Analysis by a multinational investment bank has found that cannabis has grown into a “formidable competitor” to alcohol and will draw tens of millions of users over the next five years while alcohol loses several million drinkers. The TD Cowen analysis estimates that marijuana sales will hit a whopping $37 billion in 2027 as more states legalize cannabis and launch legal sales.
Alcohol has been the main drug of choice for most Americans for nearly a century, but the beverage has been fielding increasing competition from cannabis in recent years. With 24 states legalizing recreational cannabis so far, tens of millions of Americans now have access to legal cannabis. Several more states are considering cannabis reform and will most likely legalize the drug over the decade, increasing access to marijuana to even more Americans.
TD Cowen’s Cannabis Beats Booze report notes that the cannabis category will gain 19 million past-month consumers over the next five years while the alcohol category will lose two million. Lead of the analysis team Vivien Azer says the report adds to a growing body of market research that has consistently pointed to cannabis as a disclocator to alcohol sales. She said the team was surprised to see an “even greater underperformance” in the alcohol category in states with legal cannabis markets.
Although alcohol sales are still far ahead of cannabis sales, analysts say the beverage faces a risk of decline as an increasing number of consumers, especially younger people, are substituting alcohol with alternatives such as cannabis. Prior studies have found that younger populations are drinking less alcohol and using substitutes such as cannabis and psychedelics.
The report estimated that states such as Ohio and Minnesota, which recently legalized recreational cannabis but are yet to implement cannabis laws, could bring in an additional $37 billion in sales in 2027.
Alcohol companies may have little trouble navigating the evolving customer trends in the short-term, but certain brands likely face “competitive challenges” in the medium- and long-term.
TD Cowen says alcohol would keep underperforming in states with legal cannabis markets with beer being the most at-risk beverage. On average, TD Cowen notes, the number of drinks taken on given occasions is lower in legal cannabis states.
Despite the impact cannabis legalization seems to have had on alcohol consumption in legal states, Azer doesn’t see alcohol companies entering the marijuana market until there is meaningful administrative or legislative regulatory change at the federal level.
As more people opt for marijuana in lieu of alcohol, cannabis product demand will increase, and ancillary entities such as Innovative Industrial Properties Inc. (NYSE: IIPR) could also see their businesses grow as a result of this boom.
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