A US study looking at cannabis legalization and its influence on pharmaceutical manufacturers suggests that cannabis legalization reduces annual sales of drug manufacturers by US$3 billion ($3.9 billion) on average.
Using a data set and an estimation approach, researchers from the California Polytechnic State University and the University of New Mexico arrived at this figure after examining how legalization between 1996 and 2019 influenced the stock returns of publicly traded pharmaceutical companies.
The primary study sample included daily stock market return data from 556 companies, 520 of which were classified as pharmaceutical or drug preparation entities. A subsample of 91 companies included 16 brand name drug manufacturers and 75 generic drug manufacturers.
In general, the average market value of a company in the main sample is $8.9 billion ($11.7 billion), and in the sub-sample, “generic companies tend to be much larger smaller than branded companies. »
What the researchers found was that stock market returns for companies, on average, were 1.5-2% lower 10 days after legalization in a US state.
Calling the difference statistically significant and noting that it persists for 20 days after legalization, the researchers say that “this corresponds to a loss of approximately $133 million to $177 million ($174 million to $232 million) per company.” . They explain that this figure is calculated by multiplying the value of cumulative abnormal returns, namely the 1.5 to 2%, by the average market value.
Medical cannabis has a long-term influence on pharmaceutical yields
While cannabis legalization is generally associated with lower stock returns for pharmaceutical companies, “medical legalization has a more moderate effect on cumulative returns than recreational legalization, but is more persistent. Generic companies are more affected in terms of percentage, while branded companies are more affected in terms of magnitude due to their greater market value. »
“We find that the average change in a company’s market value per legalization event is US$63 million,” the researchers write. They further point out that when all businesses are included, the economic significance of an estimated $9.8 billion “business market value loss per cannabis legalization event” is extremely large. »
Brand-name drug makers see the difference in their returns disappear within days of the event, but for generic drug makers, investor reaction to cannabis reform “is greater in magnitude and is persistent. »
Despite this, the authors add that the results should be interpreted with caution. “A key limitation is that we model investors as rational, which may overestimate the economic significance of our results,” reads the article in the open-access, peer-reviewed journal PLOS One.
“For private and public drugmakers, we expect the response to legalization to include investment and marketing,” the study concludes, citing the fact that Pfizer has spent billions to acquire a “biotechnology company which focuses on cannabinoid-like therapies”.
“Pharmaceutical companies have devoted significant lobbying efforts and dollars to fighting the legalization of cannabis,” the study continues. “These are signs that the pharmaceutical industry from a marketing point of view, cannabis currently remains far from a therapeutic equivalent approved by the [Food and Drug Administration], and this could explain why pharmaceutical companies have devoted less education to physicians. »
“Beyond the effects for different stakeholder populations, our study suggests that cannabis could be a useful tool for increasing competition in US drug markets,” the authors said.
Are Cannabis Consumers Abandoning Pharmaceuticals?
Researchers suggest that the legalization of cannabis by US states “likely increases the use of cannabis as an alternative to conventional pharmaceutical drugs”.
An analysis supported by previous studies. In 2019, a review of 450 adults who identified as current cannabis users in the United States showed that 44% of medical cannabis users stopped taking a pharmaceutical drug, or used less of it, or both. for the benefit of cannabis.
“In general, people use medical cannabis to treat pain, back problems, depression, and headaches,” reports the University of Michigan.
Cannabis is also used, anecdotally and in research studies, to treat mental health.
In the spring of 2022, researchers from the institute Harvest Medicine from Calgary announced that their results support the idea that medical cannabis can help treat anxiety and depression. Based on information from 7,362 patients, researchers cited better outcomes after starting treatment and at one-year follow-up.
The use of cannabis for medical purposes must, however, be done in agreement with doctors. Researchers at Washington State University reported in late 2021 that cannabis users who also used other medications to treat various conditions could reduce the effectiveness of the latter.
The researchers found that the positive effects of the drugs could decrease or their negative effects could increase explaining that it appears that certain cannabinoids and metabolites of cannabis “interfere with two families of enzymes which help to metabolize a wide range of drugs prescribed for various ailments. »