Contact High: The External Effects of Retail Marijuana Establishments on House Prices

Abstract

Using publicly available data from the city of Denver and the state of Colorado, this study examines the effects of retail conversions (conversions from medical marijuana to retail marijuana stores) on neighboring house values in Denver, CO. The study period reflects a time before and after retail marijuana sales became legal in Colorado in 2014. Using a difference‐in‐differences approach, we compare houses that were in close proximity to a conversion (within 0.1 miles) to those that are farther away from a conversion. We find that single‐family residences close to a retail conversion increased in value by approximately 8% relative to houses that are located slightly farther away. We perform a battery of robustness checks and falsification tests to provide additional support for this finding. To our knowledge, this is the first study to examine at a microlevel the highly localized effect of retail marijuana establishments on house prices and hope that it can contribute to the debate on retail marijuana laws.

The Effect of Marijuana Dispensary Openings on Housing Prices

“…For instance, the relevant dispensaries in their study likely experienced dramatic increases in sales, which has the potential to change the dynamics of a neighborhood. In our study, we can identify the effect of a unique dispensary opening during the prerecreational period and we find that the effect remains robust, indicating that the findings of Conklin, Diop, and Li (2017) are not simply due to the passing of the recreational law.…”

“…While our identification strategy is not necessarily better than previous approaches, the estimates provide a robustness check for the previous results and together, our paper combined with the conversion results from Conklin, Diop, and Li (2017) provide an extensive analysis of the effects of marijuana dispensing on housing prices. Interestingly, despite the differences between our approach and the approaches of Conklin, Diop, and Li (2017) and Cheng, Mayer, and Mayer (2018), all of our results are very close in magnitude. This suggests that dispensary conversions, dispensary openings, and legalization status have similar effects on housing prices.…”

“…Our study provides several additional contributions to this relatively small literature. First, while Conklin, Diop, and Li (2017) showed that conversions affect housing prices, their analysis did not identify the mechanisms behind their result. Recreational marijuana legalization expanded the potential market for marijuana by more than 3,400%.…”

“…Cheng, Mayer, and Mayer (2018) offer another application of the hedonic methodology to the legal marijuana industry. However, while the analysis of Conklin, Diop, and Li (2017) estimated a localized treatment effect, Cheng, Mayer, and Mayer (2018) examine the effect of adoption of municipality-level retail marijuana laws (RMLs) on housing prices. They use a difference-in-difference approach to compare housing prices before and after the adoption of RMLs in municipalities that adopted RMLs relative to those that did not.…”

“…This file has data on land and building square footage, stories, number of bedrooms and bathrooms, year of construction, neighborhood, and the unique pin identifier for every residential 2. These are the same neighborhoods used by Conklin, Diop, and Li (2017).…”