BACKGROUND: Variation in policy design presents a challenge for understanding the positive and negative externalities of cannabis legalization. We offer an advancement on measuring state cannabis policy variation - policy bundles - and demonstrate how the measure can be used to test the effects of cannabis legalization on youth mental health. METHODS: This research employs data from the Youth Risk Behavior Survey (YRBS), released by the Centers for Disease Control and Prevention (CDC). The research focuses on utilizing three policy bundles as main exposures. This study utilizes a logistic regression model to analyze the outcome exposures. Furthermore, we employ instrumental variables to solve endogeneity between cannabis use and mental health. RESULTS: Both the pharmaceutical and permissive policy bundle scales are associated with mental health improvements, whereas greater fiscalization has a negative impact on mental health. CONCLUSION: Studies of the positive and negative externalities of cannabis legalization must consider variation in policy design.