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Cannabis legalization in the US costs pharmaceutical industry billions

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2022-09-07-Cannabis legalization in the US costs pharmaceutical industry billions

New research from a team of economists found that the wave of legalization in the US – medicinal and recreational – has cost the industry billions. When the VS legalizing cannabis across the country, pharmaceutical inventories could quickly drop by more than 10 percent.

Cannabis legalization leads to less drug use

In recent years, researchers have noted some interesting changes in drug use behavior. For example, several studies have seen a marked decline in opioid prescriptions after medical cannabis was legalized in a particular state. More specifically, other studies show that access to medicinal cannabis led to a decrease in the use of prescription drugs.

A trio of economists from California Polytechnic State University and the University of New Mexico attempted to quantify the financial impact of cannabis legalization on the pharmaceutical industry. The researchers looked at the impact of changes in medical and recreational cannabis laws on the stock returns of pharmaceutical companies over the past 25 years.

The study analyzed 45 cannabis legalizations, both medical and recreational, in US states since 1996. The findings showed that a pharmaceutical company's stock market returns fell by an average of nearly 2% after legalization. The researchers estimate that across all drug companies, this amounted to a drop in annual drug sales by about $3 billion for each individual legalization.

Big drop in branded and generic drugs

If the other 16 states also legalize medical marijuana, this could lead to an 11 percent drop in annual pharmaceutical sales. This equates to a decrease of $38 billion.
The study calculates an even greater impact on pharmaceutical sales when recreational marijuana becomes legal in more places.

“The implied drop in revenue from recreational legalization is about 129% greater than that from medical legalization,” the researchers noted in the study. “When we compare the effects on generics and brand-name drugs, we find that the effect on brand-name drugs is 224% greater than the effect on sales of generic drugs.”

Pharmaceutical industry lobby against legalization

The study notes that there is evidence that drug companies have recognized this threat posed by legalized cannabis and have begun targeted lobbying to prevent wider legalization. However, the researchers suggest that drug companies should invest in cannabis markets rather than lobbying against legalization.

“The future of cannabis medicine lies in understanding the prevalence and effects of the plant's components, in addition to THC and CBD, and identifying ways to categorize cannabis by measurable characteristics known to yield specific effects,” said Co. study author Sarah Stith. “Mimicking conventional drugs through standardization may not be the optimal endpoint for cannabis. This is because the variability inherent in the cannabis plant likely provides its ability to treat many different conditions.”

The research was published in PLOS One.

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