He United States Federal Trade Commission (FTC) The significant influence of pharmacy benefit managers (PBMs) on drug prices due to market consolidation has recently been highlighted. This trend raises critical questions about the future of the cannabis industry, especially if cannabis is legalized at the federal level.
The role of PBMs and market influence
PBMs, such as UnitedHealth Group from UNH Optimum, CVS Health CVS CVS care brand and Cigna CI Express Scriptsnegotiate discounts, create lists of drugs covered by insurance, and reimburse pharmacies.
FTC Interim Report revealed These three PBMs manage 79% of prescription drug claims in the US, consolidating their power and impacting drug pricing and affordability.
The impact of federal legalization on cannabis
The consolidation seen in the pharmaceutical industry is a warning for the cannabis sector. Roy BinghamDirector of Association of Joint Stock Companiesprojects the U.S. cannabis market to reach $46 billion by 2028, driven by expanding adult-use markets and newly regulated markets.
The reclassification of cannabis to Schedule III is expected to open new avenues for medical research and investment, potentially sparking pharmaceutical interest in cannabinoids.
Pharmaceutical investment in cannabis
Pharmaceutical companies like it Jazz Pharmaceuticals JAZZ and AbbVie ABBV has already invested in cannabis-based products, such as Epidiolex and Marinol. If cannabis is legalized at the federal level, 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
The reclassification of cannabis to Schedule III is also expected to ease tax burdens on cannabis companies, injecting more capital into the industry. This financial relief could accelerate research and development, attracting healthcare and pharmaceutical companies.
However, the change would also bring with it stricter regulations, requiring controlled distribution by licensed pharmacists, which could mirror the current PBM model.
Read also: Cannabis is included in Schedule III along with prescription drugs, steroids and ketamine: what it means and what key actions to take into account
Trends and challenges in the cannabis industry
The cannabis industry is already experiencing consolidation. Analysts like it Pablo Zuanic A decline in cannabis sales has been observed in 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 ZuanicSenior Equity Research Analyst at Zuanic & Associates.
Despite a stable number of licensed stores, sales fell 5% sequentially to $1.05 billion year-over-year in the fourth quarter of 2023, and taxable sales declined 8% to $1.25 billion.
Figures for early 2024 show a continuing recession, posing a greater challenge for retailers. While wholesale prices have increased, retailers’ margins have shrunk, reducing profitability. Despite these challenges, leading brands have established significant competitive advantages and have expanded into other states through licensing and direct investment.
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 entering the cannabis market with a $6.7 billion deal with Arena Pharma
These questions will be a hot topic at the upcoming Benzinga Cannabis Capital Conference in Chicago on October 8-9. Join us to learn more about what the wave of marijuana 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 rise further this link.
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