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How Consumers Transition Between Illicit and Legal Cannabis Markets in Early Legalization Periods? Evidence from a
Lei Xu1, Shiqi Zhang1,2, Kai Su1,3
1Center for Tobacco Research, The Ohio State University Comprehensive Cancer Center, The Ohio State University, 3650 Olentangy Rd., Columbus, OH 43214, USA.
Introduction:
States across the US continue to legalize recreational cannabis to shift consumers from illicit to regulated markets. Yet evidence on whether legalization increases the share of cannabis obtained legally remains limited. This study examines how legalization influences cannabis sourcing behavior using nationally representative panel data and recent policy variation.
Methods:
We use three waves of panel survey data collected in June 2024 (pre-legalization), January 2025, and August 2025. The analytic sample is a balanced panel of 578 adults (1,734 observations). We estimate difference-in-differences models of the proportion of cannabis obtained from legal sources, exploiting Ohio's August 2024 legalization within a multi-state context. Models control for baseline policy status, demographics, and wave fixed effects.
Results:
Legal sourcing varies substantially across policy environments. Individuals residing in states with fully legal cannabis markets report significantly higher reliance on legal sources than those in fully illegal states (31.6 percentage points, p<0.001). Exploiting the timing of Ohio's legalization, we find a 5.3 percentage-point increase in the share of cannabis obtained from legal sources (p<0.01), although estimates are sensitive to sample restrictions. Legal sourcing is higher among more educated individuals and lower among Black non-Hispanic respondents.
Discussion:
These findings suggest legalization can shift cannabis purchasing from illicit to legal markets in the short run, but the transition is incomplete and heterogeneous. By directly measuring legal sourcing, this study provides new evidence on substitution between illicit and regulated markets. The results highlight the role of broader policy and market conditions in shaping consumer responses.
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