Cannabis study: Legal states are more innovative and lucrative

Bethan Rose Jenkins, Cannabis News Writer/Editorial

A new partly-submitted study – “Do Firms Get High? The Impact of Marijuana Legalization on Firm Performance, Corporate Innovation, and Entrepreneurial Activity” – suggests that state-level cannabis legalization has had desirable creative and financial repercussions on for-profit corporations.

This conclusion was drawn up by a group of researchers at the University of Iowa. The team reviewed data published between the years 1991 and 2017. Included in the data were company valuations from a total of 9,810 different businesses; all of which were operating on a for-profit basis.

Based on their findings, a 4.2 percent surge in company valuation – equivalent to $166 million in business market value growth – was noticeable post-medical cannabis legalization. The increase was confirmed among businesses located in cannabis-friendly states.

“Firms headquartered in [cannabis]-legalizing states receive higher market valuations, earn higher abnormal stock returns, improve employee productivity, and increase innovation,” wrote the study’s authors, adding that, “firms retain inventors that become more productive and recruit more innovative talents from out of state.”

Valuable stocks, start-up businesses and investors abundant in legal cannabis states

In addition to experiencing inflation in terms of the market value of for-profit corporations, University of Iowa’s cannabis study also demonstrated how medical cannabis legalization encouraged more investors to funnel funding into local businesses. Additionally, states that had legalized medical cannabis were more likely to see the launch of start-up businesses than those without a medical market in place. 

“We also find that [cannabis]-legalizing states experience an increase in the number of new startups and venture capital investments,” wrote the authors for University of Iowa’s cannabis study.

The stock valuation of for-profit corporations also appeared to climb in legal states. Researchers discovered a 4.56 percent increase; in comparison with an “equal-weighted portfolio” from non-legal states that featured related stocks. In non-legal states, stock valuations actually sunk by approximately two percent on an annual basis. 

Stock return rates were higher in states that had legalized medical cannabis, with the researchers noting an annual rate of 4.4 percent. University researchers also claim that employees were likely to be much more innovative if they worked for businesses in states with legal pharmaceutical-grade cannabis. As a highly innovative industry, this is not surprising. 

Cannabis legalization is boosting the U.S. workforce

This research suggests that cannabis reform is having a positive impact on the economic business landscape. University of Iowa researchers concluded that states with established medical cannabis markets were “able to attract more productive inventors”; as opposed to states that have not joined the “green rush” that has – so far – spread across 33 U.S. states.

The findings of this study, combined with the fact that the leafy green plant’s legalization has created a record number of employment opportunities across the United States, indicate that cannabis reform could be beneficial for the U.S. workforce. As legalization continues to spread, researchers feel confident that the number of cannabis industry jobs will soar at a growth rate of 110 percent within the next three years.

In addition to the 33 U.S. states that have legalized cannabis for medical purposes, 11 have enacted adult-use cannabis laws.