Is Big Pharma Poised To Take Over Cannabis? 3 Companies Already Manage 8 In 10 Drug Prescriptions In The US

The U.S. Federal Trade Commission (FTC) recently highlighted the significant influence of pharmacy benefit managers (PBMs) on drug prices due to market consolidation. This trend raises critical questions about the future of the cannabis industry, especially if cannabis is federally legalized.

The Role Of PBMs And Market Influence

PBMs, such as UnitedHealth Group UNH's Optum, CVS Health CVS's CVS Caremark and Cigna CI's Express Scripts, negotiate discounts, create medication lists covered by insurance and reimburse pharmacies.

The FTC's interim report revealed that these three PBMs manage 79% of U.S. prescription drug claims, consolidating their power and impacting drug prices and accessibility.

Impact On Cannabis With Federal Legalization

The consolidation seen in the pharmaceutical industry provides a cautionary tale for the cannabis sector. Roy Bingham, CEO of BDSA, projects the U.S. cannabis market will reach $46 billion by 2028, driven by the expansion of adult-use markets and new regulated markets.

The rescheduling of cannabis to Schedule III is expected to open new avenues for medical research and investment, potentially leading to pharmaceutical interest in cannabinoids.

Pharmaceutical Investment In Cannabis

Pharmaceutical companies like Jazz Pharmaceuticals JAZZ and AbbVie ABBV have already invested in cannabis-based products, such as Epidiolex and Marinol. If cannabis is federally legalized, these companies could increase their investment in cannabinoid research, leveraging their existing infrastructure and financial resources.

This could lead to further consolidation, similar to the current pharmaceutical landscape, where major players dominate the market.

Economic And Operational Impacts

Rescheduling cannabis to Schedule III is also expected to alleviate tax burdens on cannabis businesses, injecting more capital into the industry. This financial relief could accelerate research and development, attracting healthcare and pharmaceutical companies.

However, the shift would also bring stricter regulations, requiring controlled distribution by licensed pharmacists, potentially mirroring the current PBM model.

Read Also: Cannabis Meets Prescription Drugs, Steroids And Ketamine In Schedule III: What It Means, Key Stocks To Watch

Trends And Challenges In The Cannabis Industry

The cannabis industry is already experiencing consolidation. Analysts like Pablo Zuanic have noted a decline in cannabis sales across several states, leading to further industry consolidation. Larger, well-capitalized multi-state operators are likely to benefit, creating a market environment where a few dominant players control significant market share.

For example, in California, the cannabis sector is experiencing consolidation amid declining sales, as noted by Zuanic, senior equity research analyst at Zuanic & Associates.

Despite a stable number of licensed storefronts, sales dropped 5% sequentially to $1.05 billion year-over-year in Q4 2023, with taxable sales down 8% to $1.25 billion.

Early 2024 figures show a continuing downturn, challenging retailers further. While wholesale prices have risen, retailer margins have tightened, reducing profitability. Despite these challenges, leading brands have established significant moats and expanded into other states through licensing and direct investments.

The consolidation trends in the pharmaceutical industry offer a glimpse into a possible future for the cannabis sector.

Federal legalization of cannabis could lead to increased pharmaceutical investment and further consolidation, creating a market dominated by a few large players.

Read Next: How Pfizer Is Getting Into Cannabis With $6.7B Arena Pharma Deal

These issues will be a hot topic at the upcoming Benzinga Cannabis Capital Conference in Chicago this Oct. 8-9. Join us to get more insight into what the wave of weed legalization means for the future of investing in the industry. Hear directly from top executives, investors, advocates, and policymakers. Get your tickets now before prices go up by following this link.

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