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Cannabis Legalization Could Cost Pharmaceutical Companies Billions of Dollars

Sep 14, 2022 • 7:10 AM EDT
2 MIN READ  •  By Michael Berger
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A few weeks ago, a peer-reviewed research article published in the journal PLOS ONE provided compelling data on how cannabis is impacting the pharmaceutical industry.

For many years, we have written about the risks pharmaceutical companies could face with the legalization of cannabis.

Numbers do not lie, and the numbers are saying that cannabis legalization is associated with a decrease in the stock market returns for pharmaceutical companies. The numbers from the research article help explain why pharmaceutical companies have been funding anti-cannabis lobbying efforts for decades.

Unfortunately for the pharmaceutical industry, the cannabis industry is barely in the first inning of a growth cycle when it comes to the development and commercialization of United States (US) Food and Drug Administration (FDA) approved treatments.

Currently, GW Pharmaceuticals is the best known operator for FDA approved cannabis treatments. Last year, Jazz Pharmaceuticals (Nasdaq: JAZZ) acquired GW for $7.6 billion (combination of cash and stock) and we expect to see more acquisitions in the future as additional cannabis-based treatments progress through FDA clinical trials.

According to the author of the peer-reviewed research article, “Returns decreased in response to both medical and recreational legalization, for both generic and brand drugmakers Investors anticipate a single legalization event to reduce drugmaker annual sales by $3 billion on average.”

The study found that drugmakers lose approx. $10 billion for each legalization event and that number is substantial since medical cannabis is legal in around 40 states and territories of the US. We consider the data from the research article to be powerful and expect these types of studies to play a role in how the cannabis sector attracts big pharmaceutical companies over the coming years.

We have always considered the biotech side of the cannabis sector to be the most attractive vertical. During the last year, we have seen some large Canadian Licensed Producers (LPs) announce biotech focused initiatives and believe our readers need to be aware of this trend.

If you are interested in learning more about leading cannabis biotech companies, please send an email to support@technical420.com with the subject “Leading Cannabis Biotech Firms” to be added to our distribution list.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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