Legal cannabis sales eat into beer revenue, survey data shows

By Steve Gelsi

Consumers in areas where pot is legal say they're drinking less alcohol, according to data cited by Bernstein analyst Nadine Sarwat

Consumer surveys in Canada and the U.S. show that alcohol consumption is down in areas where adults have the option to consume legal cannabis, Bernstein analyst Nadine Sarwat said in a research note on Friday.

Beer appears to be the biggest casualty of this trend, with some impact on wine sales and little or no effect on sales of spirits.

The trend was part of the rationale behind a recent move by the chief executive of U.S. cannabis company Green Thumb Industries Inc. (GTBIF) to propose a merger with Boston Beer Co. (SAM), the parent of Samuel Adams.

Thirty-six percent of cannabis users said they've cut down on their alcohol consumption, while a separate study found that 47% said they have reduced their drinking.

"According to multiple surveys, both men and younger consumers aremore likely to replace some of their alcohol consumption with cannabis," Sarwat said. "Furthermore, one survey found that cannabis consumers are significantly more likely to prefer beer (exposing beer to the greatest risk) vs. non-cannabis consumers."

In a 2023 survey, about 23% of cannabis users in Canada said they were drinking less alcohol since that country legalized cannabis in 2018, up from 10% who said the same in a 2020 survey, according to Sarwat, who cited industry sources.

In Canada, data also suggest that beer and wine sales may be cannibalized by cannabis.

Sarwat said some of the responses in the survey may not completely reflect reality, because drinking alcohol is often seen as less fashionable than using cannabis, which could result in people underreporting how much alcohol they consume.

"If it's cool to be sober curious or California Sober, the extent of that sobriety may be overstated," Sarwat wrote.

Among Americans who drink alcohol, about two-thirds most often drink with other people. Younger people are the most likely to drink with others.

Cannabis consumption, by contrast, is often leans toward "alone time, wellness or intimate social occasions," Sarwat said.

Sarwat has market-perform ratings on Canadian cannabis companies Canopy Growth Corp. (CGC), Tilray Brands Inc. (TLRY) and Cronos Group Inc. (CRO), as well as beer companies Boston Beer Co. and Molson Coors Beverage Co. (TAP).

She has assigned outperform ratings to Ambev S.A. (ABEV), Anheuser-Busch InBev S.A. (BUD), Brown-Forman Corp. (BF.B), Carlsberg A/S (DK:CARL.B), Diageo (DEO)( )and Constellation Brands Inc. (STZ).

Opinion: These cannabis stocks have solid growth prospects - with help from the Biden administration

-Steve Gelsi

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06-21-24 0935ET

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