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Legalization of cannabis lowers the value of big pharmaceutical companies on the stock market – Scientific Inquirer



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Researchers at California Polytechnic State University and the University of New Mexico find that stock market investors are predicting that the legalization of cannabis will reduce sales of conventional pharmaceuticals by billions of dollars.

In his recent study, “US Cannabis Laws to Cost Generic and Brand Pharma Firms Billions of Dollars”, published in PLOS One, Zemavit Bednarek of the Department of Finance at California Polytechnic State University, Sarah Stitt of the Department of Economics at the University of New Mexico, and a co-author examined how the stock market returns of publicly traded pharmaceutical firms responded to measures to legalize medical and recreational cannabis. They found that stock market returns were 1.5% to 2% lower 10 days after cannabis was legalized and that the annual sales impact of this reduction was in the billions.

Other studies have shown that access to cannabis reduces the use of certain types of drugs, such as opioids, or in specific patient groups, such as Medicaid patients, but this is the first study to analyze the overall impact of cannabis on pharmaceutical companies across all products and patient types. Unlike other drugs that are targeted and approved for specific conditions, cannabis is used to treat a surprising range of conditions, including physical symptoms such as headaches and muscle spasms, as well as mental illnesses such as depression and anxiety.

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The cost of pharmaceuticals remains a major health barrier for many Americans and a significant financial burden for state and federal governments—cannabis may be part of the solution. The current study concludes that cannabis is emerging as a new competitor in drug markets. Extrapolating the results to full federal legalization, the authors estimate a nearly 11% reduction in sales of generic pharmaceuticals. The substitution of cannabis for conventional drugs seems to be happening even without standardization, clear dosage instructions or health insurance.

Co-author Sarah Stitt continues, “Currently, cannabis-using patients and their providers have little information to guide them toward the most effective treatment for their condition. The future of cannabis medicine lies in understanding the prevalence and effects of components of the plant other than THC and CBD, and in determining ways to classify cannabis based on measurable characteristics that are known to produce certain effects. Mimicking conventional pharmaceuticals through standardization may not be the optimal endpoint for cannabis, as the inherent variability of the cannabis plant likely accounts for its ability to treat a wide range of diseases.”

In addition to their overall findings that cannabis legalization reduces the stock value of publicly traded pharmaceutical firms, the authors found that recreational legalization had more than twice the impact of medical legalization, likely because a much larger population was affected because access to medical cannabis is usually limited to people with severe, debilitating illnesses. Brand-name drugmakers have been hit harder than generic drugmakers, perhaps due to the greater competitive impact of cannabis’ entry into drugs without existing competitors.

The study concludes that traditional pharmaceutical manufacturers can benefit from investing in cannabis markets, rather than lobbying against them, and that regulatory policy should facilitate further exploration of the risks and benefits of both medical and recreational cannabis use. The magnitude of the negative impact of cannabis legalization on stock market returns from investments in conventional pharmaceutical firms suggests that hemp is likely to be a persistent and growing player in pharmaceutical markets worldwide.


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