Abstract

In 2014 the State of Colorado legalized the sale of marijuana for recreational use. This regulatory change resulted in the rapid emergence of a new industry unlike any other. The legalization of recreational marijuana in Colorado represents a unique instance of a formerly black market instantly converting into a legal industry. The end result is a large-scale, real-time natural experiment deserved of study, as other states are generally liberalizing laws regarding marijuana enforcement, helping fuel an industry which is predicted to eclipse 7.1 billion dollars in 2016.

Firms in Colorado must obtain a license to operate as a legal business in the marijuana industry. Businesses may be retail stores, cultivators, product manufacturers, testing facilities, or any combination. As such, firms have choices regarding their level of integration in the value chain. We hypothesize and test relationships relating to levels of value chain integration and firm survival, as well as clustering.

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