Marijuana startups spark competition with alcohol companies in California
Competition for customers between the beverage industry and marijuana startups is cranking up in California, according to Bloomberg. Recreational marijuana became legal in the state on January 1, opening up a huge market for sellers of cannabis wine, pot-infused seltzer and pre-rolled joints.
According to Bloomberg, beverage analysts are saying that additional brewers and distillers — Molson Coors Brewing Co., Anheuser-Busch InBev NV, Diageo Plc and Pernod Ricard SA — may be considering jumping into the market, especially if pot becomes legal nationwide.
According to a Gallup poll that came out this past October, 64% of the U.S. population wants to see legal pot, Bloomberg noted, while Cowen & Co. predicts the potential value of the market could go from $6 billion in 2016 to $50 billion by 2026.
In areas where the drug is legal, beer and wine companies are increasingly dipping their toes into marijuana-infused beverages and other related products as a way to diversify their portfolios with on-trend items — and keep the pot industry from bogarting their customers.
Constellation Brands, the third-largest beer company in the country, announced back in October that it was investing in a Canadian marijuana company. Constellation said it plans to develop cannabis-based beverages that don't contain alcohol, joining the ranks of marijuana-infused soda, coffee and fruit drinks that are sold in U.S. states where the substance is legal.
Constellation isn't the only alcoholic beverage player to enter the market, of course. In September, Lagunitas Brewing launched an IPA made with marijuana terpenes, the aromatic compounds of fragrant oils from the cannabis plant. The beer doesn't contain tetrahydrocannabinol (THC), the psychoactive ingredient that can cause a euphoric high and alter perception of reality.
Besides the diversifying and innovating aspects of marijuana products, it could be a case of, "If you can't beat 'em, join 'em." There isn't a whole lot to lose for beer and wine companies — and there could be an awful lot to gain if the market value projections are anywhere near accurate. Getting into the marijuana market may also help compensate for sagging domestic beer sales, and there could be M&A possibilities among the many successful marijuana startups out there.
Cannabis appears to be a legitimate threat to the beer industry in particular. In a joint survey between IRI and CannaBiz Consumer Group, 5% of adults said they would stop drinking beer if marijuana was legally available in their state. Beer's market share in the alcohol market fell 0.3% to 49.2% in 2016, and the survey found that recreational marijuana could siphon 7.1% of the beer industry's revenue. IRI analysts predict that if marijuana is legalized across the U.S., the beer industry could lose upward of $2 billion.
Now that California has legalized recreational marijuana, it becomes the eighth state — and the largest one — to do so. Five other states — Connecticut, Michigan, New Jersey, Rhode Island and Vermont — may do the same this year, which would further expand the market for marijuana and THC-infused beverages, edibles and related products. If, as expected, Canada adopts a nationwide legalization policy in the next year or so, the North American market could open up a lot more, and some players within the alcohol industry appear poised to take advantage.