It has been said that alcohol and marijuana can coexist as part of the United States SIN market, but that doesn’t mean it is always going to be a peaceful union. Since before California legalized its recreational marijuana sector, Wall Street analysts have been advising clients with booze soaked portfolios to prepare for legal weed to start chipping away at their profits. Now, a new study confirms the slow butchering of the alcohol trade.
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Researchers from two US universities and another in South America have determined that the US alcohol market has suffered a 15 percent drop in sales due to the legalization of medical marijuana. A recent report from Forbes suggests this phenomenon is more than just a coincidence. The study, which was conducted using Nielsen retail data from 90 liquor stores, convenience stores and other larger distribution outlets, determined that more people are using medical marijuana as a substitute for booze in states where it is legal.
“The overall conclusion of the study is that marijuana and alcohol are strong substitutes for each other. In other words, they share almost the same audience. If that’s true, then it stands to reason that introducing legal marijuana where alcohol consumption is legal may very well result in a negative effect on alcohol sales,” writes Forbes contributor and wine expert Thomas Pellechia, in his analysis of the study.
“Medical marijuana is legally sold to a small percentage of overall marijuana users, but this study may be an indicator of what the alcohol industry can expect in states where recreational marijuana laws go into effect that will increase legal access to every adult in the state,” he added.
As it stands, 29 states and the District of Columbia have legalized the leaf for medical purposes. Marijuana is also legal for recreational use in a growing number of states, mostly recently California and Nevada. Despite the growls coming from US Department of Justice, the legal marijuana trend is expected to continue growing across the United States. If the contents of the latest study are an accurate snapshot of what is up ahead, the alcohol trade might need to work harder for consumer buzz budgets than it has in the past.
It was just last year that New York Investment firm Cowen Group sent a letter to its clients warning that investments in major beer brands could start to take a backseat to legal marijuana. This situation, which was outlined by Cohen analyst Vivien Azer, reveals that “alcohol could be under pressure for the next decade” … and “the emerging cannabis category could prove more problematic.”
It is for this reason that some alcohol companies are experimenting with fitting in to the legal cannabis sector. Last year, Constellation Brands, which is responsible for Corona, dumped nearly $200 million into a Canadian marijuana company. Their goal is to manufacture and distribute a new line of cannabis-infused beverages when Canada goes fully legal later this year.
In the end, the more successful companies will be the ones that figure out how to reap the economic benefits of both alcohol and legal weed. Aside from Constellation, some wineries are also getting into the business of cannabis. Some of these folks even believe that the legalization of marijuana will eventually contribute to greater profits for the alcohol trade.
