How tax structures for retail cannabis shape cannabis use among youth and young adults: evidence from a volumetric choice experiment.

backgroundDespite ongoing debates about cannabis regulation, little is known about how tax policy design influences cannabis use among U.S. adolescents and young adults (AYAs). With states adopting diverse taxation schemes based on weight, price, or product potency, evaluating how these approaches affect consumption is critical for evidence-based policymaking.

aimThis study uses a split sample volumetric choice experiment (VCE) to examine how variations in pretax prices, tax bases, tax rates, and THC levels influence both the amount of cannabis consumed and the overall intake of THC among US AYAs aged 15-20. We also estimate the own-price elasticities for four cannabis forms (legal flower, illegal flower, edibles, and cartridges) and cross-price elasticities between these products.

methodsWe use a nationally representative sample of 1,100 AYA who reported current use or susceptibility to use and completed a set of hypothetical purchase tasks featuring choices among four product forms (legal flower, illegal flower, edibles, cartridges). Respondents were randomized to three tax bases: weight-, price-, or potency-based taxation, where pre-tax price levels, tax rates, and THC levels additionally vary. We estimated own- and cross-price elasticities and assessed how AYA current and susceptible users adjusted cannabis consumption in response to the varying attributes using zero-inflated negative binomial and fixed effects models.

resultsHigher pre-tax prices and elevated tax rates significantly reduce both purchase quantities and total THC intake among current and susceptible AYA users. Products with higher THC levels increased THC intake but did not affect quantity consumption, suggesting that these users continue to purchase similar quantities but opt for more potent products. Compared to weight-based taxation, potency-based taxes (i.e., THC) were associated with a 30%-32% increase in cannabis quantity consumption. The price elasticities of cannabis demand were -0.3, with edibles being complements to other forms and illegal flowers being substitutes for legal flowers and cartridges. Compared to weight-based taxes, THC-based taxes significantly reduce the impact of THCs in increasing THC consumption. Finally, the impact of taxes on reducing THC consumption from legal products may be completely offset by shifting from legal to illegal products.

conclusionsFor AYAs who are using or susceptible to using cannabis, tax increases can effectively reduce the quantity and THC consumption, albeit a tax rate beyond 60% of pretax prices or equivalent generating no additional reductions. Compared to weight-based taxes, potency-based and price-based taxes reduce the consumption of high THC products, but potency-based taxes may also increase the consumption of low THC products. Given that higher prices on cartridges and edibles do not drive AYAs' substitution using flowers, tiered tax structures may have the advantage over potency or weight-based taxes in balancing the need for targeting THC while reducing the burden to administer potency taxes. Finally, given that illegal flowers are substitutes for both legal flowers and cartridges, policy impacts are offset by the availability of illegal products.