THREE FACTS ABOUT MARIJUANA PRICES

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