In the United States, the legalization of cannabis is costing Big Pharma several billion dollars

A U.S. study on the legalization of cannabis and its impact on pharmaceutical companies suggests that the legalization of cannabis reduces annual sales for drug manufacturers by an average of 3 billion U.S. dollars (3.9 billion dollars).

Using a dataset and an estimation approach, researchers at the California Polytechnic State University and the University of New Mexico arrived at this figure after examining how legalization between 1996 and 2019 influenced the stock market returns of publicly traded pharmaceutical companies.

The main sample for the study included data on the daily stock returns of 556 companies, 520 of which were classified as pharmaceutical or drug manufacturers. A subsample of 91 companies included 16 brand-name drug manufacturers and 75 generic drug manufacturers.

In general, the average market value of a company in the main sample is $8.9 billion ($11.7 billion), and in the subsample, «generic companies tend to be much smaller than brand-name companies.»

What the researchers found was that, on average, companies’ stock returns were 1.5 to 2 % lower 10 days after legalization in a U.S. state.

Describing the difference as statistically significant and noting that it persisted for the 20 days following legalization, the researchers state that «this corresponds to a loss of approximately $133 million to $177 million (174 million to 232 million) per company.» They explain that this figure is calculated by multiplying the value of the cumulative abnormal returns—namely, 1.5 to 2 %—by the average market value.

Medical cannabis has a long-term impact on pharmaceutical yields

While cannabis legalization is generally associated with a decline in the stock market returns of pharmaceutical companies, «medical legalization has a more moderate effect on cumulative returns than recreational legalization, but it is more persistent. Generic drug companies are more affected in percentage terms, while brand-name companies are more affected in absolute terms due to their higher market capitalization.»

«We find that the average change in a company’s market value per legalization event is 63 million U.S. dollars,» the researchers write. They further emphasize that when all companies are included, the economic impact of a «loss in corporate market value per cannabis legalization event»—estimated at $9.8 billion—is extremely significant.»

Brand-name drug manufacturers see the difference in their returns disappear a few days after the event, but for generic drug manufacturers, investors« reaction to cannabis reform »is greater in magnitude and more persistent.”

Despite this, the authors add that the results should be interpreted with caution. «A key limitation is that we model investors as rational, which may overestimate the economic significance of our results,» the article states in the open-access, peer-reviewed journal PLOS One.

«For both private and public drug manufacturers, we expect that the response to legalization will include investments and marketing,» the study concludes, citing the fact that Pfizer has spent billions to acquire a «biotechnology company that focuses on cannabinoid-based therapies.».

«Pharmaceutical companies have devoted significant efforts to Lobbying and money to fight the legalization of cannabis«, the study continues. «These are signs that, from a marketing perspective, the pharmaceutical industry currently views cannabis as far from being a therapeutic equivalent approved by the [Food and Drug Administration], and this could explain why pharmaceutical companies have devoted fewer resources to educating doctors.»

«Beyond the effects on various stakeholder groups, our study suggests that cannabis could be a useful tool for increasing competition in the U.S. pharmaceutical markets,» the authors said.

Are cannabis users turning away from pharmaceutical products?

Researchers suggest that the Legalization of cannabis by U.S. states «likely increases the use of cannabis as an alternative to conventional pharmaceutical drugs.».

An analysis supported by previous studies. In 2019, a study of 450 adults A survey of individuals who identified themselves as current cannabis users in the United States showed that 44 % of medical cannabis users stopped taking a pharmaceutical drug, reduced their use of it, or both, in favor of cannabis.

«In general, people use medical cannabis to treat pain, back problems, depression, and headaches,» reports the University of Michigan.

Cannabis is also used, both anecdotally and in research studies, to treat mental health conditions.

In the spring of 2022, researchers at the institute Harvest Medicine from Calgary have announced that their findings supported the idea that medical cannabis could help treat anxiety and depression. Based on data from 7,362 patients, the researchers reported improved outcomes after the start of treatment and at the one-year follow-up.

However, the use of cannabis for medical purposes must be done in consultation with doctors. Researchers at Washington State University have in fact reported It was not until late 2021 that it became clear that cannabis users who were also taking other medications to treat various conditions could reduce the effectiveness of those medications.

Researchers have found that the positive effects of medications may diminish or that their negative effects may increase, which explains why it seems that some cannabinoids and cannabis metabolites «interfere with two families of enzymes that help metabolize a wide range of prescription drugs used to treat various conditions.»