Global Legalization of MJ Could Cause Major Losses for the Pharmaceutical Industry
According to a new study conducted by scientists from the University of New Mexico and California Polytechnic State University, the pharmaceutical industry could lose billions of dollars in profits if cannabis and related substances are legalized globally. The authors note that, in addition to direct revenue losses from replacing certain pharmaceutical products with cannabinoid-based alternatives, the industry would also face numerous indirect and secondary losses, largely due to the positive impact of various cannabis products on human health.
Specifically, the industry could suffer losses as cannabinoids positively affect the functionality of different biological systems in the human body and as cannabis components are increasingly used in cosmetic products. As a result, the authors believe it is highly unlikely that major players in the pharmaceutical market will openly support full legalization in the United States or any other country in the near future.
Stock Market Reactions to Cannabis Reforms
The researchers also highlight an interesting trend related to the stock prices of pharmaceutical companies during announcements of cannabis reforms in various U.S. regions. According to the study, from 1996 to 2019, shares of major pharmaceutical companies temporarily dropped by 1.5-2% within a week after news of cannabis legalization in certain areas. Similar fluctuations were observed among smaller pharmaceutical companies and firms producing generic, non-branded drugs. Based on these patterns, the researchers predict that full legalization of cannabis in the U.S. could lead to an average sales drop of $3 billion per major pharmaceutical company.
“This reaction is more about investor concerns than the actual fact of legalization,” the authors explain. “Recently, as legalization efforts continue to succeed in the U.S. and elsewhere, investors are increasingly viewing cannabis as a reliable investment for the future. It’s understandable: According to feedback from doctors and scientists, including government experts, cannabinoids are effective and accessible substitutes for many top-selling pharmaceutical substances.”
They also point out that individual cannabinoids are unlikely to be patented for exclusive use, unlike custom-designed molecules. Therefore, many investors conclude that legalization could strip the pharmaceutical industry of many of its exclusive and profitable patents.
Cannabis as an Over-the-Counter Remedy
The study’s authors note that cannabis can already be used as a treatment for many severe and chronic illnesses without a prescription, since CBD products derived from industrial hemp are freely sold nationwide. “It’s logical that the entire market for opioid painkillers, which remains a significant revenue generator for pharmaceutical companies, would collapse if more effective and safer pain relievers could be bought at any grocery store without a prescription or other hurdles,” the study states.
Dr. Sarah Stith, the lead researcher, says that data from 1996 to 2019 already show that even partial legalization in a region led to a significant drop in demand for various pharmaceutical products. “On average, we see an 11% decrease across all categories of medications as a result of medical reform,” she notes.
Potential for Industry Collaboration
Despite these findings, Dr. Stith and her colleagues emphasize that the two industries should not compete with each other, as such opposition only hinders reform and harms society as a whole. The authors suggest that the industries could coexist, since therapeutic-grade cannabinoid products should still be produced under the strict sanitary and technological controls typical of the pharmaceutical sector.
“The modern cannabis industry often faces scandals related to defective or contaminated products, largely due to the decentralized nature of cannabis markets. There is no unified set of production standards, so the quality of therapeutic cannabis products can vary greatly not only between states but even between cities in the same region. In other words, the industry would benefit from adopting the technologies and production standards of the well-established and highly regulated pharmaceutical industry,” Dr. Stith notes.
“Such cooperation would benefit both businesses: The pharmaceutical industry could slow the decline in revenues and partially offset losses, while the cannabis industry would gain the professional and lobbying support needed at the national and international levels, which would only help the reform movement both in the U.S. and worldwide.”