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A joint and cannabis lie on a table.

Legal cannabis lowers Big Pharma's stock market value

UNM researcher studies cannabis’ economic impact

With recreational and medicinal cannabis now becoming legal in many states, the newly formed legal cannabis industry is showing an effect on many pharmaceutical firms' stock market value.

Sarah Stith, a researcher at the University of New Mexico, alongside Ziemowit Bednarek and Jacqueline M. Doremus from California Polytechnic State University, published findings that pharmaceutical firms will lose billions of dollars because of cannabis sales.

“No one has ever really been able to holistically capture the entire effect of cannabis coming into pharmaceutical markets. It's either always been restricted to specific conditions, specific drugs, specific patient populations — like Medicare or Medicaid — and what we want to do is really see what is the total aggregate effect,” Stith said.

Stock market returns were 1.5%-2% lower after a legalization event, causing an estimated $9.8 billion loss in market value, according to the study. These results are based on the information from publicly traded pharmaceutical firms and states that have already legalized the drug from 1996 to 2019. The impact will be felt most heavily among branded drugs rather than generic markets.

“There's only one producer of the branded drug. And so you might expect having a new competitor coming into a market that already has a lot of competition, like a generic market … won't make as much of a difference as if it comes into a market that was a monopoly,” Stith said.

Priorly, pharmaceutical firms had spent resources to fight the legalization of cannabis. Now,  the study predicts that these firms will begin to invest money into the cannabis industry; Pfizer has already sent $6.7 billion to a company that focuses on cannabinoid therapies.

“We are seeing increasing evidence of large pharmaceutical companies becoming interested in investing in cannabis — so purchasing cannabis producers, things like that … I think that … the reason (pharmaceutical companies) haven't stepped in more forcefully yet is, one: the federal issues and, two: because cannabis does not look like a conventional medication,” Stith said.

The study does address that the amount of patients currently using cannabis as a part of their treatment is limited, as it can be an out-of-pocket expense that is not covered by health insurance. There have been some efforts for medical cannabis to be covered by insurers in states like New Mexico.

The substitution is still happening for many, though; the study estimates that if the rest of the nation legalized medical cannabis, the reduction in pharmaceutical sales could reach 11%.

Currently, a slew of medications are out of reach for those who need them due to exorbitant price tags on the drug. The study found that cannabis may be part of the solution to this issue, as it becomes a competitor in the market and could subsequently lower the prices of the drugs.

Stith thinks that while there is a possibility of cannabis being just a new extension of Big Pharma, that likely won't happen due to factors like illegal sales and the ability to grow cannabis at home.

“I think that that is one possibility. I think there's some reasons we might think that that won't happen: … first of all, home cultivation. Typically, we can't make our own drugs at home; here's a drug you can make at home. So there's going to be a limit to how much profit can be made on an individual cannabis product,” Stith said.

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Medicinal cannabis can help people cope with both physical and mental ailments, serving as an alternative to more specific drugs like opioids. Cannabis can help divert the negative effects associated with those drugs and instead foster prosociality.

“The relationship turns from one of the individual with other human beings to one of the individual with that opiate, their addiction to that opiate. And cannabis, even though it is addicting, obviously — most people that use cannabis tend to do it again, because they'd like the effects — it also tends to promote sociality,” Jacob Vigil, a cannabis researcher at UNM, said.

The magnitude of the results they found in the research was what was most shocking to Stith. The study makes clear the impact that cannabis will have on the pharmaceutical market.

“I think that this has changed the landscape for the pharmaceutical industry, and it will not go back. It (has) irreparably changed it,” Stith said. “But I don't think we know for sure exactly how it has changed, and I think that's still gonna play out between the powers that be: how it gets legalized, if it gets legalized at the federal level, how they do it, how they limit entry or don't — all those things are going to play a big role in … how competitive the market is (and) how attractive it is to major pharmaceutical companies.”

Madeline Pukite is the managing editor at the Daily Lobo. They can be contacted at or on Twitter @maddogpukite

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