To investigate the impact of cannabis legalization on the pharmaceutical industry, researchers from California Polytechnic State University and the University of New Mexico looked at stock return and prescription drug sales data from 556 pharmaceutical corporations. Using data recorded between 1996 and 2019, researchers analyzed how companies' profits changed after individual states legalized cannabis.
Every time a US state legalized medical or recreational pot, pharmaceutical companies' stock returns dropped by an average of 1.5 to 2% within the next 10 days. And although this is a tiny percentage, it still accounts to a loss of about $63 million dollars every single time a state legalizes weed. The study also estimates that pharmaceutical sales drop by around $3 billion per legalization event, creating a total loss of $9.8 billion for the entire pharmaceutical industry market as a whole.
And although medical marijuana is generally recommended as a replacement for opioids and other addictive pharmaceuticals, the adult-use industry is actually eating up a greater share of Big Pharma's profits. Medical legalization alone only decreases pharmaceutical sales by around $2.4 billion annually, while recreational legalization was associated with a 129% larger decrease in sales. These results occurred consistently within 20 days after any US state voted to legalize medical or adult-use pot.
“While current medical cannabis patients and their providers might not be surprised by the conclusions of this article, our results may help inform regulators of cannabis’ therapeutic potential,” the study authors explained. “Our results suggest, given the breadth of cannabis’ therapeutic potential, that recreational users may even experience unexpected medical benefits.”
“Largely unpatentable, cannabis may act like a new generic entrant following medical legalization, leading some individuals to substitute away from other drugs toward cannabis,” the researchers added. “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. Furthermore, access to recreational cannabis is similar to over-the-counter conventional medications, in that it no longer requires healthcare provider oversight for use.”
A wide variety of studies have found that medical marijuana can serve as an effective, natural alternative to opioids, benzodiazepines, and other addictive medications. Other research has found that opioid prescriptions declined by nearly 12% in adult-use states, and around 4% in medical-only states. And in Canada, average monthly opioid prescriptions declined by 80% after the country federally legalized weed. The present study is one of the first to actually translate the decrease in prescriptions to actual financial losses, though.
“We find evidence that investors predict legal cannabis access will significantly decrease sales of conventional pharmaceutical drugs,” the study concludes. “Legal cannabis applies competitive pressure to both generic and brand drug markets, across both classes of drugmakers. This makes legal cannabis distinct from typical brand drug patent expiration and generic drug entry... Furthermore, cannabis can be purchased without a prescription and home cultivated, unlike any other conventional medication.”
The pharmaceutical industry is clearly already aware of how legal weed threatens their profits. Purdue, Pfizer, Johnson & Johnson, and several other leading opioid manufacturers all regularly donate cash to fund anti-cannabis lobbying groups. But at the same time, some of these companies are also investing in legal weed. Pfizer, for example, just spent nearly $7 billion to buy a biotech company that focuses on cannabinoid-related therapies, and Johnson & Johnson has also partnered with Canadian medical cannabis companies.