Ignore marijuana at your peril, Tom Vierhile warns the alcohol industry

Ignore marijuana at your peril, Tom Vierhile warns the alcohol industry

Election day 2016 in the US provided some surprises, but the country's growing embrace of cannabis was not one of them. Voters in four states – California, Maine, Massachusetts, and Nevada – approved legislation sanctioning the recreational use of marijuana, effectively doubling the number of states that allow the practice. This legislative action suggests that the alcohol beverage industry will likely face increased competition from legalised marijuana somewhat sooner than it had expected.

With elections come consequences, and the alcoholic drinks industry in the US may soon find out what those consequences will be, as the country's market for recreational marijuana begins to take shape. Indeed, legal marijuana is already big business in the US: According to analysts at Cowen & Co, the market for legal marijuana is currently worth US$6bn per year, with the substance being legal (either for recreational or medicinal use) in over half of the country's 50 states. The investment banking firm estimates that legalisation has the potential to grow the market from $6bn to $50bn by 2026; a near nine-fold increase. At least some of that increase is expected to come from illicit users of marijuana transitioning away from the black market, a channel believed to account for around $25bn in sales, at present.

According to a recent report on the cannabis industry from Cohen, the estimated-$200bn market for alcoholic beverages in the country is likely to take a hit from recreational marijuana. Vivien Azer, the firm's beverages, tobacco, and cannabis analyst, observes that the incidence of cannabis use among men has been steadily growing, while men's alcohol consumption has dropped by around 0.1% in the last five years. In addition, risk perceptions for cannabis and alcohol have flip-flopped. Perceived risk is declining for cannabis, but appears to be growing for alcoholic beverage consumption.

Research by Canadean has found that younger Americans are more likely than older Americans to say that health & wellness exerts a major influence on alcohol product choice. In the Q3 2016 Canadean survey, just 2% of Americans aged 45 to 54 stated that health & wellness has the most impact on their product choice in alcohol, compared to other factors, like price and quality. In contrast, 10% of Americans between legal drinking age and 24 and 8% of those aged 25 to 34 chose health & wellness as having the most influence on their alcohol product choice.

Attitudes toward the legalisation of marijuana have changed dramatically in recent years. Gallup began surveying Americans on the matter in 1969, when just 12% said it should be made legal. Support for legalisation stayed around 25% through the mid-1990s, before increasing to 31% in 2000. Since then, it has been growing steadily, aided by the medical marijuana movement. In 2013, support for legalisation reached a majority for the first time. Public support hit an all-time high in 2016, with 60% of Americans aged 18 or above coming out in favour. Support varies significantly by age, though: Adults aged 18 to 34 are the strongest supporters, with 77% expressing support in 2016, up from 44% in 2005. Compare this to the 45% of Americans aged 55 or older who currently support legalisation.

The alcoholic beverage industry has been hesitant to comment on competition from marijuana, although industry money flows reveal the direction that the industry would like legalisation efforts to go. While the Beer Distributors' political action has committee made a contribution of $25,000 to "The Campaign for a Safe and Healthy Massachusetts" – a group dedicated to fighting the marijuana legalisation effort in the state, the Wine & Spirit Wholesalers of Massachusetts has chipped in $50,000 toward the same cause. In the end, neither contribution was able to turn the tide, as Massachusetts voters approved "Question 4" on recreational marijuana legalisation by 53% to 46%.

Alcohol companies are beginning to acknowledge the challenge that may lie ahead. In a recent interview with Bloomberg, Constellation Brands' CEO, Rob Sands, proclaimed: "We're looking at (the possible marriage of alcohol and cannabis) There are going to be alcoholic beverages that will also contain cannabis." A Constellation spokesman later rowed back on Sands' comments, stating that the group has "no plans" to introduce cannabis-infused alcohol.

Molson Coors has also acknowledged the potential competition from cannabis. In an early-November conference call on the company's quarterly earnings, Stewart Glendinning, CEO of Molson Coors International, responded to a question on the potential impact of marijuana legalisation in Canada: "Cannabis is something we are thinking carefully about," he said. "There's a lot we don't know at the moment," especially about how the drug is "deployed." The company indicated it would be looking to the state of Colorado for potential insights there as the state was the first in the US to legalise recreational consumption.

Colorado continues to blaze new trails for recreational marijuana. In November, the city of Denver, Colorado passed Initiative 300, which allows a business to let consumers bring their own marijuana and enjoy it on the premises, though the legislation requires the consent of "an eligible neighbourhood organisation", plus a permit from the city to execute. At the very least, alcohol manufacturers may want to pay heed to some of the nuances of edible - or drinkable - marijuana products that Colorado has learned the hard way, in some cases. The Colorado Department of Public Health & Environment (CDPHE) says that it can take up to four hours after ingesting edible marijuana for peak THC blood concentration to occur, and eight hours for the "impairment to resolve." The CDPHE came out against Initiative 300, arguing that a hotel room or home were safer choices for consuming edible marijuana than a bar or restaurant.

It is unclear whether or not voters will have the last say on marijuana consumption in the on-premise. Despite the passage of Initiative 300 in Denver earlier this month, the Liquor Enforcement Division of the Colorado Department of Revenue issued a new rule on 18 November barring liquor-licence-holders from applying for a permit to allow the consumption of marijuana on the premises. Opponents of the new rule believe that the alcohol industry may have had a hand in the rule as a way to protect its turf.

Regardless of who was or was not behind the new rule, it seems clear that cannabis and alcohol are on a collision course.