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Cannabis Watch: Cannabis is eating into alcohol sales, analyst study shows

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The increase in cannabis sales in the U.S. will outpace growth of alcoholic-beverage sales in 2022 but will not cripple the booze business by any means, said Cowen Equity Research analyst Vivien Azer.

For the alcoholic-beverage names in Cowen’s coverage group, the near-term impact of cannabis consumption is mostly manageable, Azer said.

Cannabis continues to gain traction, with $26 billion in estimated 2022 sales. The business now amounts to 10% of the size of the alcohol market, up from 2% five years ago. Azer said. Alcohol sales growth is underperforming cannabis by 0.6% to 1.1% in legal cannabis states, the report found.

“Cannabis should gain [four times] the number of consumers as alcohol [will gain] over the next five years … as younger consumers also take longer breaks from alcohol,” Azer said.

Cowen reiterated Green Thumb Industries
GTBIF,
+6.54%

GTII,
+7.07%

as its top pick in cannabis, along with its outperform rating for the company. Cowen also has outperform ratings on Columbia Care Inc.
CCHWF,
+5.71%
,
Cresco Labs
CRLBF,
+7.04%

CL,
+6.47%
,
Curaleaf Holdings
CURLF,
+3.28%
,
TerrAscend Corp.
TRSSF,
+3.91%

TER,
+3.58%

and Trulieve Cannabis Corp.
TCNNF,
+4.71%

TRUL,
+6.11%

and a market-perform rating on Acreage Holdings
ACRHF,
+10.78%
.

As Colorado marks 10 years since voters OK’d legal adult-use cannabis sales in the state, Cowen studied nearly 20 years of U.S. government survey and spending data to weigh the impact of pot on alcohol sales. They also crunched numbers from Nielsen and the Cowen Consumer Survey and analyzed more than 8 million survey responses along with underlying alcohol data from 38 individual states.

Also read: Canopy Growth, Tilray eye growth from noncannabis drinks

Cowen’s proprietary survey revealed that 60% of cannabis consumers reported cutting back on their consumption of alcoholic beverages.

Azer estimated that the U.S. compounded annual growth rate for alcohol of 5% could face a 1% headwind to industry volumes over time.

“With cannabis consumers showing an outsized preference for spirits (as do younger consumers more broadly) we believe that annual price increases and continued premiumization will need to be increasingly necessary,” she said.

Bourbon and tequila represent two advantaged subcategories in alcohol for companies such as outperform-rated Brown-Forman
BF.B,
+0.62%

and MGP Ingredients Inc.
MGPI,
-0.72%
,
Azer said.

Along with Azer, Cowen analysts Victor Ma, Seamus Cassidy and Harrison Vivas worked on the research note.

Also read: Voters approve cannabis use for adults in one red state, one blue state

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