pot project - final
TRANSCRIPT
2016
Measuring the Health of the Retail Marijuana Market
BU 5210 – Professor Chen Wu
Marc ROPER
Measuring the Health of the Retail Marijuana Market
THE DEBATE: KEY LITERATURE REVIEW
There is certainly much literature out there which strongly debates which public policy is
more favorable between marijuana prohibition and legalization. Yet with all the supporters and
nay-sayers, the simple truth is that American society doesn’t know with actual confidence the
potential economic benefits or catastrophe that would be if recreational marijuana were to be
legalized. What society does know is how society would function if its recreational use were
illegal; since this has been the stance on the drug since its use became popular. The following
section is simply an informative realization of the main arguments regarding the subject of
legalizing the drug.
Fundamental economics is rooted deeply in the simple evaluations of opportunity costs;
that is to say forgoing one set of resources and outcomes due to the choice to pursue a set of
alternative resources and subsequent outcomes. Thus, it must be reiterated that whatever should
be suggested as either pro or con-marijuana legalization implies its own set of opportunity costs
as well. For instance, as has been the case with prohibitive policy towards recreational
marijuana use, the decision to uphold this policy is forgoing any possible benefits from a policy
that would legalize such a drug. Of course the common retort would be ‘but what benefits exist
from the legalization of an addictive, gateway drug?’. Duly noted. And at first glance to the
naïve mind, it would be easy to critique policy proposals considering legal cannabis. Yet, resist
the urge to cement yourself in a hasty decision on your stance with the matter. For uncovering
the opportunity costs within may lead to tell a different story (or not).
Take into consideration the health and safety of the general public. For that is the role of
the federal government, to serve and protect the people of its nation. This initiative to protect the
citizens has been put on the forefront since 1982 following President Nixon’s declaration of the
war on drugs. It’s common perception then that prohibiting the use of recreational pot shields
the public from debilitating drugs. Still, all of this energy spent of prohibiting the use and access
to the drug, let us look into the opportunity cost surrounding the health and wellbeing of citizens.
(Shanahan & Ritter, 2014) Recognize that their largest reservations from a status quo versus pro-
weed policy, is the effect either policy has on the wellbeing, healthcare expenditure and
educational attainment of individuals. From a different perspective, an Alaskan report for Boreal
Economic Analysis & Research investigating the economic implications of marijuana
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legalization, (Bates, 2004) notes that a total of 1233 arrests for marijuana offenses were made
between 1997 and 2001. However, of these, merely 147 for the sale or manufacturing of the
drug; while all 1086 other arrests were for possession. Signifying 88% of all marijuana arrests in
Alaska during that time period specific to simply possessing the drug. Furthermore, (Bates,
2004) revealed that the state of Alaska spent $64 million (2001 USD) on policing expenditures,
at least $2.4 million which can be directly linked to only marijuana specific policing. The same
report further details that of drug arrests (1997-2001), weed arrests accounted for 66.1% and
45.2% within Alaska and the entire USA, respectively; while of all drug arrests for reason of
possession, marijuana represented 73.4% in Alaska and 49.6% nationally.
The point of emphasis here is the staggering number of man hours, monetary
commitments and subsequent incarcerations which could be avoided (perhaps not all but most) if
cannabis were to be legalized. For one, the policing expenses would disappear. Perhaps not
completely, but a significant cut could be made to the active monitoring of marijuana operations
and more actively concentrated towards society. The individual officers could concentrate their
time elsewhere as well; for instance, towards the constant threat of gun violence, or border
patrolling. To put this idea of man hours into perspective, take the study of (Geller & Fagan,
2010) which reveals more thorough investigations into street policing in New York City. (Geller
& Fagan, 2010) mostly noted the aggressive “stop, question and frisk tactics” which were
predominantly aimed at reclaiming “the streets by systematically and aggressively enforcing
laws against low-level social disorders” (Geller & Fagan 2010, 594). More specifically, (Geller
& Fagan, 2010) findings indicate an increase in marijuana arrests form 2004 through 2008 of
nearly ten times its rate from the mid- 1990’s. Again, the legalization of cannabis may not rid
the city of all these arrests, but it would certainly diminish the amount of possession arrests,
while freeing up the seemingly senseless amount man hours police forces are committing to
marijuana monitoring.
Moreover, society would have fewer individuals in correctional facilities. The economic
perspective of losing members of society to such a crime sacrifices the wellbeing of the potential
aggregate economic output of the nation (Bates, 2004). If one were to think about
unemployment rates, the argument could be made that increasing the number of arrests, hence
the number of inmates in prison, could be the same as increasing the unemployment rates in the
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country; as while physically able, they would not be significantly contributing to the labor force
and therefor hindering potential Gross Domestic Product output.
(Clark, May 2003) Acknowledges that prohibition (of all drugs) further emphasizes the
existence and growth of the black market for each respective good. (Bates, 2004) in fact, proves
that prohibition policy in Alaska has been ineffective in reducing the use of marijuana over the
years throughout all age category; only making the continued use in prohibition years all-the-
more risky to the citizens. Both (Bates, 2004) & (Clark, May 2003) explore the implications of
the black market and both conclude that a legalized and properly regulated marijuana market
would minimize and mostly abolish the black market for the drug. Why would riding society of
a cannabis black market be beneficial? For one, making marijuana a legal and public good
would allow government to regulate what is in the drug. This becomes an issue of protecting the
people once again as the question is posed: Should the government allow the black markets to
exist while keeping the drug illegal and running the risk of putting users in danger of not
knowing what they are using consists of? Or is it morally correct to legalize pot, knowing full
well that the government can regulate industry inputs during production to make the use of it
safer to marijuana consumers (Clark, May 2003) & (Bates, 2004)? Thus maintaining the
prohibitive policy for marijuana could arguably be keeping the black market open and thriving,
while putting individual consumers in serious risk.
Another largely debated topic when it comes to the legalization of pot is the potential for
government tax revenue in reference to the sales of recreational use. (Clements, Lan, & Zhoa,
2010) Simply outline the potential for tax revenue seen below. In figure 1, point A represents
the market demand when the use is
still illegal, and the corresponding price
in the black market. Point B signifies
the market demand while legalizing the
drug with no tax. The reason price
drops so low is due to the lack of risk
premium; a concept which
acknowledges the higher price in the
black market because of the risk black
3Figure 1 - Clements, Lan & Zhoa 2010
Measuring the Health of the Retail Marijuana Market
market suppliers must go through to get their product to consumers. If legalized and not tax,
there becomes no risk for producers, merely production costs to cover. Finally point C
highlights the market demand equilibrium with legal cannabis that is tax by the government and
the shaded area allows us visually to realize the tax revenue that would be generated (Clements,
Lan, & Zhoa, 2010). Such a proposition can be very enticing from an economic perspective. It
presents the theory of essentially unlocking a brand new, legal, and taxable market that has
untapped potential for profits; both from a producer and tax revenue standpoint. (Shanahan &
Ritter, 2014) Further highlight the potential financial benefits of an untapped market with net
government revenue of $659.4 million USD if pot were regulated. This is in comparison to
generated revenues of $318.8 million USD (legal & no taxation) and $362.7 million USD (illegal
status quo benefits). As is the case for (Shanahan & Ritter, 2014), most literature that attempts to
evaluate cannabis tax revenue benefits typically assume similar taxation levels to its
complimentary good - tobacco.
Of course, the theory sounds great. Yet actually quantifying such prospective data
becomes the challenge before committing to such a large scale policy proposition. As seen
above, without taxation, the respective price level would drop significantly. If the sale of
cannabis were not to be taxed, the price would certainly drop much lower than current prices
(because of the avoidance of a risk premium within a legal market), but this could be
substantially more impactful on substitute goods within the market place. More simply put, the
burden is put on the market for products such as tobacco, alcohol and other drugs. By allowing
price to drop too low for an untaxed, legal marijuana policy, governments run the risk of losing
these other legal markets of goods all together by making cannabis too readily available at a
reduced price.
This last point highlights a need then to identify different elasticities relative to marijuana
demand, as well as the nature of the good’s complimentary and substitute goods. For knowing
these pieces of information, an analysis could more accurately be conducted to forecast (but not
limited to) expected performance of sales relative to income (price elasticity), market demand
(demand elasticity), complimentary and substitute goods (cross-price elasticities). In their study
estimating the demand market for retail marijuana, (Clements, Lan, & Zhoa, 2010) determined
price elasticities of 1.2, 0.4 and 1.0 for marijuana, tobacco and alcohol, respectively.
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Furthermore they were able to deduce that marijuana and tobacco were in fact compliments,
while pot and alcohol were substitute goods; these findings were backed up by (Cameron &
Williams 2001), (Zhoa & Harris 2004) and (Barry, Hiilamo, & Glantz, 2014). The problem that
persists, which admittedly applies to all marijuana data critique, is that the drug is still in fact
mostly illegal. As a result, data on its use, market demand and price is subject to a larger room
for error or inaccuracies. Not to mention the subject for varying market demand functions within
each country (market). Which essentially means forecasting a prospective marijuana market
relies heavily on assumptions; assumptions that cannot be guaranteed in real life policy making.
This fact further complicates and muddies the water of the decision process to legalize retail
marijuana. All of which (Clements, Lan, & Zhoa, 2010) also identify in their study.
Circling back to the point on price determination and regulation; it was determined that
consistent regulation of a legalized marijuana market would optimize price of the good,
essentially abolish the black market and allow for safer goods by regulating production
measures. The lofty question then becomes; what market structure would persist if the legal
retail market opened its doors? (Clark, May 2003) Critique this potential policy change by
addressing both a perfect competition market, as well as a monopolistic market. Their study fails
to suggest the most effective type of market, rather focusing on the price determination within a
legal market. (Clark, May 2003) Do however introduce some worthwhile questions regarding
the labor market as a result of their study. For instance, the labor wages would perceivably be
much lower within a competitive market, as opposed to the ability for a monopolistic firm to
control price determination, and in turn revenues – allowing for higher wages to be delivered to
their work force.
Consequently, (Barry, Hiilamo, & Glantz, 2014) warn us to be weary of the large scale
tobacco companies monopolizing this prospective retail marijuana market. According to (Barry,
Hiilamo, & Glantz, 2014), tobacco companies such as Philip Morris, British American Tobacco,
Brown & Williamson and RJ Reynolds have all been heavily involved in marijuana market
research since the 1970’s; suggesting a fervent need to structure a legal marijuana policy that
would exclude these (and other’s alike) large corporations from taking a stranglehold of the
market. They cite that in 1970, the U.S. Department of Justice actually funded a research
alliance with Philip Morris to conduct marijuana explorations of the unknown good. The then
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president of Philip Morris, Ross Millhiser highlighted that this proposal “would allow PM to
learn about this potentially competitive product- and under impeccable sponsorship” (Barry,
Hiilamo & Glantz 2014, 213). Research confirmed the complimentary nature of the tobacco
(which these firms were obviously concerned about) and marijuana. Their findings began to
spurn profit maximizing ideas as exemplified by British American Tobacco internal documents
from 1976: “if the use of such drugs was legalized, one avenue for exploitation would be the
augmentation of cigarettes with near sub-liminal levels of (marijuana)” (Barry, Hiilamo &
Glantz 2014, 216-217). Furthermore, this exert exemplifies the extensive knowledge these
companies were privileged to in the late 70’s (especially for marketing purposes), emphasizing
the threat their competitive advantage poses to them controlling a retail pot market:
“Among youths ages 12-17 years, 11.5% smoke marijuana and 12.4% smoke cigarettes. Cigarettes are a “gateway” drug to marijuana use. Cigarettes are addictive because of nicotine; marijuana can cause dependency because of psychoactive cannabinoids. Teenagers who smoke cigarettes are 11 times more likely to become marijuana smokers.
There are an estimated 20 million current marijuana smokers in the U.S. of whom nearly 3-million are adolescents. More than one third of high school students have used marijuana in the eighth grade or earlier.” (Barry, Hiilamo & Glantz 2014, 225)
The most relevant issue regarding retail marijuana use that hasn’t been discussed is the
cash business aspect. In 2012, recreational marijuana use was in fact legalized in a few distinct
American states. Among those states, Colorado seems to draw the most attention for the policy
implementation. In the article (The New York Times, 2015), author Matt Richtel acknowledges
the gargantuan dilemma of the cash only business that is retail marijuana. The simple truth that
exists with legalized recreational use at the state level, is that federally, any sales, revenues and
profits are still seen as illicit cash activity (Pyke, 2015). This last point becomes crucial, as
existing and prospective retail marijuana dispensaries don’t have the ability to establish a
business bank account with most, if any banks; as banks won’t put themselves in such a risky
position to be complicit with illegal drug activity if the federal government were to conduct
investigations (The New York Times, 2015). But beyond this, (Pyke, 2015) indicates that the
cash only business puts everyone involved at risk. For one, the dispensaries are forced to hold
all cash flows in actual cash; making them high target assets to theft and robbery because of their
constant cash holdings. In an exert from an interview with a Denver marijuana dispensary
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owner, (Pyke, 2015) explains that “the threat of robbery (factors) into almost every business
decision. (The owner Jaime Lewis) rotate(s) pay schedules for employees, and rotates pickups
for customers”. (Pyke, 2015) goes on to explain that although Colorado’s black market is
withering, “many of the people who have replaced it still find themselves riding around with
personal bodyguards and suitcases full of cash”. And these bodyguards are not the typical
pepper-spray carrying individuals. In most cases, they are highly trained, converted ex-military
individuals who now provide privatized security protection for obscure prices. Another
Colorado dispensary owner acknowledges that he dishes out at least $100,000 USD (The New
York Times, 2015) a year in security expenses for his business (keep in mind that’s also cash).
The article continues to highlight further individual security threats the cash business presents.
This side of the business is clearly closely related to the social welfare of the citizens which was
discussed earlier.
In fact, the few banks willing and legally able to associate with marijuana operations are
small, state-specific banks that don’t operate outside of their given pot-approved state. (Business
Insider, 2015) Identified a Bloomberg report announcing just 220 of America’s 7600-plus banks
and credits unions are accepting deposits from cannabis businesses. What becomes the issue is
these small banks charge colossal fees for the owners who bank with them; since the
investigative work on the banks end to ensure they won’t be complicit with illegal activity is
much larger than non-marijuana accounts. The same article suggests that recreational sales in
Colorado generated at least $700 million USD in 2014. With that much accessible cash, it’s
understandable why dispensary owners are aggravated with the unwillingness of banks to
associate with them. From the consumer side, all transactions must be made in cash as well.
Which means no credit card and no debit card transactions; a dilemma which irritates the
clientele no doubt. All of this frustration over the inability to bank the pot industry led to one
father and son duo filing through the process to create their own marijuana credit union; where
the purposes would predominantly be centered on banking with dispensary owners (The New
York Times, 2015) & (Barcott, 2015). Mark and Alex Mason, originally from North Carolina
traversed through a lengthy two year process of federal court denials to establish Fourth Corner
Credit Union, with one judge ruling saying “I would be forcing the reserve bank to give a master
license to a credit union that serves illegal businesses” (Barcott, 2015). It appears that there are
still problems that persist within the credit union’s approval as a quick glance at The Fourth
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Corner Credit Union’s website clearly states the credit union is “Not Currently Open for
Business” (TFCCU - Denver Colorado, 2015).
REGRESSION ANALYIS: RESEARCH METHODS
The following analysis will be conducted by using OLS Regression Technique. In the
beginning, the question was posed; can we successfully identify predicting variables of Retail
Marijuana sales that may allow us to gage the health of the legal marijuana market? As
creational marijuana has been legalized in Colorado since late 2012, the data we will be
considering mainly deals with the state of Colorado and the Denver county area. This is simply
due to the readiness and availability of marijuana sales levels, as opposed to trying to determine
sales levels in states where the use is still illegal. Throughout the process, the objective will be
to obtain the regression model which seems to explain the variation in Marijuana sales the best
by critiquing the Adjusted-R2 values, as well as the overall significance (F-tests) and the
individual significances of each independent variable (t-tests). By the end, we hope to obtain a
model where all independent variables are statistically significant, and the overall fit has strong
explanatory power.
DATA DESCRIPTION
Retail Marijuana Sales
These sales levels depict the overall gross sales in USD (not inflation adjusted) for legal
recreational marijuana in 2014 and 2015. The data was presented in monthly fashion, where we
summed the quarterly amounts for our dependent variable. The sales levels were obtained from
opencolorado.org and are specifically reported from the Denver country area; as recreational
marijuana use and sales were legalized prior to 2014. It should be noted that gross sales for the
final three months (i.e. the last quarter) 2015 had not been reported yet; as a result, we used a 3-
month Moving Average (MA3) forecasting method to approximate the dollar value for gross
sales in this period.
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Philip Morris Closing Stock Quote
Philip Morris International is the leading tobacco producer in the United States. Their
corporate website reports that they own a 51.3% market share of all tobacco production and sales
in the US. The original attempt was to include general tobacco sales levels (similar to the
dependent variable marijuana sales) because the good’s constant inter-connectedness as a
substitute or compliment with pot most literature. However, locating such data, specific to
Colorado or Denver, proved to be very difficult. As a result, we turned to the closing stock
quotes for this majority market owner company as a proxy that represents the overall
performance of tobacco sales in general. Since stock prices tend to represent the past, current
and expected future performance of the company they represent, the theory here is the higher the
closing stock price, the better the company is performing; hence, the overall tobacco market must
be performing well. The opposite would be assumed with relatively lower stock prices. The
quotes are reported in USD as traded on the NYSE:PM. The quotes were retrieved electronically
from CNBC’s financial reports on the New York Stock Exchange history. The data was
collected between 2014 and 2015 quarterly. From recent literature, if the relationship is
statistically significant between cannabis and PM stock quotes, I would expect them to share a
positively correlation; signifying a complimentary good.
Anheuser-Busch Closing Stock Quote
With similar reasoning as the Philip Morris stock proxy variable, the Anheuser-Busch
closing stock prices were included to serve as a proxy for the over alcohol market performance.
In the US, Anheuser-Busch self-reports a staggering 46.4% market share of all alcohol related
production and sales. The stock itself trades under NYSE:BUD and the data was collected
between 2014 and 2015 quarterly from CNN’s online financial database. In contrast to tobacco
goods, I would expect a statistically significant alcohol proxy variable to have an inverse
relationship with retail marijuana sales; signifying a substitute good.
Consumer Price Index
CPI offers economic evaluators the opportunity to critique what consumers are paying for
certain bundles of goods within a market. As a result, the index that is measured also allows us
to evaluate the value of the dollar within the market; hence the amount of goods that can be
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consumed with relatively similar consumption ability. In theory, if the CPI were to increase, we
would expect a negative reaction in total gross marijuana sales, as an increase CPI signifies
higher costs for the bundle of goods available. This collection of CPI’s represents the values
from the Denver-county area in 2014 and 2015 and were reported monthly, but were collected at
each quarters end.
Medical Premium Expenses
Our fourth independent variable is the total expenditures on medical premiums by
individuals for the whole state of Colorado between 2014 & 2015 in real USD. The data was
reported monthly, but was summed to create quarterly totals for this time period. It should be
noted, that the final four months of data in 2015 were absent, as a result, we used a MA(3) to
compute the expected monthly values and consequently the final quarterly values. In respect to
performance, this category was included because plenty of literature highlights the potential
long-term health threat of smoking cannabis (as well as tobacco). Therefore, we would assume
that an increase in medical premium expenditures is positively correlated with marijuana gross
sales because we believe people are increasing their health coverage as a result of increased risky
behaviors.
State GDP
We obtained Colorado’s Gross Domestic Product from the Bureau of Economic Analysis
as a measure of the state’s overall economic health. Because retail marijuana has been legalized,
it should be recognized, legally, under the state’s GDP. Thus, we should expect a direct, positive
correlation between an increase in Colorado’s overall GDP represented in Millions of USD) and
retail marijuana gross sales levels. This data was reported quarterly for 2014 & 2015, and we
used a MA(3) forecasting method to predict the final two quarters of absent data. Also worth
noting, is the retrieved data had already been seasonally adjusted by their respective annual rates.
Income per Capita
Lastly, per capita income was included as an original independent variable to try and
explain the buying power of consumers within the market. We would assume to see a positive
correlation between an increase in per capita income and total marijuana sales as it is expected
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that more disposable income results in a consumer purchasing more of the good. This piece of
data is representative of all of Colorado, between 2014 and 2015. The collected data was
reported at the end of each quarter in current USD from the Bureau of Economic Analysis and is
not adjusted for inflation.
NOTE – for all descriptive statistics see Appendix
FINDINGS
Initially, our first model (Model 1) included all of our independent variables described
above. Below are the regression outputs:
Model 1: β0+β1 PM 1+ β2 AB2+β3 CPI3+β4 M 4+β5GDP5+β6 I 6
Immediately in our analysis, we notice none of our independent variables, via a simple t-
test prove to be significant. This is very strange that none of them are significant, with such high
expectations from literature that at least one or two variables would show a significant
relationship with gross marijuana sales. What is more perplexing is our F-stat proves to be
significant and our Adjusted-R2 has some very strong explanatory power. This issue will be
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discussed in more detail shortly. For now, the logical process we followed was to individually
regress each independent variable to see if any of them are truly statistically significant to gross
marijuana sales. Here are the output tables for each individual variable with the important values
highlighted:
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By evaluating each independent variable individually, we can clearly determine which
variables have statistical significance to our dependent variable. As we can see, our variables for
Philip Morris and Anheuser-Busch fail to have any statistical significance with gross marijuana
sales. Each remaining variable does possess some level of statistical significance with our
dependent variable. Thus, our next step is to combine all individually significant independent
variables (omitting Philip Morris & Anheuser-Busch variables) into our second model in efforts
to predict gross retail marijuana sales:
Model 2: β0+β3 CPI3+ β4 M 4+ β5 GDP5+β6 I 6
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Initially, we see very similar results in model 2 as we came across in model 1; that is to
say, not one significant independent variable, coupled with a significant F-stat and a very strong
goodness of fit according to our Adjusted-R2. In addition, we know that each independent
variable on their own are significant with our dependent variable. This leads me to believe that
there must be some problem with multicollinearity within our independent variables. Or more
simply put, some, or all of our independent variables are too highly correlated with one another.
Because of their correlation, our overall regression is failing to produce any significant results.
A correlation table (below) allows us to see that this in fact the problem we are dealing with.
At this point in time, we could revisit our original data and perhaps take a slightly
different approach with what other relevant data we could pull. Fortunately, with
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multicollinearity, usually omitting one of the correlated independent variables from the
regression can fix this issue.
After a trial and error process, evaluating every other possible combination of our four
remaining independent variables (CPI, Medical Expenditures, GDP & Income) regression output
tables show no model with multiple independent variables that are all statistically significant.
This unfortunately means, for the sake of our analysis, that evaluating the health of the retail
marijuana market will rely solely on one independent variable (from the multiple we began
with). Based on the Adjusted-R2 values and the F-stats for each individual regression conducted
previously, the model which proves to show the best fit is that of Medical Premium
Expenditures:
Model 3 : β0+ β4 M 4
Where : M̂odel 3 : β̂0+ β̂4 M 4
M̂odel 3 :-535553650.80 + 11729.51527(M)
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CONCLUSION
In summary, we visited many hot topics within the debate of legalized recreational
marijuana. Among the most intriguing arguments in support of the legalized use of retail pot, is
the economic benefit it provides for the overall economy; in the form of new jobs, additional
spending and the ability for a tax revenue from the legal sales of the good. It truly is an untapped
market with infinite profitability. And therein lies the issue, it must be a market which is
regulated properly, through proper taxation and avoidance of oligopolistic/monopolistic market
structures.
In regards to our regression analysis, following many computations, it appears that our
model which presents the best fit for our gross marijuana sales data is a very simple model; that
is to say a model that best explains the variations in marijuana sales dollars is the subsequent
individual expenditures on medical premiums (as previously presented). We should note, that
the independent variable of per capita income also tested highly significant with serious
explanatory power (when it was the sole independent variable). It’s Adjusted-R2 value suggests
it would do an adequate job of predicting variations in gross retail pot sales, although not as
strong a job as medical expenditures. As a result, this model, at this point in time, serves us as
the best opportunity we have to measure the health of the retail marijuana market by being able
to account for 91.1422 % of the variations in gross cannabis sales.
FURTHER INVESTIGATION
There may have been a few downfalls in our procedure which resulted in our final model.
Notably, the first is the selection of correlated independent variables which made the analysis
slightly difficult to manipulate. Second, with the relatively short amount of time that retail
marijuana sales have been legalized, our pool of data is fairly shallow. Therefore, revisiting
these data points in three to five years may prove much more significant. Third, because of the
availability (or lack thereof) of data, our moving average forecasts may have skewed certain data
points just enough to point them towards insignificant and unreliable results.
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I would also like to draw some further attention to a model involving the independent
variables of medical expenditures and GDP. Although this model proved to only show one
statistically significant variable (Medical expenses), it was disregarded for it explanatory power.
However, a closer look may lead us to believe (especially with more extensive data in a few
years) that this could be the best fit model for in this given instance. The reasoning behind this
statement lies within the regression output below. As one can clearly see, the F-stat proves an
overall significance and the Adjusted-R2 show serious explanatory power. As mentioned,
medical expenses are significant, and GDP is not. However, because of potential data flaws (see
last paragraph) if we tested this regression at a different alpha level with new data points we
could conclude a different significant model than what we have. In any event, this entire
analysis would be more than worth revisiting in five years when retail marijuana sales have been
legal for an extensive period of time.
SUMMARY OUTPUT
Regression StatisticsMultiple R 0.968982R Square 0.938927Adjusted R Square 0.914497Standard Error 3531003Observations 8
ANOVAdf SS MS F Significance F
Regression 2 9.584E+14 4.79E+14 38.43436 0.000922Residual 5 6.234E+13 1.25E+13Total 7 1.0207E+15
CoefficientsStandard Error t Stat P-value Lower 95%Upper 95%Intercept 99942895 150850772 0.662528 0.536947 -2.9E+08 4.88E+08Total medical premium expenditures 44.63318 11.2545974 3.965773 0.010681 15.70231 73.56404All industry total COL GDP(millions USD) -663.23 601.512088 -1.1026 0.32042 -2209.47 883.0064
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APPENDIX
Actual Data Sets for Variables:
Month/Year Retail M Sales Philip Morris stock priceBusch stock price CPI2014 q1 27,975,800.99$ 81.87$ 106.63$ 72.60q2 35,177,612.77$ 84.31$ 115.65$ 92.70q3 43,908,047.75$ 83.40$ 107.45$ 86.10q4 42,280,351.22$ 81.45$ 111.74$ 102.802015 q1 46,476,251.74$ 75.33$ 125.71$ 104.40q2 55,381,650.35$ 80.12$ 121.96$ 111.50q3 61,227,020.98$ 79.33$ 110.04$ 125.20q4 61,653,980.84$ 87.91$ 125.00$ 97.40
Month/Year Total medical premium expenditures All industry total COL GDP(millions USD) COL per capita Income Total USD2014 q1 2,790,163.00$ 297,034.00$ 48,075.00$ q2 3,078,694.00$ 303,425.00$ 48,649.00$ q3 3,264,007.00$ 309,520.00$ 49,009.00$ q4 3,398,396.00$ 313,504.00$ 49,707.00$ 2015 q1 3,576,573.00$ 312,003.00$ 49,994.00$ q2 3,695,492.00$ 316,535.00$ 50,469.00$ q3 3,758,890.00$ 314,014.00$ 50,828.00$ q4 3,760,339.15$ 314,184.00$ 50,430.33$
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Measuring the Health of the Retail Marijuana Market
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Measuring the Health of the Retail Marijuana Market
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