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Is Cannabis The Liquor Industry's Worst Nightmare?

Wayne Duggan

Cannabis may be one of the biggest long-term growth trends on Wall Street in coming years. And that major opportunity for cannabis investors could come at the expense of the alcohol industry.

The Numbers

A new study by Syracuse University and the University of Georgia suggests cannabis legalization has a significant negative impact on online searches for alcohol and online alcohol advertising effectiveness.

The study focused on six U.S. states that legalized recreational marijuana use between 2014 and 2017. Online searches for alcohol were down 10.9% in these states following legalization.

The researchers concluded there is “reduced interest in alcohol when cannabis is legalized and becomes more available.”

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Surprisingly, the study found that tobacco interest is not negatively impacted by marijuana legalization.

“The alcohol industry, by contrast, has valid reasons to be concerned about legal cannabis and may need creative strategies to avoid market decline if recreational cannabis legalization passes,” the researchers concluded.

DataTrek Research co-founder Jessica Rabe said last week: “The marijuana industry still needs time to develop and more legalization to take hold, but it already poses real risks to other markets.”

Alcohol Companies Respond

Some alcohol companies are already playing defense against cannabis. Constellation Brands, Inc. (NYSE: STZ) has invested in Canopy Growth Corp (NYSE: CGC), and Molson Coors Brewing Co (NYSE: TAP) is partnering with Hydropothecary Corp. to form a cannabis beverage joint venture.

Just last week, Anheuser Busch Inbev NV (NYSE: BUD) announced that its Fluent Beverage Company joint venture with Tilray Inc (NASDAQ: TLRY) will begin commercializing CBD-infused beverages in Canada. Heineken N.V. (OTC: HEINY) is also working on cannabis-infused beer.

Other alcohol stocks have been more cautious in dipping their toes in the cannabis market. Diageo plc (NYSE: DEO), the world’s largest distiller, has said it is not rushing into the cannabis business.

Benzinga’s Take

Alcohol companies appear to see the cannabis threat coming based on the number of partnerships between the two industries. The alcohol companies willing to most aggressively partner with and/or pivot toward cannabis could potentially be the market leaders in the space in coming years.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Latest Ratings for CGC

Date Firm Action From To
Oct 2019 Downgrades Buy Neutral
Oct 2019 Downgrades Hold Underperform
Oct 2019 Maintains Overweight

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