Researchers behind the study, published in Addiction on October 22nd set out to answer a question that matters to anyone running or regulating a dispensary: how much does price actually move cannabis sales?

The team pulled retail scanner data from licensed cannabis stores across ten adult-use states, covering 2020 through 2023. In total, they worked with 864,616 product-state-quarter observations. That number sounds like it represents nearly a million individual purchases, but it doesn’t. Each observation reflects sales of one product type in one state during a three-month period, not a single transaction at the register. It’s an aggregated dataset built from point-of-sale records, not a running tally of customer receipts.

Flower stayed the backbone of the legal market throughout the study window, making up more than half of all cannabis sales. Its median price fell from $8.23 per gram in 2020 to $6.12 per gram by 2023, a drop of roughly 26%.

Using state excise taxes as a statistical tool to isolate price effects from other market shifts, the researchers landed on a price elasticity of demand of -2.29. In plain terms, a 1% price decrease lined up with a 2.29% increase in the quantity of flower sold through licensed channels. That’s a steep response. It tells us cannabis flower buyers, at least within the legal market, pay close attention to what things cost and adjust their buying accordingly.

Why Did Cannabis Flower Prices Keep Falling in Legal Markets?

Flower prices didn’t drop because demand dried up. They dropped because supply kept growing. In California, wholesale cannabis prices peaked in late 2020 and have been sliding ever since. By the fourth quarter of 2024, inflation-adjusted wholesale prices sat 57% below that peak, according to a market outlook report from the California Department of Cannabis Control and ERA Economics, as summarized by MMJ Daily. Indoor-grown flower fell 46% from its peak, outdoor flower fell 74%, and mixed-light cultivation dropped 60%.

That same report found something worth noting: while the dollar value of retail sales declined, sales volume actually rose across nearly every product category. Fewer dollars changed hands, but more cannabis moved off the shelves. That pattern lines up neatly with what the national flower study found. When prices fall, people buy more, not less, and the legal market has had plenty of falling prices to test that theory on.

The unregulated market competition likely plays a role in keeping licensed prices down too, though the California report is careful to note that effect hasn’t been measured with hard numbers. Growers are also simply getting better at producing more cannabis for less, which pushes prices lower regardless of what the unlicensed market is doing.

How Does California’s Excise Tax Affect Cannabis Prices?

California offers a useful real-world test of how taxes interact with the kind of price sensitivity the new study describes. When the state’s legal cannabis market opened in 2016, it carried a 15% excise tax plus a separate cultivation tax based on weight. The cultivation tax went away in 2022, and to recover that lost revenue, the state raised the excise tax to 19% in July 2025.

That hike didn’t last. Assembly Bill 564, signed by Governor Gavin Newsom in September 2025, rolled the excise tax back down to 15%.

Worth pointing out: the national flower study covered 2020 through 2023, so it doesn’t capture either the 2025 tax increase or the rollback that followed. Still, it helps explain why California’s tax swings mattered so much to operators. If demand really is as price sensitive as the study suggests, then a few percentage points on an excise tax can meaningfully shift what customers pay at checkout, and how much they buy.

In Los Angeles specifically, every legal sale gets taxed three separate times: a 10% city tax, the 15% state excise tax, and sales tax of around 10%. Stack those together, and the gap between legal and unregulated pricing grows fast.

Does a Price Elasticity of -2.29 Mean Cannabis Consumption Is Rising?

Not exactly. The study measured how much flower moved through licensed retail channels, not how much cannabis people are consuming overall. Those are different things.

California’s own market data backs this up. The licensed market there accounts for roughly 40% of total cannabis consumption in the state. In 2024, an estimated 1.4 million pounds of licensed cannabis was produced and consumed, compared to an estimated 3.8 million pounds of total consumption statewide. That’s a wide gap, and it means a big share of cannabis use in California happens entirely outside the taxed, tracked, regulated system.

So when the study shows a 2.29% jump in legal sales for every 1% price drop, that increase could partly reflect people buying more cannabis overall. But it could also reflect something else: customers who were previously buying from unlicensed sellers switching over to legal stores because prices became more competitive. Or it could reflect people shifting spending from other cannabis products, like vapes or edibles, toward flower specifically, because that’s where the biggest discounts showed up.

The study’s authors stuck to a narrow and accurate claim: licensed flower demand is highly sensitive to price. They did not claim that total cannabis consumption in these states rose by anything close to that percentage. Earlier research on cannabis price elasticity, including a French study using HAL data, found similarly steep elasticity estimates ranging from -1.7 to -2.1, which suggests this kind of price sensitivity isn’t unique to one study or one dataset.

What Does This Mean for Cannabis Retailers and Policymakers?

For dispensary operators, the takeaway is straightforward: price competition works, and it works more aggressively on flower than you might expect. A modest discount can translate into a noticeably larger bump in units sold. That’s useful information for anyone building pricing strategy, but it also comes with a catch. Margins are already thin in a lot of legal markets, and chasing volume through price cuts only pays off if the cost structure can handle it.

Here’s where the findings get genuinely useful for the policy side of the conversation:

• Lower shelf prices appear to pull more sales into the legal, taxed, regulated system, which is generally the outcome public health and tax officials want.
• Excise taxes that push prices back up could work against that goal by making licensed cannabis less competitive with unlicensed alternatives.
• Tax policy that aims to both raise revenue and protect the legal market’s competitiveness may need to account for just how responsive buyers are to even small price shifts.

None of this means taxes should disappear. States need revenue from cannabis sales, and excise taxes are one of the more straightforward ways to collect it. But the elasticity figure from this study gives regulators a better tool for thinking through tradeoffs. A tax hike that looks modest on paper, say moving from 15% to 19%, could do more to shrink the legal market’s footprint than lawmakers originally expect, based on how sharply buyers respond to price.

What Comes Next for Cannabis Pricing and Tax Policy?

Cannabis flower prices have been falling for years, and the research suggests that trend has been doing real work to grow legal sales volume, even as total dollars spent in the market shrink. That’s a strange position for an industry to be in: healthier unit sales, but tighter margins, all happening at once.

California’s back-and-forth with its excise tax, from 15% to 19% and back to 15% again, shows how sensitive this balance really is. Lawmakers in other adult-use states watching that whiplash have a fresh data point to consider: cannabis buyers notice price changes, and they act on them quickly.

For now, operators are left managing a market where cheaper flower moves faster, taxes remain a moving target, and the line between legal and illicit sales keeps getting redrawn by whichever side offers the better price. Keeping an eye on both the research and the policy shifts coming out of states like California will matter for anyone trying to plan ahead in this business.

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