An economic analysis of the demand for cannabis: some results from South Africa

Abstract

Background: The full legalization of cannabis is currently being deliberated in South Africa. We aim to better understand how the market operates by investigating how cannabis consumers respond to price changes and what factors are associated with the price that consumers pay.

Methods: We estimate the conditional price elasticity of demand using data on price, quantity, and quality from a cross-sectional survey of cannabis consumers across South Africa. We also investigate to what extent quality, quantity bought, income, and demographic variables influence the price paid for cannabis.

Results: The price of cannabis differs greatly by quality: medium-quality is almost double the price of low quality, while the price of high-quality cannabis is nine times that of low-quality cannabis. Depending on the model specification, we estimate that a 10% increase in the price per gram of cannabis is associated with an approximate 5–6% decrease in the quantity demanded. There is some evidence that the demand for medium- and high-quality cannabis is more price elastic than low quality. The price per gram is negatively associated with the quantity purchased and positively associated with income.

Conclusions: Price is a significant determinant of cannabis consumption. Increases in prices result in a decrease in quantity demanded.

Keywords:

• Cannabis
• marijuana
• dagga
• price elasticity
• South Africa

Acknowledgments

We thank Dr Simon Howell for useful contributions to this paper.

Disclosure statement

No potential conflict of interest was reported by the authors. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Note

Notes

1 An average exchange rate for 2017 ($1 = R13.30) is used.