In between recreational and medical cannabis supply models: is the Cannabis social club a potential buffer against market distortions?
Most EU countries allow the use of medicinal cannabis, and Luxembourg is set to become the first to regulate the market for adults. Once the decision of legalization is taken, policymakers face the critical choice of deciding what kind of organizations should be allowed to participate to the marketplace. Scholars have identified advantages and limitations associated with both commercial and non-profit models, yet have not examined how these suppliers could compete with one another, or how they may interrelate with national healthcare systems. The goal of this theoretical exercise is thus to analyze the role of Cannabis Social Clubs (CSCs) in a hypothetical regime, including both commercial outlets for adult users and pharmacies for patients. Our model taps into the heterogeneity of users in terms of demand elasticity and entry costs through a user-controlled discrimination scheme, aimed at minimizing participation in the medical market by non-medical users.
We provide a description of the potential dimensions of attractiveness for the three supply channels as four archetypical cannabis users. Using a survey, we then test the validity of our assumptions by identifying the profile of Belgian CSC members. Belgium is considered the closest real-world example of our hypothetical scenario due to its proximity to the Netherlands, where cannabis can be purchased in coffee shops and pharmacies. In parallel, the Belgian CSC model fully satisfies the conditions of our theoretical framework, given the existence of entry costs for members as well a significantly lower pricing, compared to Dutch coffee shops.
The profile of CSC members validates the function of the theoretical framework. The majority are daily users, confirming that the existence of entry costs to access CSC deter occasional consumers, who resort to commercial outlets. In parallel, these costs are considered lower than visiting a physician in both financial and privacy terms. The latter attracts a significant portion of medical users without a written prescription, either because their condition cannot be verified by physicians, or they want to avoid being registered in a centralized database. Accordingly, the existence of CSCs is likely to reduce the portion of users who would attempt to obtain cannabis from the national health system, while providing a benefit to medical users who are unable to obtain a physician’s prescription. The monthly user quota implemented in CSCs is also considered effective in nudging a de-escalation of cannabis consumption for regular users.
While there is a blurred line between medical and recreational cannabis use, there is a marked difference in consumer price based on the assumed purpose of use. Without an effective signal to discriminate user type, a two-group classification may eventually create unintended distortions, as consumer price-sensitivities depend mostly on frequency rather than assumed purpose of use. We suggest the adoption of a self-selection approach, which uses CSCs to attract those “in-between” and maximize market segmentation. European countries may therefore consider the introduction of CSCs as not only to enabling adult usage that poses less risk to public health, but also as a way to reduce the number of users procuring cannabis from the national health system.