Medical marijuana has been legalized in 33 U.S. states, and is used to treat a range of conditions from headaches and muscle spasms to mental disorders. Previous studies have shown that cannabis legalization decreases the demand for certain pharmaceuticals, including prescription opioids and anxiety medications. Researchers from California Polytechnic State University and The University of New Mexico have now found that this decreased demand may impact the stock market value of pharmaceutical companies and decrease pharmaceutical drug sales by billions of dollars annually.
The research team analyzed stock market data from 556 companies between 1996 and 2019 and used a factor pricing model and other financial tools to examine how cannabis legalization events impacted market returns. They found that stock market returns for publicly listed pharmaceutical firms were 1.5-2% lower at 10 days after a legalization event. Both brand and generic pharmaceutical companies were affected, and both medical and recreational legalization events had an impact; however, branded drug manufacturers saw a 224% larger effect on sales than generic drugmakers, and recreational legalization had nearly twice the impact of medical legalization. The researchers theorized that cannabis had a greater competitive impact on branded drugs without any existing competitors and noted that recreational cannabis affects a much larger population of consumers, as medical options may only be available to those with severe and debilitating conditions.
Overall, the authors estimated that a single legalization event could reduce pharmaceutical manufacturers’ annual sales by $3 billion on average. Extrapolating the results to full federal legalization, the researchers predicted a reduction in conventional pharmaceutical sales of almost 11%. The study concludes that conventional pharmaceutical manufacturers may benefit from investing in cannabis markets and that regulatory policy should facilitate further research into the risks and benefits of using cannabis for both medical and recreational purposes. This research was published in PLOS One.
“Currently, cannabis patients and their providers have little information to guide them towards the most effective treatment for their condition. The future of cannabis medicine lies in understanding the prevalence and effects of the plants’ components beyond THC and CBD and identifying ways to categorize cannabis by measurable characteristics that are known to yield specific effects,” said study co-author Sarah Stith. “Mimicking conventional pharmaceuticals through standardization may not be the optimal endpoint for cannabis, as the variability inherent in the cannabis plant is likely driving its ability to treat so many conditions.”