For centuries, people have turned to alcohol products to unwind after a long day, to celebrate with friends, and to mark special occasions. Now that legal cannabis has entered the scene, the alcohol industry’s dominance over the recreational market may be coming to an end. Cannabis industry analysts and business leaders suggest that cannabis may hold the keys to the kingdom, representing a vast opportunity for profits and continued growth among recreational users as an alternative to alcohol products.
Competitive Advantages of Cannabis
Nine U.S. states and the District of Columbia have passed recreational marijuana legislation in the past three years. More states are putting the finishing touches on their own legislation, and the country of Canada is expected to have recreational cannabis legalization laws on the books in the coming months. This groundswell of support for recreational weed has industry analysts excited about the recreational markets springing up across the country.
Alcohol is typically consumed only as a beverage. Cannabis, on the other hand, lends itself to a variety of products, including smoking the cured flowers, creating tinctures, edibles, beverages, and vaping liquids. This versatility provides a strong competitive challenge to alcohol’s dominance on the recreational scene. One industry analyst suggests that cannabis meets more consumer demands and satisfies consumer motivations better than alcohol ever could, and believes that as the commercial cannabis industry grows, its biggest players may even target alcohol producers for acquisition.
Another potential competitive advantage on the recreational market is a belief that cannabis is safer than alcohol. Users of recreational marijuana believe that it does not impair them in the same way that consuming alcohol might. This belief is especially prevalent among younger users, a potent demographic in recreational cannabis and alcohol markets. Whether cannabis is safer than alcohol is up for debate, but those who tend to believe in this may prefer recreational weed over alcohol products, helping to spur growth in a fast-growing market.
Threat or Opportunity?
Many alcohol producers are eyeing the emerging recreational cannabis market as a threat, as cannabis represents an alternative to alcoholic drinks. The cannabis industry’s profit pool is massive, approaching the entire amount of the alcohol industry’s profit over the past three to five years. As more states and Canada adopt legalization legislation, the profit potential is sure to increase dramatically. Industry estimates suggest that the recreational market for marijuana alone will account for $40 billion in sales by 2020; if more states join the legalization initiatives taking shape, that profit may soar to unexpected highs.
The fact remains that consumer motivations and needs are similar between those who use cannabis and those who use alcohol products. Based on the aforementioned competitive advantages of the legal cannabis market, however, cannabis can meet needs that alcohol makers simply cannot approach. Still, the smartest companies on both sides of the recreational market are seeing consumer demand as an opportunity, rather than a threat.
In many cases, such as in Canada and in several U.S. states where legalization legislation has passed, the alcohol control board oversees the commercial cannabis industry. This gives both markets a bit of uniformity when it comes to regulation, helping to pave the way for lucrative partnerships. Some alcohol companies have invested heavily in licensed cannabis producers, both as a means of getting a piece of the profits as well as to expand market offerings.
There will always be overlap in the customer base between alcohol and cannabis, so these partnerships could create synergies that can be leveraged, producing products that meet consumer demands no matter what their recreational preferences are. Alcohol companies are exploring the marijuana market for new beverage ideas and perhaps even the development and production of nutraceutical products. Both alcohol and cannabis producers are also looking at other strategic partnerships across markets, including cosmetics, pharmaceuticals, food, and beverages, just to name a few. The goal is to improve market penetration, and partnership suggest a path forward for all of the major players in these ever-growing markets.
Partial ownership of growing cannabis companies and their incredible profitability may also help struggling alcohol producers to weather downturns in their own markets. In the current landscape, industry analysts are seeing alcohol companies purchasing partial or total stake in some of the largest commercial cannabis companies. It is expected that as the cannabis market grows, the reverse will be true: cannabis firms snapping up alcohol companies in merger and acquisition strategies. This shift is expected within the next three to five years.
Finally, consumer goods personnel — particularly alcohol business executives — are in great demand by the cannabis industry. Consumer goods and alcohol executives have the skillsets that smart cannabis businesses need to thrive; the market is filled with great business ideas but little in the way of executive experience. Injecting seasoned business executives into the mix will strengthen the companies that employ such personnel, helping to create stability in an ever-fluctuating market. Alcohol executives, for their part, have many commonalities with the cannabis market’s needs, including marketing and promotional strategies, production efficiency initiatives, and automation, all of which will bring consistency and quality into the commercial cannabis industry. The future of partnerships between alcohol and cannabis companies may be several years away, but early moves suggest that these partnerships will work to create a flourishing, robust market economy.