The Impact of Cannabis Legalization on tobacco and alcohol

Historically, both the tobacco and alcoholic drinks industries have been dominant, mainstream industries with a global market size of $620 billion for alcoholic drinks and $660 billion USD for tobacco, respectively. Compared to the behemoths of alcohol and tobacco, the market for cannabis is still relatively small, estimated at about $150 billion USD. But legislation continues to pass that increases accessibility to marijuana – both for medical and recreational use.

As the cannabis market continues to grow globally, what impact will this have on the alcoholic beverages and tobacco industry? Additionally, are these industries set to be competing for market share or will they end up being complimentary of one another?

In a recent webinar, Euromonitor International’s Shane MacGuill, Head of Tobacco Research, and Spiros Malandrakis, Head of Alcoholic Drinks Research, analyze the potential impact the legalization cannabis will have on alcoholic drinks and tobacco.

Factors Impacting Growth of Cannabis

The pace in which cannabis is legalized will impact the rate of industry growth within the U.S. With varying legislation at the Federal level versus state-level regulations; there are a lot of obstacles in place for the cannabis industry to really expand. Further complicating matters are the differences between state-level regulatory regimes being established for medical-use and adult-use.

Another factor impacting the growth of the cannabis industry is the nature of regulation. There are still areas in which governments need to define regulations for the cannabis industry — like how and at what levels cannabis will be taxed and under which frameworks companies can profit from selling marijuana.

Finally, since cannabis is still illegal in many areas, especially here in the US, it is unclear how the market will evolve and grow when it opens up and legalizes. For example, what impact will innovation have on industry growth? New uses and applications may be developed to address the needs of different consumers.

Cannabis: Competition or complimentary?

Although the cannabis market is still relatively small, it appears that it will have a direct impact on the alcoholic drinks industry if it becomes widely legalized. While there is significant overlap between cannabis and tobacco users it is not clear whether and what impact further legalisation would have on the tobacco sales. Tobacco manufacturers, concerned with reputation and regulatory compliance are unlikely to involved themselves in the nascent industry in the near term.

Although research is still somewhat inconclusive, there are indications that the disruption cannabis will have on the sales of alcohol is very real. Beer appears to be in the most danger on the back of the category’s core demographics since this consumer segment tends to be cannabis users. Conversely, wine could tend to be in equilibrium with the ascendant cannabis industry.

Higher-income users, women and Hispanics appear to under index in cannabis use compared to average rates – an opportunity for alcohol companies on the defensive. On the other hand, craft beer, small-scale wine and artisanal spirits appeal to a similar sense of connoisseurship to premium cannabis strains, and can be used to bridge the gap between the two industries through hybrid products and cooperation.

Are you interested in learning more about the growth of the Cannabis industry and its potential impacts on alcohol and tobacco? View our on-demand webinar, “Cannabis Legalisation’s Impact on the Global Alcoholic Drinks and Tobacco Industries” by clicking here.