Economic Effects of Retail Marijuana Legalization: Evidence From Colorado

Does legalizing marijuana generate a positive or negative effect on the economy? This paper analyses the effects of implementing Retail Marijuana laws in Colorado first, by looking at individual industry revenues, and second at employment and wages. Using a panel dataset of monthly observations, this paper utilizes a difference-in-differences strategy to examine the costs and benefits capitalized into different industries and employment in Colorado’s counties. My estimates show that implementing Retail Marijuana Laws have led to a 2% increase in employment in counties that have adopted these laws while slightly decreasing wages. This suggests that implementing these laws leads to a labor supply shock which exceeds labor demand leading to an overall decrease in average wages. Additionally, a time lag effect is seen since increases in employment were more prevalent after 6 months after implementation. In general, there were no significant effects on individual industry’s revenue, however, it has only been four years since these laws were fist enacted and with any economy, significant change can take time, so, it is very possible that the effects of implementing Retail Marijuana Laws have yet to show their true effects.