A new report from TD Cowen analyst Vivien Azer said legal cannabis is driving consumers away from alcohol. The long time cannabis equity analyst wrote: “Alcohol sales in legal cannabis states have underperformed by 100-150 bps over the past five years.
With $29 billion in sales in 2023E, we expect U.S. cannabis sales to grow at a 7% CAGR over the next 5 years, as the category is set to gain 18 million past-month users (while alcohol could lose 2 million users).”
Since Colorado legalized retail sales for adult-use cannabis, the market has grown to 11% of alcohol sales, which is up from only 4% five years ago. Azer’s team believes that over the next 5 years, that growth trend will continue for the cannabis category, while alcohol will decline as consumers embrace cannabis and cut back on their alcohol consumption.
It seems beer is taking the biggest hit as the percentage of past-month cannabis users who prefer beer has fallen 6 points over the past three years, according to TD Cowen’s proprietary survey.
Alcohol may have hoped that cannabis consumers would eventually return to them after the novelty of legal cannabis wore off, but that doesn’t seem to be the case. TD Cowen wrote that among 18-25 year-olds this past month, cannabis category retention has grown roughly 1,000 bps, to 68%, while past month alcohol category retention has fallen about 400 bps to 74% in 2022.
Azer said her survey showed that two-thirds of cannabis consumers said they cut back on drinking.
“According to BEA data, states with access to legal cannabis are underperforming by over 100 bps, while select Nielsen states show a roughly 140 bps delta. Meanwhile, the 5-year alcohol volume CAGR for adult-use cannabis states has underperformed non-cannabis states by 150 bps in IWSR (data),” the report said.
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