Condemned inmates sits in housing block at San Quentin State Prison's death row on August 15, 2016 in San Quentin, California. 
Condemned inmates sits in housing block at San Quentin State Prison's death row on August 15, 2016 in San Quentin, California.  - 

The Department of Justice announced Thursday it will phase out its use of private prisons. DOJ said in a memo announcing the new policy that “time has shown that [private prisons] compare poorly to our own … facilities."

The move comes at a time when the department said the number of federal inmates is decreasing, and the agency expects the number to drop even more.

Julie Samuels, a senior fellow at the Urban Institute’s Justice Policy Center said DOJ also wants to distance itself from some of the controversy around private prisons.

“And I think there have been questions about the economics of the private facilities versus the federal facilities,” she said “There have been issues about security and safety, and there have also been issues raised about the services provided.”

According to a recent report from the DOJ Inspector General, those issues include more lockdowns, poor quality food, sexual misconduct.

Corrections Corporation of America (CCA), one of the largest private prison companies in the U.S., said in an e-mailed statement the report had “significant flaws” and that their facilities are equal to or better than the those run by DOJ.

Nevertheless, the Justice Department said it seek to draw down or eliminate contracts for the for-profit correctional companies, a “first step in the process of reducing—and ultimately ending—our use of privately operated prisons.”

Stocks for private prisons like CCA and the GEO Group and tumbled followed the announcement, at one point in the day losing more than half their value.

“Well we do think it’s going to harm the private prison industry, but that’s actually the point here,” said Rashad Robinson, executive director of the online community action group Color of Change. His group runs a campaign to encourage companies to divest from for-profit prisons.

But the DOJ announcement probably isn’t going to put these companies out of business, said Height Securities analystDaniel Hanson.

"The for-profit prison providers make a considerable portion of their revenue away from the Bureau of Federal Prisons," he said, referring to the division of DOJ that handles its federal prisons. "They make it at the state level, they make it through selling prison services, they make it through administering jails, and they make it through other federal agencies, like immigration and customs."

And those agencies aren't covered under this new rule. Hanson estimated the loss of DOJ business will cost the industry 10-20 percent in lost profits over the next five years.

Follow Kimberly Adams at @KA_Marketplace