Legal Cannabis Sales Threaten Liquor Industry

The alcohol industry organization, the Wholesale Spirits and Wine Association (WSWA) is unhappy about legalized cannabis. At their recent 72nd meeting, a seminar entitled, “Everything You Need to Know about Marijuana Legalization,” took place in a packed room with an invite list filled with names from the government and the cannabis industry there to discuss the explosion of legal cannabis and what they can do about it.

Alcohol wholesalers attended this seminar because they can no longer ignore the fact that cannabis legalization is sweeping the country, and their long-held dominance over the world of intoxicants will be changing in the future.

Their anxiety over legal cannabis sales threatening liquor industry profits isn’t unfounded, as early metrics point to that specific market effect in states like Colorado, where adults voted for the right to choose marijuana as a safer alternative.Recent articles in the Mark Brown newsletter show beer sales in certain markets have been adversely impacted by the legal sales of cannabis, and the Cowen Insight states, “In adult use cannabis markets, there are clear signs that cannabis is weighing on beer category trends, with CO, WA and OR underperforming the overall beer market by ~260 bps, YTD. Mainstream beers are the biggest drag, while craft is also slowing.”

On January 12, Institutional Cannabis Investors held a gathering of investors at Cowen and Company in NYC, a 100-year-old Wall Street investment banking house who recently initiated coverage for the cannabis market. This groundbreaking event means that legal cannabis is now a big enough money-maker for traditionally conservative Wall Street to use as an investment vehicle.

New risk factors have been placed on stalwart liquor companies such as Molson Coors, Constellation Brands and Brown Forman, according to an article on Bloomberg that quotes Cowen analyst Vivien Azer saying: “The rise of marijuana is affecting many large companies in the alcohol industry, making it critical to study the topic.”

Cowen and Company’s recent 110-page report on the state of the cannabis industry further proves that cannabis sales do take a bite out of liquor sales, a fact that the powerful liquor industry cannot ignore.

Azer authored an article entitled “Legal Cannabis is Weighing Heavily on Beer’s Buzz,” stating “In our initiation on the U.S. Cannabis industry, we asserted that increased use of cannabis presents a risk to alcohol, in particular distilled spirits (that over-index to men) and mainstream/economy beer. Data for Colorado (Denver only), Washington and Oregon support this conclusion.”

The Nielsen (liquor industry) report shows definitively that beer volumes in Denver have fallen specifically because of legal cannabis sales at all levels of the industry, and Cowen and Company’s research further states: “To be sure, admitted annual adult cannabis use of 14% falls well below the 70% that drink alcohol, and the 25% that smoke cigarettes. However, with the category having added at least 10 million consumers over the last 12 years, and with momentum building in terms of popular support and legislation, the cannabis industry is poised to generate meaningful growth. Over the last decade we have seen incidence climb for both alcohol and tobacco, across the total population, though alcohol looks to be under pressure.”

Alan Brochstein, chartered financial analyst from the investment research firm New Cannabis Ventures said, “My own view is that the legalization of cannabis for adults is a long-term issue for the alcohol industry as consumers are allowed to substitute one intoxicant for another. The impact will be slowed to a great degree by the lack of legal social use. This is why I am watching the developments in Denver so closely, as three years after legalization, one still can’t go to a restaurant or bar and enjoy cannabis publicly.”

It would appear that the liquor industry will be paying close attention to cannabis as an unwelcome competitor going forward.

While society should be celebrating the reduction in drunks on the street, fewer car accidents caused by intoxicated drivers, falling rates of domestic abuse and increased productivity due to fewer hung-over workers, it seems that those negative consequences of alcohol abuse must be tolerated as long as the investor class continues to line their pockets with liquor profits—unless, of course, they can co-opt the cannabis market and cash in on that as well.