Following the 2012 initiatives in Colorado and Washington that legalized the recreational use of marijuana, questions started to be asked around the wine business about the substitution effect of pot and wine. Even more interesting to me is to think through, why the wine industry would even ask the question?
The reason the question is being asked is everyone in the wine industry has been feeling uncomfortable with sales trends for some time, and we are all trying to pin down the root causes for the changes. Many have already concluded cannabis is hurting wine sales.
While I've avoided talking about cannabis in the Annual SVB State of the Industry Report up to this point, this year because of the trends I'm seeing, I felt it necessary to take this subject head-on.
You can sign up [here] to receive a link to the 2019 SVB Wine Industry Report and the live videocast which will take place on January 16th this year. But here are some of the thoughts I'll present on wine and weed within the report this year.
The Conflicting Opinions
One analyst who reviews state tax data concluded that at least for Colorado and Oregon, there was no material change in alcohol consumption post-legalization. That's one vote against a link.
Earlier in 2018, collaborative research between the University of Connecticut, Georgia State University and Universidad del Pacifico Lima concluded alcohol sales dropped 15 percent in states when new medical marijuana laws were approved. They concluded marijuana was a strong substitute for alcohol. So that's one vote for a strong link.
On the other hand, research released in Sweden this year covering observations from 1989–2016 among more than 140,000 adolescents concluded that marijuana was neither a substitute nor a complement for alcohol. That's a vote for a new vote category.
Nobody has been even thinking about the case of cannabis being a complimentary good for wine. (For everyone who forgot their Econ 101, an example of a complimentary good is popcorn and butter. Butter sales would be higher if popcorn sales increase.)
So how do we reconcile the conflicting research?
The Current Facts
Placing a pin on it, let’s say about 13 percent of adults today are regular consumers of cannabis. Regular wine consumers on the other hand represent around 60 percent of the adult population.
We could just pretend marijuana users are just now discovering the product, except the Cannabis Consumer Coalition conducted a well-run consumer study and determined that among other things, 64 percent of current legal marijuana buyers have been users for 10 years or more. That makes it harder to argue that legalization alone is having a major impact on current wine sales.
The Initial Conclusion
Furthermore, for marijuana legalization to seriously impact wine demand in a negative way, we have to try and rationalize how the impact is suddenly taking place now, when 64 percent of current legal marijuana users inhaled before legalization.
Averages don't always tell the whole story however. After digging in to the data a little more, there was one consumer segment where we might indeed see some level of substitution taking place.
The Case for Substitution in the Millennial Cohort
While cannabis use spans across all generations and all indications suggest the strongest growth cohort for cannabis is in the boomer generation, the description of the weighted average age for regular cannabis users today would be a 26-year-old male. So it is possible - to the extent there is a substitution for wine, that it would likely be felt in the younger consumer demographic.
The chart here represents information I pulled together from several different research reports and sources. Considering the difference in the size between the regular consuming base of cannabis (~13%) and alcohol (~60%) consumers, the chart depicts graphically the relative preference for beer, liquor, wine and cannabis in the adult population of the US.
Millennials, the group on the left of the slide, show the strongest preference for spirits, beer and cannabis among all cohorts at present, but the lowest preference for wine.
The fact that millennials have the most cannabis users and fewest regular wine consumers could be signaling a level of substitution in the youngest wine consumers. While other factors could account for the above results too, we can say with a good level of certainty that cannabis legalization isn't helping increase demand for wine in millennial consumers.
When you get a chance to read this year's report, you will also see how millennials are evolving in their consumption trends for wine. (A small hint: It's not good news.)
The SVB State of the Industry Report
I feel the 2019 report is perhaps the most important piece I've written because the business is quite clearly at a tipping point and change is required for the industry to see the kind of success to which it's become accustomed for the past 25 years. I'm really looking forward to presenting the results to you in our Annual Report Release and videocast on January 16th.
Please sign up ------> right here <-------- to receive links to the full 2019 Industry Report, the live videocast, and a link to the videocast replay.
What do you think? Is cannabis hurting the growth of wine in the young consumer? Please join this site in the top right-hand side of the page, and offer your thoughts below. I respond to everyone.
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While I don’t think the 45-year-old anesthesiologist is foregoing is Saturday night Napa Valley cab for marijuana I am curious as to whether certain segments specifically lower price points are being affected.ReplyDelete
More importantly will the typical “26-year-old male” cross over into wine when he gets older as they’ve done in the past.
Any insights on how food delivery services like blue apron, hello fresh, drizzly, or even caviar and Uber eats have affected wine sales in the on premise?
Chris - thanks for the comments and using your name. I always appreciate talking to someone with a name.Delete
I do believe that the effect is more pronounced in lower priced beer and wine. I had read some of that research earlier last year, but a relationship I struck up with one of the top cannabis data houses gave me the information to give that a little more substance. They segmented their legal users by income and could support an the argument that lower income and lower priced beer and wine were closer substitutes versus $20+ wine.
As far as delivery goes, I'm not sure that's captured in on or off premise data ... at least I've not seen it broken out. I do know there has been mixed success depending on the company, but that it remains a strong segment of growth - off a small base.
On-premise wine sales are growing right now, but the growth rate is declining too. We are losing the young consumer to craft spirits both on value/entertainment, and value/alcohol per dollar spent. I'm not sure you can see the following link, but it's a wine and cocktail list. Take a look at the price for a glass of wine versus a cocktail. Then consider the "mixologist" today. They entertain in delivering the story. There is no wine counterpart for a mixologist that is as resonant with the new consumer.
Useful insight as always. We too grappling with the Cannabis-vs-wine question, and the unfolding live case study of Canada is of particular interest. In that example we have the advantage of a clear "before" and "after" because the legislation decriminalised at a national level at a specific point in time. I'll try to share some data points when we have them.
- Richard Halstead, Wine Intelligence
Thank's Richard. I'll appreciate your insight when WI comes to a conclusion. Note that in the top animated gif, there are only 5 remaining states that haven't decriminalized cannabis. The economics in Canada are also going to be impacted by wine availability and government infighting during the same period.Delete
Hi Rob. Always interesting insight. Call me old or a statistical segment but I can't see one replacing the other. Those seeking only a buzz may find one product better than the other. Wine as a food accompaniment is the status quo world wide. Those seeking a buzz only may find a better price point in inexpensive jug wine vs. pot. More bang for your buck. Is this an apple to oranges conversation ?ReplyDelete
Thanks for the comments Paul. I think your view is on average correct. The use case for marijuana and premium wine in particular is different. As noted above, the issue is when young consumers linger in spirits and beer instead of moving into wine. And if we get a lot of promotion from celebrities who get their own lifestyle marijuana brands, that could change the dynamic even more.ReplyDelete
There are many more thoughts that I've laid out in the report. I hope you sign up above for the videocast and to get a copy of the report when it's released in a couple weeks.
I work in the wine business and am very hopeful that it is not impacted by cannabis, but I do see a trend among co-generation Xers and millennials choosing it instead of wine in certain situations. While this is a small sampling in the bay area, I hear the same from friends in Colorado. The reasons they cite are lower calories, easy to transport, $1 per 'serving', and the ability to 'choose' your emotion (sleep, passion, bliss, etc.) through brands such as dosist. I brought a case of wine to a recent (annual) weekend celebration and only half were consumed (A first). The bowl of dosist pens the hostess brought disappeared immediately. Truth be told, my evening pre-bed glass has been replaced with 'sleep.' Depending on what happens with regulation, I think it will be similar to beer and cocktails, and become formidable competition.
Thanks for the comment BCB ... I like the tag name btw. I just want to know what's in the briefcase?Delete
I always appreciate the perceptions from readers. That's part of arriving at a conclusion so thanks for your perspective.
I think substitution in some regards as a function of time. While I don't think the use case for marijuana and fine wine is the same, if someone consumed both and came home and just wanted to vegetate and light up, it's unlikely there will be time for an expensive cabernet too.
FWIW - I don't buy the 'cannabis has fewer calories argument,' unless you lock the refrigerator and pantry and hide the keys too.
Thanks for the post, cannabis feels like an existential threat to the wine industry and it's nice to calm down by looking at some data (at least that is how I like to relax). You note that segmenting cannabis users is hazy business (pun-intended?), but I believe we should assume use numbers are under reported due to social acceptability bias. Is the average user really a 26yo white male? Or is this just the population with the least to lose by "coming out". While state law has changed, federal law has not, employers still have the right to write their own drug policy and social stigma persists, creating incentives for inaccurate self-reporting. For now wine has a strong advantage in terms of social acceptability (especially for women) and this may be worth leaning into for future industry messaging.ReplyDelete
Good questions. The average cannabis consumer question will get unrelenting answers depending on the data source. And you're right about 'coming out.' Survey data can be spurious as responders are less forthright.
Before digging in, I guessed the average was probably 40ish when considering CBD and medical uses, and in fact one reputable source that collect physical register sales like Nielsen scan data, shows the average age is 40. But that's unweighted for purchase behavior ... just looking for the middle age.
That same source when looking at the same question by volume purchased in states where it's been legalized is where I get "26 year old male" as the average consumer. That's the best I can come up with as accurate and without survey bias.
I talk about messaging and the future in the Annual Report. There is clearly work to do in the wine business.