THREE FACTS ABOUT MARIJUANA PRICES

Australians are among the largest consumers of marijuana in the world, and estimates show that their expenditure on marijuana is about twice that on wine. In this paper we analyse the evolution of marijuana prices in Australia and show that they have declined in real terms by almost 40 percent over the last decade. This decline is far above that experienced by most agricultural products. Why has this occurred and what are the implications? The extensive adoption of hydroponic techniques in growing marijuana is likely to have enhanced productivity, with the benefits passed onto consumers in the form of lower prices. We find patterns in the prices that divide the country into three broad regions: (i) Sydney, where prices are highest; (ii) Melbourne and Canberra, which have somewhat lower prices; and (iii) everywhere else, where marijuana is cheapest. We also find that marijuana prices seem to be (positively) related to real estate prices. A further finding is that the price declines have stimulated marijuana consumption by about 15 percent, inhibited drinking (marijuana and alcohol being substitutes) and led to an increase in the real incomes of users in excess of $1 billion p. a