The Success of Cannabis Legalization: Evidence from Banking Transactions

Using data on banking transactions, we analyze how people changed their spending behaviour when recreational cannabis became legal in Canada. In the data set, we identify people with purchases in a cannabis store after the legalization. We apply a difference-in-difference approach to compare their spending before and after legalization. People with cannabis purchases after legalization reduced significantly and persistently their cash spending and electronic transfers, indicating a shift from the black to the legal cannabis market. We also find that, across all age and gender groups, cannabis consumers spend significantly more than other people on fast food and alcohol.