US researchers have found cannabis legalisation costs pharmaceutical companies billions of dollars in lost sales and falling share prices.
The team from California Polytechnic State University and the University of New Mexico examined how cannabis legalisation in the US between 1996 and 2019 affected stock market returns for listed drugmakers.
They found that returns were 1.5 to 2% lower 10 days after medicinal or recreational legalisation, for both generic and brand drugmakers, with investors anticipating a single legalisation event to reduce annual sales by US$3b on average.
Published in PLOS One, the authors estimated a reduction in conventional pharmaceutical sales of almost 11% in the event of full federal legalisation in the US.
They found recreational legalisation had more than twice the impact of medical reform, likely due to the larger number of recreational users.
Despite the apparent threat to their business models, the researchers predicted pharmaceutical companies and their investors will come to view legal cannabis as an opportunity, not a competitor.
They added: “For private and public drugmakers, we expect the response to legalisation to include investment and marketing.
“For investors, the negative impact of cannabis legalisation on the market price indicates the adjustment of expectations about future cash flows of pharmaceutical firms.
“The size of the effect implies that participants in capital markets should monitor the evolving legal cannabis landscape as they diversify their portfolios.”