Impact of elections on the cannabis market: An event study for the 2024 U.S. presidential election

Abstract

This study focuses on how the US presidential election may affect listed firms from the cannabis sector, belonging to vice and unethical sin stock, that had been undergoing adjustments by the prior administration, which would lead to its legalization, or less restrictive use, in the short term by the US federal government, which potentially affects firms' cash flows. Previous literature focuses on periods outside the presidential election and on periods without changes in legalization and found higher returns and volatilities for the investors in cannabis firms. This paper examines the US cannabis industry's short-term market reaction to the 2024 US presidential election. Based on an event study, we show that Donald Trump's victory had an adverse and statistically significant effect on the US cannabis industry. The general decrease in value observed in the cannabis industry is explained by the high uncertainty in the market that Trump will legalize the use of cannabis at the federal level. In his first term as president, he took measures against the legalization of cannabis. These responses are strengthened or mitigated by firm-specific characteristics such as liquidity, leverage, profitability, and growth prospects. Our results are robust to support the uncertainty policy hypothesis.