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Legal Weed Likely To Cost Drug Companies Billions

420 Daily Newz by 420 Daily Newz
September 2, 2022
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Cannabis legalization is projected to cost conventional pharmaceutical companies billions of dollars in reduced drug sales and stock market value, according to a new study by researchers affiliated with California Polytechnic State University and The University of New Mexico.

The researchers studied how the stock market returns of publicly traded pharmaceutical firms responded to laws legalizing medical and recreational cannabis over a 25-year period between 1996 and 2019. They found that stock market returns were 1.5% to 2% lower 10 days after a cannabis legalization event and that the implications of the reduction were in the billions of dollars. Returns decreased in response to both medical and recreational legalization, for both generic and name brand drug manufacturers. The authors estimate that investors anticipate a single legalization event to reduce drugmaker annual sales by an average of $3 billion.

“Using a data set and estimation approach novel to health policy, we find evidence that investors predict legal cannabis access will significantly decrease sales of conventional pharmaceutical drugs. Legal cannabis applies competitive pressure to both generic and brand drug markets, across both classes of drugmakers,” the authors of the study wrote. “This makes legal cannabis distinct from typical brand drug patent expiration and generic drug entry where typically only one drug, the drug coming off patent, and its substitutes are affected. Furthermore, cannabis can be purchased without a prescription and home cultivated, unlike any other conventional medication.”

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Cannabis as a Substitute for Pharmaceuticals

In their report, the researchers note that previous studies have shown that access to legal cannabis reduces the consumption of certain pharmaceutical drugs, including highly addictive opioids. Additionally, other research has shown that legalizing marijuana reduces the consumption of other drugs among specific patient populations, such as Medicaid recipients.

Marijuana legalization is also likely to impact pharmaceutical companies because of the vast number of conditions it can be used to treat. Unlike conventional medications, which are developed and approved to treat specific ailments, patients use cannabis to treat a range of physical symptoms such as pain and muscle spasms, as well as mental health conditions including anxiety, depression, and PTSD.

The high cost of pharmaceuticals is also cited by the authors as a factor in the financial impact cannabis legalization measures have on conventional pharmaceutical companies. As legalization measures take hold, cannabis can potentially help alleviate the barrier that high drug costs pose to healthcare access and reduce the fiscal burden on state and federal governments.

The researchers determined through the study that cannabis is becoming a significant new competitor in drug markets and estimate that full federal legalization will result in a reduction in conventional pharmaceutical sales of nearly 11%. Study co-author Sarah Stith of the University of New Mexico’s Economics department adds that consumers’ migration away from pharmaceutical drugs toward cannabis continues to grow despite standardization, health insurance coverage or clear dosing instructions.

“Currently, cannabis patients and their providers have little information to guide them towards the most effective treatment for their condition,” said Stith. “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.”

In addition to their overall findings that cannabis legalization decreases the stock market value of publicly traded pharmaceutical firms, the authors found that legalizing recreational marijuana had more than twice the impact of medical cannabis legalization, likely because they affect more people and create a larger new market. Manufacturers of brand-name drugs were affected more than generic drugmakers.

In their conclusion, the authors note that conventional pharmaceutical manufacturers can likely benefit more by investing in regulated cannabis markets rather than lobbying against efforts to expand marijuana legalization. They also recommend that cannabis regulatory policy should support research into the risks and benefits of both medical and recreational cannabis.

The study, “U.S. Cannabis Laws Projected to Cost Generic and Brand Pharmaceutical Firms Billions,” was published on Wednesday in the journal PLOS One.

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