Political Analyst – Derek Thomas
Americans, especially young ones, are losing interest in beer and Big Beer might be a little freaked out. Beer penetration fell by 1% from 2016 to 2017 while both wine and spirits didn’t move. In fact, a recent report by CNBC highlights Goldman Sachs’ downgrade of both The Boston Beer Company and Constellation Brands due to the fact that millennials just aren’t drinking that much beer. Not to mention that, according to the same report by CNBC, beer has already lost 10% of its market share from 2006 to 2016.
Obviously Big Beer has taken notice of the decline and the simultaneous meteoric rise of marijuana. As legalized marijuana spreads across the US, Big Beer CEO’s are watching the estimated billions in revenue and of course want a piece of it.
It may not seem apparent at first, but legal marijuana is actually pretty bad news for Big Beer. A report by cited by Forbes and published by Cannabiz Consumer Group estimates that Big Beer could stand to lose more than $2 billion in retail sales to marijuana.
The Industry giants, Constellation and AB InBev are fiercely protective of the market. To show just how protective they are, one only needs to take a look at Craft Beer to see how the industry deals with threats. Between 2009 and 2015 craft beer grew from under 10 million barrels of beer in sales domestically to over 25 million. Simultaneously, brands like Budweiser and Bug Light were in decline. Big Beer went on a buying spree, gobbling up thousands of small independent craft brewers.
And craft beer just scratches the surface in terms of competition. Wine, liquor, and now weed are going to continue to take market share away from beer industry giants.
And just like craft beer, Big Beer isn’t going to sit idly by and watch their market share – and revenues – continue to drop. The largest example of this we have seen so far was this past Monday when Constellation Brands (the third largest beer company in the US) announced it had acquired a 9.9% stake in Canadian cannabis holding company Canopy Growth. Canopy Growth is one of the biggest names in the legal weed industry, with a market cap of roughly $2 billion.
“Our company’s success is the result of our focus on identifying early-stage consumer trends, and this is another step in that direction,” Constellation Brands CEO Rob Sands said in a statement.
It’s probable that other beer giants will get in on the action soon. And it will likely be in a variety of ways beyond traditional investing.
For example, earlier this year, Lagunitas — a craft beer brand acquired by Heineken — began testing the waters with a marijuana-infused beer.
Legalized weed sales are likely to grow at least at the same rate as did the craft beer explosion of the past decade. Just as Big Beer companies began investing in craft beer in the face of growing competition, marijuana investments and acquisitions are likely to follow.
Source: Technical 420