Marijuana could be the biggest growth opportunity for struggling beverage-makers as millennials ditch beer for pot
AP Photo/Steven Senne
- Millennials are ditching beer for pot, according to Cowen's Vivien Azer, Wall Street's top marijuana analyst.
- Slumping beer sales and the loosening regulations around marijuana have led to a rash of tie-ups between beverage-makers and Canadian marijuana producers, as companies like Constellation Brands and Molson Coors look towards emerging industries to revive their business.
- Azer raised her forecast for the marijuana market by $5 billion to $80 billion by 2030, as survey data shows young people are consuming more marijuana than previously thought in legal jurisdictions.
- "I would expect all of the large global alcohol players are paying attention to this," Azer said.
As beverage-makers contend with slumping beer sales, they're turning their attention towards a new growth opportunity: marijuana.
Wall Street's top marijuana analyst, Cowen's Vivien Azer, estimates sales in the US will hit $80 billion by 2030 - up from her previous estimate of $75 billion - if marijuana is legalized at the federal level.
That represents a 4% compound annual growth rate (CAGR) from the estimated $50 billion marijuana market today. Azer revised her estimates upwards after looking at the increased use rates among young adults in legal jurisdictions.
On top of that, young people are also consuming fewer drinks and spending less on beer, adding to the headwinds that beverage-makers are facing. In fact, Azer said last year "looks to have been the worst year for beer sales," in the near-decade since she has covered the sector.
"I would expect all of the large global alcohol players are paying attention to this," Azer said in a Tuesday meeting with reporters in Cowen's midtown Manhattan offices, adding that these trends will continue to drive M&A.
Marijuana represents one of the 'most significant global growth opportunities' of the next decade
Slumping beer sales and the loosening regulations around marijuana have led to a rash of tie-ups between beverage-makers and Canadian marijuana producers, as companies like Constellation Brands and Molson Coors look towards emerging industries to revive their business.
Bill Newlands, the incoming CEO of Constellation Brands - the beverage maker behind Corona - said on the company's earnings call that marijuana "represents one of the most significant global growth opportunities of the next decade and frankly, our lifetimes."
"It's an opportunity that is opening up much more rapidly than originally anticipated," said Newlands.
Last year, Constellation closed a $4 billion investment into Canopy Growth, paving the way for other major corporations to move into the industry. Molson Coors entered a joint venture with Hexo in August, and Heineken's Lagunitas Brand has developed a hoppy, marijuana-infused sparkling water beverage for the California market.
And perhaps notably, Jakob Ripshtein, an alum of British spirits brand Diageo, was recently promoted to chief commercial officer of Aphria, a Canadian marijuana producer that has been the target of short-seller ire and hostile takeover attempts.
Not to be outdone, tobacco manufacturers have also joined the fray. Altria, the tobacco maker behind popular brands like Marlboro, paid $1.8 billion for a 45% stake in Cronos Group, a Canadian LP, last year.
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The CBD market is going to explode
Following the passage of the Farm Bill late last year, which legalized hemp federally in the US, Azer expects CBD to be the "most topical" trend in the marijuana industry in 2019.
CBD, or cannabidiol, is a non-psychoactive compound in the marijuana plant that's thought to have a range of wellness benefits, though the science is still shaky.
Azer said the market for CBD could generate $1.6 billion in revenue over the next year or two. It's still unclear, however, how the FDA will regulate CBD-containing products.
Canopy Growth outlined plans earlier this week to use the Farm Bill as an entry point into the US hemp market, and an executive at Aurora Cannabis, another Canadian LP, told Business Insider in December the Farm Bill provides a "pathway" to enter the US market while staying onside of federal and stock exchange regulations.
Azer maintains outperform ratings on the pot stocks she covers, including Tilray, Canopy, and Kush Bottles, a marijuana packaging company.
"We should finally start to see the true benefits of adult use sales, and the lapping of upfront investments," said Azer.