Employee health and corporate innovation: Evidence from medical cannabis legalisation

We study the effects of employee health on corporate innovation by exploiting staggered medical cannabis legalisation across states from 1995 to 2020. Medical cannabis legalisation increases medical access, thereby significantly influences employee health. Using a difference‐in‐differences empirical design, we find that firms became more innovative after their states legalised medical cannabis use. In particular, we show that firms produced more patents, generated more patents with significant impacts, and attained higher patent value following the passage of bills to legalise medical cannabis. We identify a possible mechanism through which employee health spurs innovation: lower worker turnover. Lower worker turnover encourages firm‐specific human capital investments and facilitates inter‐generational knowledge transfer. Taken together, our findings support the hypotheses that medical cannabis legalisation improves employee health, overall well‐being and their innovative capacities.