Marijuana remains to be one of the highly used illicit drugs in many parts of the world, including the USA. A significant percentage of the people in the USA is using marijuana, especially based on the recent report that was released by the National Institute of Drug Abuse (NIDA). The consumption of the drug is expected to increase immensely as many states in the country are legalizing marijuana for either medical or recreational use. Colorado is one of the states that have legalized the use of marijuana. However, economists are still divided on the possible effects of marijuana legalizations, especially concerning the demand and supply or market forces ( Moffatt, 2017) . However, recent trends have indicated that both the demand and supply of marijuana is increasing. At the same time, the cannabis industry is expected to experience steady growth in states like Colorado that have legalized the consumption of marijuana.
The Demand and Supply of Marijuana
The demand for marijuana is increasing, especially after many states legalized its consumption. Many people avoided the use of marijuana for fear of legal consequences because it was listed as one of the illegal drugs in the USA. A significant number of people are now using marijuana for recreational and medical use, leading to a substantial increase in the demand for the drug. At the same time, some pharmaceutical companies now use marijuana to make some drugs ( Moffatt, 2017) . Marijuana contains analgesic, anti-inflammatory, and anti-anxiety properties and it is increasingly being used as a medicine, particularly to manage chronic pain, including chronic diseases like cancer. Thus, the demand for marijuana is expected to continue increasing because of the legalization in states like Colorado.
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However, some economists argue that the demand for marijuana will reduce in the long-term because of the increased supply. The argument is based on the assumption that people are attracted to scarce and illegal products, particularly when they are considered to be useful as in the case of marijuana ( Moffatt, 2017) . Marijuana has been appealing to some people because it is largely considered to an illegal drug. As the legalization is increasing, it will no longer be viewed or considered a “cool” drug, leading to a decrease in demand. Nonetheless, the predicted demand for marijuana in the long-term may not be realized because of a significant increase in the medicinal application. Businesses in the recreational sector will also use marijuana for various purposes to meet the needs of their customers. Thus, there is still some uncertainty on the long-term effect of marijuana legalization on the demand side of the market forces.
Like the demand, the supply of marijuana is also expected to increase due to the relaxed regulations on its use. Initially, marijuana was only sold in the black market, leading to a limited number of suppliers. Many people and businesses are now supplying marijuana in states where it is legalized ( Light et al ., 2014) . Legalization has also reduced the cost of supply marijuana, making it attractive to many businesses or entrepreneurs. Nonetheless, the demand for marijuana is still higher than the supply. Even though marijuana is legalized in Colorado, the supply side has been increasing at a slow pace due to bureaucracy as well as some legal hurdles that are faced by investors. The legal challenges make the processing of marijuana slow while at the same time investors are still cautious to enter the sector because of uncertainties. Based on the law of demand and supply, the prices of marijuana, therefore, is expected to increase ( Light et al ., 2014) . The demand and supply of marijuana can be illustrated using the demand-supply graph below.
Fig. 1: Demand and Supply Graph for Marijuana in Colorado
The above figure show illustrates how an increase in demand for marijuana will affect the price of the drug. With increased legalization of marijuana, the demand is expected to shift from D1 to D2. As a result, the price of marijuana will increase from P1 to P2 because of the shortage in the market. The insignificant increase in supply makes the supply curve (S) to remain unchanged in short-term, even though it is expected to increase in the future as more investors or businesses enter the market. The increase in price is likely to make the marijuana sector attractive to many investors, leading to a surge in supply of the drug. Hence, in the long-term, S is expected to shift upwards. There will be a long-term reduction in the price of marijuana as the supply of the product increase. The legalization of marijuana will lead to a shift in demand and supply sides, ending up affecting the price of the product.
The Supply and Demand Elasticity on the Cannabis Industry in Colorado
Colorado was the sixth state to legalize the use of marijuana in the USA in 2000. As a result, the cannabis industry has been experiencing positive growth since the legalization, and the trend is likely to continue in the future. At the same time, the demand for cannabis has been increasing in the state since the legislatures approved the legalization. However, there is a controversial debate about whether the demand for cannabis is elastic or inelastic. Elasticity majorly refers to how consumers react or respond to price changes ( Davis, Geisler & Nichols, 2016) . A product has elastic demand when an increase in price leads to a decrease in quantity purchased by consumers. The other hand, a product has inelastic when an increase in price does not lead to a significant change in the quantity bought.
Marijuana has inelastic demand and supply. Consumers and suppliers are sensitive to the prices of marijuana ( Davis, Geisler & Nichols, 2016) . Many people are not likely to buy cannabis when the price increases. At the same time, a decrease in the price of marijuana discourages suppliers. However, people who are addicted to cannabis will continue to use the drug, even if it prices increase. Medicinal marijuana has many alternatives such as pharmaceutical painkillers. Businesses in Colorado’s cannabis industry are likely to experience a decline in total revenue if prices continue to increase (Mitchell, 2018). Consumers in the cannabis industry are sensitive to price changes.
Conclusion
The use of marijuana elicits controversial debate between people who support its legalization and those who want it to remain illegal. Many states continue to legalize the medicinal and recreational use of marijuana in the USA. As a result, the demand and supply of marijuana are expected to increase. However, the demand for marijuana still surpasses the supply, making the price of the product to surge. The long-term increase in prices may reduce the demand. The legalization of marijuana will have a significant impact on the cannabis industry in Colorado and other parts of the USA.
References
Davis, A. J., Geisler, K. R., & Nichols, M. W. (2016). The price elasticity of marijuana demand: Evidence from crowd-sourced transaction data. Empirical Economics , 50 (4), 1171-1192.
Light, M. K., Orens, A., Lewandowski, B., & Pickton, T. (2014). Market size and demand for marijuana in Colorado. Denver: Colorado Department of Revenue. Retrieved from https://www.colorado.gov/pacific/sites/default/files/Market%20Size%20and%20Demand %20Study,%20July%209,%202014%5B1%5D.pdf
Mitchell, M. (2018, July 19). Where Will Colorado's Pot Industry Be in 2022? Retrieved from https://www.westword.com/marijuana/denvers-social-pot-use-program-could-get- extended-updated-to-open-more-consumption-lounges-11204516
Moffatt, M. (2017, April 5). Does Marijuana Legalization Increase the Demand for Marijuana? Retrieved from https://www.thoughtco.com/would-legalization-increase-the-demand-for- marijuana-1147696
