Asymmetric Effects of Recreational Cannabis Legalization

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Author Information : Pengyuan Wang* (University of Georgia) and Guiyang Xiong* (Syracuse University)
Jian Yang (Verizon Media)

*The first two authors made equal contributions to this work.

Year of Publication : Marketing Science (2019)

Summary of Findings : Recreational cannabis legalization (RCL) has asymmetric effects on adults' vs the youth's interest in cannabis, and asymmetric effects on the alcohol vs the tobacco industry.

Research Questions : How do people’s interest in cannabis change after RCL?
Do the youth react to the policy change differently from adults?
Does RCL affect people’s interest in alcohol and and marketing performances of alcohol companies?
Does RCL affect people’s interest in tobacco and marketing performances of tobacco companies?

What we know : Many U.S. states witnessed changes in cannabis legislations recently. Different parties hold divergent opinions about such changes, and the impact of RCL on people’s attitude to and use of cannabis remains unclear. Because drug abuse may cause severe consequences, potentially even more so among the youth, one question inevitably arises in each state considering the legalization of cannabis for recreational use: If it becomes legal, would people (especially the youth) want or use it more?

Marketers, policy makers and researchers are also curious about the cross-commodity relationships across cannabis, alcohol and tobacco. Fearing the potential threat of recreational cannabis as a rival, big alcohol and tobacco companies often act as opponents against its legalization and sponsor anti-cannabis campaigns. However, the literature provides inconsistent findings about whether cannabis and alcohol/tobacco are economic substitutes and has not directly tested how RCL influences alcohol and tobacco industries.

Novel Findings : Although RCL significantly increases cannabis search, the increase comes from adults only, but not the youth. RCL also influences the alcohol and tobacco industries asymmetrically: it reduces search volume and advertising effectiveness for alcohol, but increases those for tobacco. Hence, cannabis appears a substitute to alcohol, but not tobacco.

Implications for Practice : Historically, both alcohol and tobacco companies have been actively sponsoring/supporting campaigns against RCL, because they are concerned that legal marijuana may pose threats to them. However, our results suggest that tobacco companies may need to reexamine their presumption, and that anti-cannabis legalization is not to the best of their interest. This is because, although alcohol and cannabis appear to be substitutes, tobacco and cannabis are not (RCL in fact leads to increased interest in tobacco and enhanced effectiveness of tobacco ads). The alcohol industry, on the other hand, has valid reasons to be concerned about legal cannabis and may need creative strategies to avoid market decline if RCL passes. The very recent partnership between alcohol giant Constellation and a Canadian cannabis company, Canopy, to develop cannabis-based beverages after cannabis legalization in Canada provides an exemplar.

Implications for Policy: While the literature has not reached agreement on how cannabis policies affect the youth, one major concern of the opponents against RCL is that a loosened policy would induce higher interest in cannabis among the youth. However, we find that the increase in online cannabis search after RCL comes from adults only, but not the youth. If online search serves as a reasonable proxy for consumer interest in our context as suggested by prior research, our results imply that RCL significantly increases adults’ interest in cannabis but not the youth’s, which is in contrary to the widely held public concern over the effect of cannabis legalization on the youth.

Although alternative explanations may exist, one possible reason that could explain the attenuated treatment effect among the youth is their rebellion/deviance tendency. The most common types of rebellion are non-conformity (against rules/laws/social standards) and non-compliance (against authority of adults or parents), and rebellious adolescents feel proud or rewarded when they succeed in provoking societal or parental disapproval. Hence, the youth tend to be curious about a substance when it is illegal; however, once legalized or widely accepted, the substance loses its “coolness” because it is less likely to engender disapproval. Empirical evidence on such psychological tendency was also found in other related contexts. For instance, Sundh and Hagquist (2005) showed how a stricter tobacco policy actually encouraged youth curiosity about tobacco instead of discouraging it. For similar reasons, although RCL may make both the youth and adults more aware of and receptive to the substance, post-legalization increase in people’s interest in cannabis would be mitigated or reversed among the youth, as backed by our results. If the deviance tendency is indeed prevalent, policy makers may leverage it to reduce the attractiveness of cannabis and similar substances to the youth.

Full Citations : Pengyuan Wang, Guiyang Xiong and Jian Yang (2019), "Asymmetric Effects of Recreational Cannabis Legalization," Marketing Science, forthcoming.

Abstract : Recently, as cannabis was legalized for recreational use in an increasing number of states, it becomes more important to understand the effects of cannabis policies, especially on the youth. Marketers of other recreational substances are also paying close attention to cannabis policy changes. Alcohol and tobacco companies typically view the cannabis industry as a potential threat and are often found among the opponents against its legalization. However, based on extant research, the treatment effects of recreational cannabis legalization (RCL) and its cross-commodity effects on alcohol and tobacco industries remain inconclusive. Analyzing large-scale web-based behavioral data, we find that, although RCL significantly increases cannabis search, the increase comes from adults only, but not the youth. RCL also influences alcohol and tobacco industries asymmetrically: it reduces search volume and advertising effectiveness for alcohol, but increases those for tobacco. Hence, cannabis appears a substitute to alcohol, but not to tobacco.

Guiyang Xiong

Guiyang Xiong is assistant professor of marketing. He comes to the Whitman School from the University of Georgia where he has served as assistant professor of marketing since 2010. His research interests include advertising, new product innovation and management, marketing’s impact on shareholder value, social media and word-of-mouth, social networks and empirical modeling. He earned his Ph.D. in business from Emory University.
Guiyang Xiong
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