Seminal cultural questions through the years have included paper or plastic? Cash, check or credit card? Boxers or briefs?
Now that recreational marijuana usage is increasingly legal, a question for those who want to indulge in relaxants is pot or booze?
Apparently weed is winning market share from alcohol. A total of 50% of U.S. consumers live in a state that has passed legalization measures, according to Cowen analysts. And cannabis sales now total 10% of alcohol sales, up from 2% in 2017.
Legal cannabis sales have grown at a 46% annualized rate over the last five years, while alcohol sales have climbed at a 5% rate, the analysts wrote in a commentary.
Cannabis usage benefited from the covid pandemic, as people stayed home and got stoned. That may shift, as the end of the pandemic has brought back out-of-home socializing, which favors alcohol over cannabis, the analysts said.
Still the addition of four states to legal marijuana usage status in 2018-20 should spark more cannabis usage, they said.
Booze Slowing, Pot Accelerating
If trends of the past 10 years hold, alcohol user growth will slow and cannabis user growth will accelerate, the analysts said.
Legal cannabis revenue will expand at a 13% annualized rate from 2022 to $38.3 billion in 2025, they predicted.
“We like to say that the experimenter of today is the committed consumer of tomorrow,” the analysts said. “For substitute categories, this favors cannabis over alcohol.”
With cannabis usage on the rise, it’s not surprising that the percentage of drinkers who use cannabis, is on the rise, they said. “More interestingly, while alcohol use is pervasive among cannabis consumers, it has been coming down materially.”
The percentage of cannabis users aged 18 to 25 who drink has dropped from 90% in 2002 to 79% in 2020. The figure has dropped 9 percentage points for consumers aged 26 and up.
Meanwhile, the percentage of drinkers who use cannabis has risen to 32% from 25% for 18- to 25-year-olds. The figure climbed 7 percentage points for consumers aged 26 and up.
Cannabis and Alcohol Stocks
Looking at stocks, “for the alcoholic beverage names under our coverage, we believe that the near-term impacts of cannabis conversion have proven manageable,” particularly as the companies are raising their prices, the analysts said.
Cowen assigns outperform ratings to Brown-Forman (BF.B), the maker of Jack Daniel’s, and MGP Ingredients (MGPI), a producer of premium distilled spirits.
Turning to marijuana multi-state operators, the sector is trading at a 70% discount to peak enterprise-to-sales levels of February 2021.
“Nevertheless, we remain constructive on the group,” the analysts said. They believe the lame-duck Congress may pass the SAFE Banking bill, which would allow banks to serve cannabis companies. That could act as a “significant catalyst ahead,” they said
Cowen’s top marijuana stock pick is Green Thumb Industries (GTBIF) , which produces cannabis products. The analysts cited the company's “disciplined capital deployment and prudent operating expense management.”
Other outperform-rated stocks include:
- Columbia Care (CCHWF), which makes medical cannabis products;
- Cresco Labs (CRLBF) , a vertically-integrated cannabis operator;
- Curaleaf (CURLF) , a cannabis seller;
- TerrAscend (TRSSF) , which provides medical cannabis products and services;
- Trulieve Cannabis (TCNNF), a vertically-integrated medical marijuana company.
