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Business is Better in States With Cannabis Legalization, New Study Finds

impact of marijuana legalization on businesses

Researchers find that corporations in states with marijuana legalization see an increase in market value and innovation, compared to states with no legal marijuana access.

A new study shows that state-level marijuana legalization has a positive financial impact on for-profit businesses.

“Firms headquartered in marijuana-legalizing states receive higher market valuations, earn higher abnormal stock returns, improve employee productivity, and increase innovation,” the study’s authors wrote.

The new data comes from a study authored by researchers at the University of Iowa. To gain a better understanding of the impact marijuana legalization has on businesses, researchers analyzed 9,810 corporations between 1991 and 2017. The study, initially reported on by Marijuana Moment, has yet to be published in its entirety.

The study revealed a 4.2 percent increase in overall company value after a medical marijuana law was approved in the company’s home state. This value converts into an increase in the market value of corporations by $166 million.

Innovation is also highlighted in the study as being positively impacted by marijuana legalization. The study found that “firms retain inventors that become more productive and recruit more innovative talents from out of state.”

Another innovative element uncovered by the study is that corporations in marijuana-legal states benefit by drawing in more first-time businesses and investors.

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

Researchers indicated that companies in states with legal marijuana access experienced an increase in stock value by 4.56 percent compared to an “equal-weighted portfolio” composed of similar stocks located in states with no legal medical marijuana access, which showed a loss of about two percent annually.

As for stock returns, the study indicated higher rates (4.44 percent per year) for companies in states that have legalized medical marijuana.

In conclusion, the study shows that states with marijuana legalization laws are “able to attract more productive inventors” compared to states without legalization and that existing employees experience an uptick in innovation after a cannabis law is approved.

The study’s abstract titled, “Do Firms Get High? The Impact of Marijuana Legalization on Firm Performance, Corporate Innovation, and Entrepreneurial Activity” is available here.

Marijuana and U.S. Workforce

Marijuana legalization is impacting businesses across the country. According to a recent study, the legal cannabis industry is creating more jobs than any other industry in the U.S. The report from Leafly and Whitney Economics found that more than 64,000 cannabis jobs were created in 2018 alone. The total number jumps to 296,000 when ancillary companies are taken into account.

New cannabis jobs are expected to be available as legalization spreads. Researchers estimate the total number of direct, full-time jobs in the state-legal marijuana industry will receive a 110 percent growth rate over a three-year span.

To date, 33 states and Washington D.C. have passed laws legalizing the use of medical marijuana and eleven states, including Colorado, Oregon, Washington, Alaska, California, Massachusetts, Nevada, Maine, Illinois, as well as Washington D.C., have legalized recreational marijuana.

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