Study: Pharmaceutical Stocks Dip Following Cannabis Legalization Reforms

A study published on Thursday suggests that the stock market value of major pharmaceutical firms decreases following the passage of cannabis legalization laws. The researchers from California Polytechnic State University and The University of New Mexico found that stock market returns for major pharmaceutical firms were 1.5-2% lower 10 days following the passage of cannabis legalization reforms and that the implications of the annual sale from this reduction were an estimated $9.8 billion. 

The study, “U.S. Cannabis Laws Projected to Cost Generic and Brand Pharmaceutical Firms Billions,” was published in PLOS One. It concludes that cannabis acts as a new competitor in pharmaceutical drug markets and the study authors estimate a near 11% reduction in conventional pharmaceutical sales.  

Dr. Sarah Stith, co-author of the study of the University of New Mexico Department of Economics and an affiliated researcher with the university’s Medical Cannabis Research Fund, said that “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. 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.” — Stith, in a statement 

The researchers also found that adult-use cannabis legalization had more than twice the impact on pharmaceutical stocks than medical cannabis legalization and that branded drug manufacturers were more affected than generic drug manufacturers, likely due to a greater competitive impact from cannabis entry on drugs without any existing competitors.

The study concludes that conventional pharmaceutical manufacturers may benefit from investing in cannabis markets rather than lobbying against them and that regulatory policy should facilitate further research into the risks and benefits of using cannabis for both medical and non-medical reasons.