The global legalization of medical cannabis provides a natural experiment for understanding how institutional change influences innovation in highly regulated industries. This study develops and empirically tests a Contingent Institutional Model of Innovation, which conceptualizes legalization as a necessary but insufficient condition for technological advancement. Its impact depends on the complementarity among regulatory coherence, research capacity, and institutional legitimacy. Using a longitudinal panel of 15 countries from 2000 to 2023, the analysis integrates a Fixed-Effects Negative Binomial model with a dynamic staggered Difference-in-Differences framework to disentangle structural determinants from causal policy effects. Results show that research and development (R&D) expenditure, scientific publications, and clinical trials significantly increase patenting activity (p < 0.01), while legalization alone yields heterogeneous and context-dependent outcomes. Countries with strong R&D systems and coherent regulatory frameworks such as the United States translate legalization into measurable technological gains, whereas weaker institutional contexts experience muted or negative effects. These findings advance innovation theory by reframing legalization as a contingent institutional process rather than a linear policy driver. For managers and policymakers, aligning legalization with targeted R&D incentives, effective intellectual property (IP) protection, and research-industry collaboration is essential to convert regulatory reform into sustained innovation. The framework provides a transferable lens for analyzing institutional change and technological evolution in other tightly regulated sectors such as biotechnology and pharmaceuticals.
Hallaj et al. (Fri,) studied this question.