When medicinal marijuana is legalized, business growth seems to follow

A new study from the University of Iowa suggests businesses do better in states that legalize medicinal marijuana.

Professor Tong Yao says it’s unlikely the result is offices full of potheads helping their employers be more productive. Yao, a professor of finance in the Tippie College of Business, said legalizing medical marijuana instead sends a signal about the state’s culture that attracts creative and productive people to live and work there.

“In addition to providing a host of medical benefits, legalizing marijuana can also give the state a ‘cool image,’” Yao said. “Highly skilled and creative human capital is especially appreciative of open, new, and divergent policies, such as legalized medical marijuana, and that can potentially help states retain and attract more productive and creative workers.”

Yao said the study looked only at states that legalized marijuana for medical use and not for recreational use.

The study: Yao looked at the financial results of more than 13,000 publicly traded companies between 2001 and 2022 and found that when states legalized medical marijuana:

—Corporate valuation increased in 21 of 38 states

—Gross profit per employee and gross sales per employee each increased by more than $8,000

—Patents increased by 10.4% across all 38 states, and the economic value of those patents increased by 22%, as states with legalized medical marijuana were more likely to retain existing inventors and attract new inventors from other states who are productive and create more value.

He said party politics seemed to play little role in the results, as the findings applied to states regardless of whether they had a Democrat or Republican governor.

Yao said that California, the first state to legalize medical marijuana in 1996, had a burst of creativity and business growth in the years that followed. The effect has become weaker over time, however. As more states legalize weed for medical purposes—it’s up to 38 now—the benefits are less dramatic.

By the University of Iowa Tippie College of Business for Newswise via the Gayly online. 8/9/26 @ 6:31 p.m. CST.