Beer Industry Could Lose $2 Billion From Legal Marijuana (Additional Coverage)

Source: Forbes

Debra Borchardt

March 13th

The Cannabiz Consumer Group believes that cannabis consumers will switch from drinking beer and just stick with marijuana. (AP Photo/Rich Pedroncelli)

Beer sales could take a huge hit if more states legalize recreational marijuana. A new report from Cannabiz Consumer Group (C2G) predicts that the beer industry could lose more than $2 billion in retail sales due to legal marijuana.

The company reported that 27% of beer drinkers said they have already substituted cannabis for beer or would make that switch if marijuana was legal in their state. Wine and spirits sales could see a drop in sales.

C2G noted that some believe the substitution would be short-lived since the novelty of legalized marijuana would wear off. That said, they said that the cannabis consumer is an invested and educated shopper.

A report from Cowen & Co research analysts issued in September concurs with this assessment. “While recreational cannabis has only limited availability, the rise of cannabis consumption more broadly looks to be weighing on alcoholic beverage consumption, where it is now in decline for men and higher income consumers (while cannabis has gained considerable share with this cohort over the last 5 years),” the report states. With regards to the existing states where marijuana is legal, the analysts said, “With all three of these states now having fully implemented a [marijuana] retail infrastructure, the underperformance of beer in these markets has worsened over the course of 2016.”

The beer industry should be concerned about the growing number of cannabis cocktails hitting the market. Modern Martini RX doesn’t contain alcohol but it does have 50-100 mg of THC per bottle. The drink uses Sativa cannabis, which produces an energizing mood, not the sedated feeling that one gets from the Indica cannabis strain. The drinks are brightly colored with names like Canna Cosmo and Laced Lemonade. Modern Martini RX claims the drinks give its consumers uplifting thoughts, relaxed muscles as well as increased focus and creativity. Certainly, no beer company can make those claims.

Cannabis company Stratos is entering the beverage market with a tablet called Ascend that the consumer can drop into a drink. It doesn’t alter the drink flavor and dissolves quickly. A person could bring the tablet with them to a bar with their friends and convert their water or soft drink into a cannabis drink. It brings to mind an old jingle from Alka Seltzer, “Plop, plop, fizz, fizz, oh what a relief it is.”

Seattle-based Prohibition Gold offers cannabis product Potshotz, a premeasured package of powder that contains 10mg of THC that blends with other flavors. “Why try to reinvent the consumer’s favorite beverages when all that’s missing for most people is the THC,” said company founder Greg Walters. The real challenge of this product was achieving a neutral flavor. Most edibles can mask the cannabis taste with sugar or sweeteners, but the drink additive had to remove the “weedy” taste.

So far the fears of declining beer drinkers may be just that: fear. In Colorado, 2016 taxes received by the state on alcohol sales actually increased between January and November. Beer tax receipts climbed 4.5%, spirits rose 4.0% and wine increased 3.3%. Tax receipts did decline in the months of April, July, September and October for each of the alcohol categories. It’s possible that on certain occasions like 4/20 and the fourth of July, consumers switch to cannabis, but overall alcohol is thriving in Colorado.

I do not own any shares of this stock.