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Wednesday, February 1, 2023

Legalization of cannabis lowers stock market value of big drug companies: UNM Newsroom

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Researchers from California Polytechnic State University and the University of New Mexico have found that stock market investors expect that legalizing cannabis will reduce sales of traditional drugs by billions of dollars.

In their last study, US cannabis laws are expected to cost generics and brands billionsPosted in PLUS ONE, Ziemowit Bednarek of California Polytechnic State University’s Department of Finance, and Sarah Stith of the University of New Mexico Department of Economics, and co-author studied how stock market returns for publicly traded drug companies responded to medical and recreational cannabis legalization events. They found that stock market returns were 1.5-2% lower in the 10 days after the cannabis legalization event and that annual sales implications from this reduction were in the billions.

Other studies have determined that access to cannabis reduces consumption of certain types of drugs, such as opioids, or in some patient groups such as Medicaid patients, but this is the first study to analyze the overall effect of cannabis on drug companies across all products and types of patients. Unlike other drugs, which are designed to target and approve specific conditions, cannabis is used to treat a dizzying array of conditions including physical symptoms such as headaches and muscle spasms as well as mental conditions such as depression and anxiety.

The cost of pharmaceutical drugs remains a major barrier to health care for many Americans and a significant financial burden for state and federal governments – cannabis may be part of the solution. The current study concluded that cannabis acts as a new competitor in the pharmaceutical markets. Extrapolating the results to full federal legalization, the authors estimated a reduction in conventional drug sales of about 11%. Substitution away from conventional drugs with cannabis appears to occur even without standardization, clear dosing instructions, or health insurance coverage.

Co-author Sarah Steth continues, “Currently, cannabis patients and their service 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 impact of plant components outside THC and CBD and identifying ways to classify cannabis by properties. Measurable and known to lead to specific effects. Mimicking traditional pharmaceuticals through standardization may not be the optimal end point for cannabis, because the variability inherent in the cannabis plant is likely to drive its ability to treat many conditions.”

In addition to their overall findings that cannabis legalization reduces the stock market value of publicly traded drug companies, the authors found that recreational legalization had more than twice the effect of medical legalization, presumably due to a much larger affected population as access to cannabis Medical treatment is usually limited to those with severe and debilitating conditions. Manufacturers of branded drugs were affected more than unregistered manufacturers, possibly due to the greater competitive impact from the entry of cannabis into drugs without any existing competitors.

The study concluded that traditional drug manufacturers might 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 cannabis use for medical and recreational reasons. The magnitude of the negative impact of cannabis legalization on stock market returns from investing in traditional pharmaceutical companies indicates that cannabis is likely to be a permanent and growing player in pharmaceutical markets worldwide.

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