The pharmaceutical industry takes a serious economic hit after states legalize marijuana—with an average market loss of nearly $10 billion for drugmakers per each legalization event—according to a first-of-its-kind study.
The peer-reviewed research article, published in the journal PLOS ONE on Wednesday, looked at stock return and prescription drug sales data for 556 pharmaceutical companies from 1996 to 2019, analyzing market trends before and after the enactment of medical and adult-use cannabis legalization laws at the state level.
The stock returns were “1.5-2 percent lower at 10 days after legalization,” the study authors founds. “Returns decreased in response to both medical and recreational legalization, for both generic and brand drugmakersInvestors anticipate a single legalization event to reduce drugmaker annual sales by $3 billion on average.”
“Our results show that cannabis legalization is associated with a decrease in the stock market returns for pharmaceutical firms.”
There are plenty of anecdotal reports, data-based studies and observational analyses that have signaled that some people use cannabis as an alternative to traditional pharmaceutical drugs like opioid-based painkillers and sleep medications.
Earlier this year, for example, a research paper that analyzed Medicaid data on prescription drugs found that legalizing marijuana for adult use is associated with “significant reductions” in the use of prescription drugs for the treatment of multiple conditions.
But this study’s finding that “cannabis entry decreases returns for both generic and brand drug makers is novel,” the California Polytechnic State University and University of New Mexico researchers said.
“By expanding access and, thus use, legalization could permit cannabis to compete with conventional pharmaceuticals. Largely unpatentable, cannabis may act like a new generic entrant following medical legalization, leading some individuals to substitute away from other drugs toward cannabis. However, unlike a conventional new generic drug, cannabis use is not restricted to a single or limited set of conditions. This means that cannabis acts as a new entrant across many different drug markets simultaneously.”
While a 1.5-2 percent drop in drug company returns might not sound like a lot for the lucrative pharmaceutical industry, the authors said that the difference is “statistically significant, and persists during the 20 business days following” legalization.
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