Consumer welfare effects of banning hemp-derived THC beverages

A recent federal policy will close a regulatory loophole created by the 2018 Farm Bill and restrict the sale of intoxicating hemp-derived tetrahydrocannabinol (THC) beverages in the United States. Given the sector’s popularity among U.S. adults, it is useful to quantify the anticipated reductions in consumer welfare from the impending policy change. This study uses utility estimates from previously published experimental research on consumers’ alcohol and cannabis preferences to calculate the change in compensating variation resulting from removing hemp-derived THC beverages from the marketplace. The results suggest that banning hemp-derived THC beverages is associated with a consumer welfare reduction of $3.32 per individual, per choice occasion. Though this may appear modest, scaling this result nationally yields an annualized, scenario-based consumer welfare reduction ranging from $112 to $146 million. These results provide timely insights into an evolving regulatory environment that can inform policymakers and industry groups on the potential implications of the market change.