Cannabis Buyers Are Price-Sensitive, Now The Federal Data Proves It

LOS ANGELES – The study, published this month in the peer-reviewed journal Addiction, was conducted by researchers at the University of California San Diego and received funding from the National Institute on Drug Abuse (NIDA) and the California Department of Cannabis Control. The research team drew from nearly 865,000 product-level sales records from licensed cannabis retailers across 10 recreational states – actual POS transactions, not consumer surveys or market estimates.

The headline finding indicated that a 1% drop in the retail price of cannabis flower corresponded to a 2.29% increase in quantity purchased. That figure, known in economics as the price elasticity of demand (PED), indicates that consumer demand in legal Cannabis markets is highly sensitive to price changes.

What the Numbers Actually Show

The data covered a period of sustained price compression. The median retail price of flower fell from $8.23 per gram in 2020 to $6.12 per gram in 2023, a roughly 26% decline over four years. Throughout that period, flower products remained the dominant category in legal markets, accounting for more than half of total sales.

The resulting elasticity estimate of -2.29, with a 95% confidence interval of -2.61 to -1.89, was statistically significant across model specifications. Researchers used a two-factor statistical approach that controlled for differences between states and shifts over time, and incorporated excise tax data to help isolate the relationship between retail prices and quantities sold. Each of the 864,616 observations represented sales of a specific product within a state during a quarterly window, not individual customer transactions.

What This Means for Tax Policy

The study carries weight that extends well beyond business forecasting. Legal Cannabis excise taxes are under scrutiny across multiple states, and this research gives regulators something concrete to work with. In Illinois, legal flower now runs above $8 per gram, while Michigan’s regulated market has seen prices fall below $3.50 per gram, a disparity that has consistently been tied to robust legal market capture in lower-tax jurisdictions and illegal market resilience in higher-tax ones.

California’s Department of Cannabis Control has separately documented continued nominal price declines in its own regulated market, reinforcing a nationwide trend that this study now quantifies with unusual precision.

The researchers noted that excise taxes could potentially counterbalance the effects of falling prices by influencing retail costs but stopped short of recommending any specific tax rate.

The relationship between price and demand is measurable.
Optimal tax calibration remains a policy variable.

The illegal market thread runs through all of it. Separate research from Missouri found that among consumers who still bought from illegal sellers, lower prices were the main reason. A regulated market that closes the price gap with illegal supply draws buyers in. One that widens it works against itself.

Bottom Line

For Cannabis operators and state regulators alike, this study functions as a structural reference point, not a policy prescription. Legal Cannabis is more price-responsive than most consumer categories, and with flower still commanding the majority of legal sales volume, pricing decisions at the tax and retail level carry direct implications for how much of total market demand flows through licensed channels. That math is now harder to argue with.