- Cannabis is perceived to be the healthiest intoxicating compound in the world
- Consumer preference is shifting from smoking to drinking/eating cannabis
Cannabis or marijuana as it is generally known is a psychoactive drug used for medical or recreational purposes in different parts of the world. In our earlier blog (Legalisation of cannabis in North America and its effects), we discussed the legalisation of cannabis in some states of the US and its effects on the cannabis industry. In the present blog, Televisory analysed the extension of legalisation in most parts of North America and its anticipated effects on the consumer goods sector, particularly in the US.
Further, after the legalisation of cannabis (for recreational use) in Uruguay (2013) Canada was the second nation to legalise its use in October 2018 and became the largest country for legal consumption of cannabis, this was followed by the legalisation in Michigan in Nov. 2018 (in the US mid-term elections) and made it the 10th US state to legalise cannabis for recreational use. The future for cannabis looks bright with almost 62% of the US population favouring legalisation of cannabis (source: Pew Research Center Survey) and Republican-led Senate and Democrat-led House finding a common ground to legalise and decriminalise the use cannabis in 2019.
There are mainly two types of compounds (cannabinoids) derived from the cannabis plants for human consumption. The intoxicating (psychoactive) compound is tetrahydrocannabinol (THC), while the non-intoxicating compound is cannabidiol (CBD) that mostly has health benefits (alleviate symptoms of conditions including glaucoma, cancer, back pain and arthritis, etc.)
CBD is used for medical purposes mainly by the ageing population in North America. While millennials prefer THC for recreational purposes because of its intoxicating effects. Statistically, alcohol is more harmful and addictive than cannabis (THC). Thus, THC is perceived by the millennials to be a safer and a healthier option as compared to other available intoxicating substances.
The legalisation of cannabis is expected to disrupt the consumer goods market, including alcoholic beverages, non-alcoholic beverages, tobacco and packaged-food industry (edibles and munchies). Moreover, legal marijuana sales (medical and recreational) in the US are currently estimated at $11.7 billion (2018) and is expected to surpass both the energy drinks and ready-to-eat cereals by 2019 (Source: Euromonitor Passport). Furthermore, it is expected to reach $23 billion by 2020 at a 32% CAGR from 2015. In contrast, the energy drink is estimated to grow at 4% CAGR, while ready-to-eat cereals are estimated to contract at 2% CAGR during the same period. Further, the US total beer sales last year were $38 billion (a size that can be easily be attained by cannabis with the current growth trends). Thus, the consumer goods companies are having a closer look at the market and are trying to formulate ways to incorporate cannabis in their product offerings such as cannabis-based cigarettes, THC-infused edibles and beverages, etc. to remain competitive and grow.
Disruptions of cannabis on the US consumer goods industry.
- Beverage market: the market for cannabis-infused beverages is estimated to reach $600 million in the US by 2022. THC-infused beverages are estimated to reach $340 million, with the remainder coming from CBD-infused beverages. The large soda companies view CBD as a strategic fit with their wellness offerings. Additionally, there is a spike in interest from the beer industry on the back of evidence on a substitution relationship between THC and alcohol. The big beverage makers have taken a note and some are actively pursuing deals to capture the market by first investing in Canada (the largest legal cannabis market) and in turn, gear up to capture a larger beverage market in the US (as and when the legalisation takes place in the US). Constellation Brand (the creator of Corona and Modelo) was the first to take the plunge, it paid $4 billion for a 38% stake in the Canadian cannabis cultivator canopy growth to bring THC-infused brews to the market. Miller Coors, the second largest brewer in the world is also reportedly developing cannabis-infused drinks. Heineken has revealed its plan to distribute a THC-infused sparkling water called Hi-Fi Hops through its own brand Lagunitas in California. While Coca-Cola, the dominant soft drink maker has also revealed its plan to infuse CBD into their drinks for the masses in order to alleviate inflammation, pain and cramping. According to statistics from Cannabiz Consumer Group, the cannabis-infused beverage sector can catapult $15 billion a year with more and more consumers looking to replace smoking with healthier consumption method and new consumers also entering the fray. The possibilities are limitless and are only limited by laws binding the legalisation of cannabis in the US.
- Tobacco market: the $94 billion (2016) US tobacco industry is expected to be impacted on the back of purported health benefits associated with smoking cannabis vis-à-vis smoking cigarettes and a further competition from cannabis-infused beverages segment.
- Packaged food market: cannabis can provide a whole new meaning to $56 billion (2016) baked goods and edibles market. This segment provides an easy entry point for consumers who perceive this way of consumption to be healthier than smoking THC. Sales of edibles containing cannabis are expected to reach $5 billion by 2020 from $1 billion in 2015 (accounting for 25% of the US cannabis sales).
A recent report from Deloitte suggests that smoking cannabis is a dying trend and consumer preferences are shifting towards healthier consumption options. Hence, beverages and other edibles are expected to represent the largest chunk of cannabis sales. Legal cannabis sales are expected to soon become a bigger industry than soda and it has already started putting pressure on alcohol sales. Currently, there is a limitation on the multinational bank funding and investments in the cannabis space for the fear of international sanctions (due to its non-legal status elsewhere). However, with the legalisation of cannabis for medical use worldwide, the sector is expected to witness increased funding and investments, which, in turn, shall open exponential growth opportunities for the sector. It is up to the beverage sector players to embrace this change or allow this as a threat to their livelihood, which only time will tell.