IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0272492.html
   My bibliography  Save this article

U.S. cannabis laws projected to cost generic and brand pharmaceutical firms billions

Author

Listed:
  • Ziemowit Bednarek
  • Jacqueline M Doremus
  • Sarah S Stith

Abstract

Legalization of cannabis by U.S. states is likely increasing the use of cannabis as an alternative to conventional pharmaceutical drugs. We examined how cannabis legalization between 1996 and 2019 affected stock market returns for listed generic and brand pharmaceutical companies and found that returns were 1.5-2% lower at 10 days after legalization. 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 $3B on average.

Suggested Citation

  • Ziemowit Bednarek & Jacqueline M Doremus & Sarah S Stith, 2022. "U.S. cannabis laws projected to cost generic and brand pharmaceutical firms billions," PLOS ONE, Public Library of Science, vol. 17(8), pages 1-19, August.
    • Handle: RePEc:plo:pone00:0272492
    DOI: 10.1371/journal.pone.0272492
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0272492
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0272492&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0272492?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Myron J. Gordon & Eli Shapiro, 1956. "Capital Equipment Analysis: The Required Rate of Profit," Management Science, INFORMS, vol. 3(1), pages 102-110, October.
    2. Castanheira, Micael & Ornaghi, Carmine & Siotis, Georges, 2019. "The unexpected consequences of generic entry," Journal of Health Economics, Elsevier, vol. 68(C).
    3. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
    4. Barberis, Nicholas & Shleifer, Andrei & Vishny, Robert, 1998. "A model of investor sentiment," Journal of Financial Economics, Elsevier, vol. 49(3), pages 307-343, September.
    5. Powell, David & Pacula, Rosalie Liccardo & Jacobson, Mireille, 2018. "Do medical marijuana laws reduce addictions and deaths related to pain killers?," Journal of Health Economics, Elsevier, vol. 58(C), pages 29-42.
    6. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 75-90, March.
    7. Wen, Hefei & Hockenberry, Jason M. & Cummings, Janet R., 2015. "The effect of medical marijuana laws on adolescent and adult use of marijuana, alcohol, and other substances," Journal of Health Economics, Elsevier, vol. 42(C), pages 64-80.
    8. Wagner, Alexander F. & Zeckhauser, Richard & Ziegler, Alexandre, 2017. "Company Stock Reactions to the 2016 Election Shock: Trump, Taxes and Trade," CEPR Discussion Papers 11837, C.E.P.R. Discussion Papers.
    9. David O. Lucca & Emanuel Moench, 2015. "The Pre-FOMC Announcement Drift," Journal of Finance, American Finance Association, vol. 70(1), pages 329-371, February.
    10. Markus K. Brunnermeier, 2005. "Information Leakage and Market Efficiency," The Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 417-457.
    11. Padmaja Kadiyala, 2004. "Investor Reaction to Corporate Event Announcements: Underreaction or Overreaction?," The Journal of Business, University of Chicago Press, vol. 77(2), pages 357-386, April.
    12. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    13. Jacqueline M. Doremus & Sarah S. Stith & Jacob M. Vigil, 2020. "Off-label use of recreational cannabis: Acid reflux in Colorado," Economics Bulletin, AccessEcon, vol. 40(1), pages 338-348.
    14. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    15. Pantzalis, Christos & Stangeland, David A. & Turtle, Harry J., 2000. "Political elections and the resolution of uncertainty: The international evidence," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1575-1604, October.
    16. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    17. Grabowski, Henry G & Vernon, John M, 1992. "Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 331-350, October.
    18. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    19. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dionysia Dionysiou, 2015. "Choosing Among Alternative Long-Run Event-Study Techniques," Journal of Economic Surveys, Wiley Blackwell, vol. 29(1), pages 158-198, February.
    2. Nicolau, Juan Luis & Sharma, Abhinav, 2022. "A review of research into drivers of firm value through event studies in tourism and hospitality: Launching the Annals of Tourism Research curated collection on drivers of firm value through event stu," Annals of Tourism Research, Elsevier, vol. 95(C).
    3. Paul Handro & Bogdan Dima, 2024. "Analyzing Financial Markets Efficiency: Insights from a Bibliometric and Content Review," Journal of Financial Studies, Institute of Financial Studies, vol. 16(9), pages 119-175, May.
    4. Luís M. S. Coelho & Rúben M. T. Peixinho & Siri Terjensen, 2012. "Going concern opinions are not bad news: Evidence from industry rivals," Working Papers Department of Economics 2012/16, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    5. Nobel Prize Committee, 2013. "Understanding Asset Prices," Nobel Prize in Economics documents 2013-1, Nobel Prize Committee.
    6. Keunbae Ahn, 2021. "Predictable Fluctuations in the Cross-Section and Time-Series of Asset Prices," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2021, January-A.
    7. Kaserer Christoph & Hanauer Matthias X., 2017. "25 Jahre Fama-French-Modell: Erklärungsgehalt, Anomalien und praktische Implikationen," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(2), pages 98-116, June.
    8. Luís Miguel Serra Coelho & Rúben Miguel Torcato Peixinho, 2011. "The intraindustry effects of going concern audit reports," CEFAGE-UE Working Papers 2011_23, University of Evora, CEFAGE-UE (Portugal).
    9. Eero Pätäri & Timo Leivo, 2017. "A Closer Look At Value Premium: Literature Review And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 79-168, February.
    10. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, March.
    11. Schwert, G. William, 2003. "Anomalies and market efficiency," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 15, pages 939-974, Elsevier.
    12. Lu Zhang, 2017. "The Investment CAPM," European Financial Management, European Financial Management Association, vol. 23(4), pages 545-603, September.
    13. Ramiah, Vikash & Xu, Xiaoming & Moosa, Imad A., 2015. "Neoclassical finance, behavioral finance and noise traders: A review and assessment of the literature," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 89-100.
    14. Florian Manz & Birgit Müller & Dirk Schiereck, 2020. "The pricing of European non-performing real estate loan portfolios: evidence on stock market evaluation of complex asset sales," Journal of Business Economics, Springer, vol. 90(7), pages 1087-1120, August.
    15. Stephen X. H. Gong, 2008. "Event Study in Transport Research: Methodology and Applications," Transport Reviews, Taylor & Francis Journals, vol. 29(2), pages 207-222, May.
    16. Shi, Huai-Long & Zhou, Wei-Xing, 2022. "Factor volatility spillover and its implications on factor premia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    17. Dimitrios G. Konstantinides & Georgios C. Zachos, 2019. "Exhibiting Abnormal Returns Under a Risk Averse Strategy," Methodology and Computing in Applied Probability, Springer, vol. 21(2), pages 551-566, June.
    18. Monica Martinez-Blasco & Vanessa Serrano & Francesc Prior & Jordi Cuadros, 2023. "Analysis of an event study using the Fama–French five-factor model: teaching approaches including spreadsheets and the R programming language," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-34, December.
    19. Pedro Reis & Ana Paula Serra & Jo~ao Gama, 2025. "The Role of Deep Learning in Financial Asset Management: A Systematic Review," Papers 2503.01591, arXiv.org.
    20. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2017. "Research in finance: A review of influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 188-199.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0272492. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.