Pages Posted: 6 Mar 2023 Last revised: 5 Mar 2024

See all articles by Lucy Xiaolu Wang

Lucy Xiaolu Wang

University of Massachusetts Amherst - Department of Resource Economics; Max Planck Institute for Innovation and Competition

Nathan W. Chan

University of Massachusetts Amherst

Date Written: March 4, 2024

Abstract

How would legal institutions affect the rate and direction of innovation in restricted or illicit markets? This paper studies the impact of legalization on innovation in the cannabis market. We construct novel data on cannabis-related innovation in clinical trials and patent applications. Using staggered difference-in-differences models and event studies utilizing the variation in state legalization of medical and adult-use cannabis, we find no evidence that medical cannabis laws affect innovation. Adult-use cannabis laws increase trials and patenting, especially patenting in downstream products and methods rather than upstream chemical or treatment innovation. We corroborate the findings with multiple new methods in the literature. These results suggest that legalization increases innovation in the cannabis market, but with relatively weak gains in areas pertinent to health and safe use.

Keywords: cannabis legalization, innovation, clinical trials, patent applications, regulation

JEL Classification: I11, I19, O30, K20

Suggested Citation

Wang, Lucy Xiaolu and Chan, Nathan, Legalization and Innovation in the Cannabis Market (March 4, 2024). Available at SSRN: https://ssrn.com/abstract=4373615 or http://dx.doi.org/10.2139/ssrn.4373615

Lucy Xiaolu Wang (Contact Author)

University of Massachusetts Amherst - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003
United States

HOME PAGE: http://www.lucyxiaoluwang.com/

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany

Nathan Chan

University of Massachusetts Amherst ( email )

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