Marijuana Price Gradients

California nearly legalized commercial marijuana production in 2010; in coming years, other states and California are expected to entertain similar proposals. This raises the question of whether marijuana diverted from legal production could displace current sources of marijuana in other states. Combining prior estimates of legal production cost with new estimates of the cost of smuggling within the United States suggests that in most states, diverted legal production would substantially undercut current prices. So, if one state legalized, then (illegal) interstate “exports” could depress marijuana prices throughout the United States, even if taxes are collected before diversion and export. The authors proxy smuggling costs by the current gradient in prices observed for Mexican or commercial-grade marijuana; based on seven different data sets, it appears to be roughly US$325 to US$475 per pound per 1,000 miles as one moves north from the Mexican border.

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