Surging Cannabis Use Drags Down Beer Sales To Its Lowest Ebb, Says Top Analyst
In her 2019 outlook for the legal cannabis industry, top analyst Vivien Azer of Cowen & Company, made several intriguing assessments and predictions. Among her more interesting finding was that 2018 was the worst year for beer sales and it’s all thanks to rising use in cannabis.
Unfortunately for beer brewers, it doesn’t look like 2019 will be any better. Says Azer:
“As we look ahead to 2019, with more medical and adult use cannabis markets coming online (e.g., Massachusetts, Ohio, West Virginia, North Dakota among others), we would expect another
challengedyear for beer, driven by cannabis substitution.”
No wonder Corona beer brewer Constellation Brands was so bullish about investing $4 billion into Canopy Growth last summer. It was a sink or swim strategy.
Speaking earlier this week to journalists in a special confab where she held forth on her 2019 prognostications for the legal marijuana industry, Azer made other very cogent points. She upgraded her 2030 forecast for U.S. cannabis sales to $80 billion, a leap from $75 billion. “Our increased confidence reflects the bigger than expected increases that we continue to see for reported cannabis incidence among adults,” she said in a memo released to press.
Canada’s legalization of cannabis had a “rocky start,” due to two factors: inadequate inventory and no stores in Canada’s largest province Ontario were open to usher in this milestone. However,there will be a turnaround in the new year . With more Canadian stocks expected to go public in 2019, more stores slated to open and the increased availability of inventory becoming a reality, the deficiencies of the past year should be greatly diminished. Because of these factors, Azer expects adult use sales (at retail) to total C$3.1 billion, which include taxes.
As for the high-profile Canadian stocks, such as Canopy Growth (WEED: TSE), Tilray (TLRY: Nasdaq) and KushCo Holdings (KSHB: OTCMKTS), Azer said they are expected to perform strongly for 2019.
“For WEED and TLRY, we should finally start to see the true benefits of adult use sales, and the lapping of upfront investments made in calendar 2018 to scale up ahead of adult use,” she predicted. “For KSHB, we expect a fifth consecutive year of
triple digitgrowth as the company benefits from continued strong growth in California and Nevada, in addition to the new market opportunity in Massachusetts.”
Now that the Farm Bill, which provides subsidies to farmers and legalizes hemp, has passed, CBD will continue to be a red-hot cannabis segment.
“We expect the category could generate $1.6 billion in revenues over the next year or two,”
said Azer. But this will depend on the FDA and
“the pace of retail acceptance.”
On the adult-use legalization front, New York, New Jersey and Illinois are “key states to watch.” And, in the medical quarter, Azer expects North Dakota, Louisiana and West Virginia to come online while Ohio, Florida and Pennsylvania will be other key states to watch.
In current older adult-use markets, such as Colorado and Washington, sales have slowed the past few years but Azer expects them to still grow in 2019. Conversely, Nevada showed robust growth in 2018, surpassing state expectations while California underperformed. Azer did express a sanguine outlook for the Golden State, expecting it
“to progress towards a more favorable adult- use
framework, helping to pull consumers away from a very well-established illicit market.”
A managing director at Cowen, Azer is a senior research analyst specializing in the beverage, tobacco and cannabis sectors. She is widely considered to be the first senior Wall Street analyst to cover the emerging cannabis sector. Prior to joining Cowen in 2014, Azer spent over nine years at Citi covering consumer staples.