New York Governor Renews Push for Cannabis Legalization

Two trends—legal cannabis markets expanding and millennials drinking less—are converging, with major implications for both the cannabis and alcoholic beverage industries, and perhaps society more generally, if cannabis gradually supplants alcohol as the intoxicant of choice.

For several years, millennials and Gen Z adults in the U.S., Canada and Europe have been moderating how much and how often they drink, which has driven alcohol beverage brands to reinvent their offerings Global beer brands including Peroni, Heineken, Guinness, Budweiser and, perhaps most remarkably, Leffe, brewed by Belgian monks since 1240 (but now owned by Anheuser-Busch InBev), have responded by introducing low- or zero-alcohol beers. Diageo, maker of Johnnie Walker, Crown Royal, Ketel One vodkas, Captain Morgan and other well-known spirits, recently acquired Seedlip, a line of non-alcoholic distilled spirits based on centuries-old recipes, for $300 million.

It is unclear how access to legal cannabis relates to declines in drinking by millennials, but there is evidence of a correlation. CDC data analyzed by the research firm Cowen showed binge drinking rates were 13 percent lower in states with legal cannabis compared to prohibition states, and that the rate of first-use of cannabis by adults increased as binge drinking declined. Based on that data, Cowen projected flat or slow growth for alcohol brands while increasing its projection of cannabis market size from $50 billion in 2026 to $75 billion in 2030.

It is worth noting cannabis-infused beverages are a relatively small slice of the $11.3 billion in U.S. cannabis sales in 2018. Fortune Business Insights estimated global sales of cannabis-infused beverages totaled $174 million in 2018. The continuing federal prohibition of cannabis has kept risk-averse global brands from investing in the U.S. market, which has left the market to regional brands such as Lagunitas’ cannabis-infused beverages in California.

The legalization of cannabis edibles in Canada, a nation that has long been home to some of the world’s largest and best-known brewers, drastically changed the prospects for infused beverages. Brewers that have already developed zero-alcohol alternatives to their traditional offerings are now preparing cannabis-infused versions of those products. Sales became legal in Canada in December and are expected to ramp up over the course of 2020.

The entrance of global beverage brands into cannabis, with their technical and marketing expertise and access to capital, may have far-reaching consequences. Developing a zero-alcohol, cannabis-infused beverage is not a simple project. Cannabis has a strong flavor that makes infusing wines, other than sangria and some sparkling wines, difficult. Beers, with their stronger flavors, mask the taste more easily. The established process for removing alcohol from beer, called “arrested fermentation,” adversely affects the taste and texture.

Beyond the aesthetic aspects of the beverage is the question of dosage and response. The functional characteristics of consuming cannabis through digestion pose other significant challenges. Inhalation of cannabis smoke causes rapid intoxication that “peaks” relatively soon and, assuming no more consumption, recedes at a predictable rate, which is similar in cadence to drinking alcohol. However, when cannabis is digested, the intoxicating effects do not begin for an hour or more. This creates the risk of people unsuspectingly consuming excessively because they enjoy the taste and feel no effects. Beverage brands have solved this “onset” problem. The cannabis beers coming to the Canadian market are infused with precise amounts of distilled THC that takes effect, peaks and recedes at the approximate rate and pace of alcohol.

Rising sales of zero-alcohol adult beverages indicate adults who want to drink less still enjoy “getting together for drinks.” Infusing these same zero-alcohol products with THC opens an enticing new entry to cannabis for potential users seeking an alternative to alcohol that, unlike smoking or vaping, is familiar. This may have a positive effect on new customer retention, if the first-time THC consumer can simply purchase cannabis-infused versions of products they already enjoy. The customer can replace alcohol with THC without replacing drinking with smoking or vaping.

It is uncertain how, when or even if the major Canadian brands will attempt to market their THC-infused beers in U.S. states where they are legal. Cannabis (other than industrial hemp) remains a Schedule 1 drug in the U.S., so infused beers cannot be exported into the U.S. or shipped between U.S. states if they are brewed here. Brands may choose to bide their time until U.S. law changes. Nonetheless, the next wave of THC-infused beverages creates the exciting prospect of alcohol with its long list of negative health and social consequences gradually being supplanted by cannabis.

Hershel Gerson is the CEO of ELLO.