Cannabis legalization is something that is playing a major role in a variety of sectors. While recreational usage alongside medical cannabis as treatments for chronic conditions are the more obvious uses of the plant, there are a plethora of related products including CBD-infused food, beverages, beauty products, pharmaceuticals, and more.
While company’s in all of these spaces are moving to partner up with cannabis companies for their own benefit, it turns out there may be one industry that could suffer from cannabis’ rise. According to a new report, the cannabis legalization wave that’s taken Canada and going through the U.S. could be problematic for alcohol companies.
As reported by Barrons, DataTrek published a report which took a look at various recent surveys done on marijuana which showed that users weren’t the typical “stoner” types depicted in popular culture, rather that they were closer to the average, working middle-class person. This information, when coupled with data that showed that one-third of surveyed users drank less alcohol after Canada legalized cannabis, lead to the report’s main conclusion – that the growing trend and acceptance of cannabis will likely have an inverse correlation to recreational alcohol consumption.
Jessica Rabe, the author of the report and analyst at DataTrek, went on to describe that “this important substitution effect…has a meaningful impact on public liquor companies. Many have already been vocal about this risk. Liquor and beer sales are slowing or declining and further marijuana legalization across the US will likely accelerate these trends.”
While she recognizes that alcohol will remain the preferred substance for people going out and that cannabis is mainly associated with staying inside one’s home, this could change as legislation becomes ever more willing to embrace establishments providing marijuana in the same way seen in Amsterdam. As such, alcohol companies could face a significant reduction in demand going forward if they don’t embrace these trends.
We’ve already seen a number of major brewers jump at the chance to get involved in the cannabis industry. Both Constellation Brands (NYSE: STZ) and Molson Coors (NYSE: TAP) have made significant investments in cannabis companies. Back in August 2018, Constellation Brands invested $4 billion into Canadian cannabis giant Canopy Growth Corp (TSE: WEED)(NYSE: CGC) in a bid to help produce cannabis-infused beverages as well as sleep aids.
Although Constellation has said they were not planning on selling drinkable cannabis products in the U.S. for a while, it’s an option they are likely planning on launching in Canada when new Canadian legalization concerning CBD-infused products enters effect in October 2019. Molson Coors has partnered with another rising star in the Canadian cannabis world, HEXO Corp (TSE: HEXO), to produce non-alcoholic beverages as well. Overall, the company predicts that cannabis beverages could represent a $3 billion market in Canada alone.
However, alcohol companies that are not positioning themselves to at least diversify somewhat into the cannabis space, such as some of the smaller to mid-sized companies on the market, could be left out as alcohol consumption sees a decline.
While such a case painted by the report still remains quite a long-term view, it’s something that both companies and investors need to consider moving forward.