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Federalism, Partial Prohibition, and Cross-Border Sales: Evidence from Recreational Marijuana

Benjamin Hansen, Keaton Miller, Caroline Weber

NBER Working Paper No. 23762
Issued in August 2017, Revised in February 2020
NBER Program(s):Health Economics, Law and Economics

Marijuana is partially prohibited: though banned federally, it is available to 1 in 4 U.S. adults under state statutes. We measure the size of the interstate trade generated by state-level differences in legal status with a natural experiment: Oregon allowed stores to sell marijuana for recreational use on October 1, 2015, next to Washington where stores had been selling recreational marijuana since July 2014. Using administrative data covering the universe of Washington's sales and a differences-in-discontinuities approach, we find retailers along the Oregon border experienced a 36 percent decline in sales immediately after Oregon's market opened. We investigate the home location of recent online reviewers of marijuana retailers and find similar cross-border patterns. By the end of Washington's 2018 fiscal year, our results imply that Washington had earned between $44 million and $75 million in tax revenue from cross-border shoppers. These cross-border incentives may create a “race to legalize.”

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Document Object Identifier (DOI): 10.3386/w23762

Published: Benjamin Hansen & Keaton Miller & Caroline Weber, 2020. "Federalism, partial prohibition, and cross-border sales: Evidence from recreational marijuana," Journal of Public Economics, vol 187.

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