The mass legalization of marijuana doesn’t pose much of a threat to titans in the alcohol industry — at least according to one analyst at a top-tier Wall Street research firm.
In fact, legal marijuana may actually be a boon for brewers.
If it ends up playing out the way Bernstein’s Trevor Stirling believes it will, alcohol behemoths like Anheuser-Busch Inbev (BUD), Molson Coors (TAP) and even Diageo (DEO) will be pleased — especially since the prior assumption was that weed and alcohol were substitutes for one another in the bloodshot eyes of consumers.
A two-year-old academic study told a different story, Bloomberg reports, showing that sales of alcohol slumped as much as 5% in states where the psychedelic herb was permitted.
Not so, says Stirling, who claims that beer consumption per capita saw “a one-time increases of about 0.5 percent in the 10 largest states that have legalized marijuana.”
One Less Reason to Be Paranoid
Any investor in the major brewers already has plenty of reasons to be concerned, so it’d be nice if marijuana wasn’t another log to throw on the fire.
So it’d be nice for Big Beer if it didn’t have to worry about marijuana on top of everything else. But even if it did, weed would hardly be its biggest threat.
One of the biggest
The shift away from mainstream beers has contributed to the poor performance of BUD stock, which is roughly breakeven in 2014. Anheuser-Busch is so desperate to shore up sales for its flagship Budweiser family that it has resorted to Facebook (FB) freebies to push its product. The promotion, called “Buds for Buds,” lets you buy your FB friends a Bud Light voucher that can be redeemed at local bars.
But what exactly are consumers turning to for their buzz if they aren’t downing Bud Light by the case?
Independent craft breweries pose a far bigger threat to Big Beer than the average stoner. The Budweiser family’s market share fell by 55 basis points in the first half of 2014, according to the company.
In response, Bud has snapped up several craft brewers, such as Goose Island Brewing and Blue Point Brewing Co., in recent years. Molson Coors is adopting a similar strategy, and last year it simultaneously bought the microbrewery Franciscan Well and launched a craft beer division. Diageo is also desperately trying to break into the craft beer business.
The real trouble for BUD, DEO, TAP and SABMiller (SMBRY) isn’t legal marijuana, it’s a paradigm shift in the consumer palate. With a wealth of microbreweries popping up in cities and towns across the U.S., Americans are increasingly enjoying their freedom to choose something different down at their local watering hole — and that’s replacing generations of drinkers who basically had Bud, Miller and a few other similar offerings.
As weed grows in popularity and acceptance, the alcohol industry should cross its fingers and hope that potheads seek out a nightcap with a drink or two.
Sadly, that’s one of the few bullish catalysts on the horizon for big brewers.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid.
