The recreational marijuana industry is expected to take a sip of less than one per cent initially out of annual Canadian alcohol sales once it becomes legal, a new analysis says.
The Anderson Economic Group, a business consulting firm in New York, says legalization of marijuana would sap $160 million out of the country’s $22.1 billion booze sector, rising as use of the drug expands.
While there are numerous unknowns governing the sale of marijuana, the Anderson Economic Group based its projections on alcohol sales in U.S. states that have legalized the drug. It also took into account a host of factors in Canada including spending patterns, income and demographics.
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The beer market, which is worth about $9.2 billion, is anticipated to take a $70 million hit from in the first year of marijuana legalization, the Anderson Economic Group says.
“It won’t affect spending patterns necessarily the first year to the degree where individuals’ buying habits will change overnight,” said Peter Schwartz, an Anderson consultant and editor of its biannual Cannabis Market Report that will include the analysis in its summer issue.
A Deloitte report has estimated that the Canadian market for marijuana could be worth up to around $22.6 billion a year, including about $4.9 billion to $8.7 billion from the sale of the substance, with the rest coming from the ancillary market including growers, testing labs and security.
Analyst Vivien Azer of U.S.-based research firm Cowen and Company is anticipating the alcohol industry could be under substantial pressure over the next decade if young people continue to take a pass on drinking.
In a report released last month, Azer said just under 82 per cent of 18- to 29-year-olds in Ontario consumed alcohol in 2015, down 5.5 percentage points since 2008, while marijuana use has been steady at around 34 to 36 per cent.
“Our focus on these younger consumers reflects our belief that the experimenter of today is the leading consumer of tomorrow,” said the report by Azer who also covers Canopy Growth (TSX:WEED).
The head of Molson Coors Canada, the country’s second-largest brewer, said there is conflicting data about what marijuana legalization will do to alcohol sales, but he is watching the issue closely.
“I don’t think we can say we’re worried,” Frederic Landtmeters said in an interview. “We are conscious that this is something that will come up that may have an impact.”
Luke Harford, president of Beer Canada, said he believes the country’s aging population and relatively high taxation are bigger threats to the industry than marijuana.
“We really see beer as being a product that has a long history in Canada and is part of social occasions and celebrations that just aren’t tied to what marijuana is tied to,” he said.
As for taxes, Harford said he doesn’t want the government to give marijuana “a free ride.”
“We want to make sure that we’re not in the market with one hand tied behind our back.”
Spirits Canada president Jan Westcott said forecasts on the impact marijuana will have on the alcohol business are highly speculative at this point.
“As you get down to such small numbers in the overall market you have to start wondering about the accuracy of any projections,” he said.
“We’re all anxious to know the answer to that. The fact is nobody really knows.”
The federal government is aiming to make the recreational use of marijuana legal on July 1, 2018.