Business is booming in the alcohol industry, with the most recent official figures showing that Canadians spent a whopping $22.1 billion on alcoholic beverages in 2016—an increase of 3.5% from the previous year. While Big Alcohol continues to reign supreme in Canada, there’s one thing that has the potential to impact the performance of the alcohol industry: cannabis.
Can Alcohol & Cannabis Peacefully Coexist in Canada?
Canada’s soon-to-be legal marijuana market is expected to be a massive economic success. In May 2018, Canadian Imperial Bank of Commerce released a report predicting that legal cannabis retail sales will approach $6.5 billion by 2020. For context, this means that cannabis will outsell spirits in terms of dollar value and come close to outselling wine.
Of course, this wouldn’t be cause for concern for alcohol companies if cannabis and booze could operate harmoniously, but current research out of the United States suggests that this may not happen.
A study from the University of Connecticut found monthly alcohol sales have fallen by 12.4% in American counties where cannabis is legal. Other investigations show that cannabis is commonly used as an alcohol substitute.
With these facts in mind, it’s little wonder that major alcohol companies are looking to minimize their losses and make the most of the opportunities the cannabis industry seems to offer.
Big Alcohol Enters the Marijuana Market
Alcohol companies are already dipping their toes in the waters of Canada’s legal cannabis market—in fact, some are diving right in.
In October 2017, Constellation Brands, a New York-based company that distributes and markets more than 100 brands of alcohol including Corona beer and Svedka vodka, made its first foray into the cannabis world. The company declared its plans to pay $245 million for a 9.9% stake in Ontario-based Canopy Growth Corp. This marked the first time a major alcohol company had formally entered the cannabis industry—and would prove to be an omen of things to come.
Fast forward six months, and another major alcohol company announced it had its sights set on the marijuana market. In April 2018, Lifford Wine & Spirits, one of Canada’s leading alcohol distributors, set up a subsidiary called Lifford Cannabis Solutions to help licensed producers (LPs) distribute its products to government stores.
A month later, Great North Distributors, a Canadian subsidiary of Southern Glazer’s Wine & Spirits, announced a partnership with Aphria, one of the largest Canadian LPs. Under the agreement, Great North Distributors will serve as Aphria’s exclusive distributor, and be responsible for representing Aphria products to retailers throughout Canada.
Given that Southern Glazer’s Wine & Spirits is the largest distributor of alcoholic beverages in the U.S., it’s likely that the partnership will have a noticeable impact on an industry that’s still very much getting off the ground.
Then, in August 2018, Constellation Brands again made waves in the cannabis world when it announced the biggest investment the cannabis industry has ever seen. Constellation Brands plans to build on its original venture by investing an additional $5 billion into Canopy Growth Corp, giving it a 38% share of the company.
The investment will provide Canopy Growth with the resources it needs to scale up its global operations for medical cannabis and lay the foundations for emerging recreational marijuana markets.
"Through this investment, we are selecting Canopy Growth as our exclusive global cannabis partner," said Constellation Brands Chief Executive Officer, Rob Sands, in a press release.
"Over the past year, we've come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy's market-leading capabilities in this space. We look forward to supporting Canopy as they extend their recognized global leadership position in the medical and recreational cannabis space," he continued.
The Downsides of Big Alcohol in the Cannabis Industry
Alcohol companies are poised to enter the cannabis space with decades of professional marketing experience, robust distribution infrastructure and deep pockets. It goes without saying that these companies will have a profound effect on the cannabis industry when they enter the market.
But whether the effect will be a positive one remains to be seen.
Critics say that Big Alcohol entering the cannabis industry will result in a corporate monopoly. One of the biggest barriers of entry to the legal marijuana market is access to capital, as banks are still reluctant to issue loans to cannabis companies.
Many alcohol companies have enormous amounts of capital at their disposal, allowing them to easily establish their own cannabis operations or buy out existing ones. About 75% of LPs in Canada believe the cannabis market will be dominated by a few big players in the near future, according to research from Ernst & Young.
If these predictions come true, it could result in smaller cannabis producers being forced out of business. And it could also have long-lasting ramifications if Big Alcohol lobbyists were able to influence any upcoming regulations or laws in the cannabis industry.
The Benefits of Big Alcohol in the Cannabis Industry
Many people will be opposed to Big Alcohol getting involved with cannabis, but the fact is the cannabis industry may stand to benefit just as much from the arrangement.
Alcohol companies are entering the space with proven distribution experience and infrastructure—critical assets that the burgeoning cannabis industry needs to be able to satisfy for future demand.
Another plus is that alcohol companies bring to the table extensive marketing experience in promoting consumer brands, which may help strengthen cannabis brands that, until now, have been restricted to marketing to medical marijuana patients.
The merging of these industries is also exciting for consumers. It’s possible that we’ll see more funding being allocated to cannabis research. This could pave the way for the development of new medicinal as well as wellness-focused cannabis products.
The Future of Big Alcohol & the Cannabis Industry
The alcohol and cannabis industries have a lot in common. Both have faced a lot of criticism, both have felt the effects of prohibition, and both have the potential to be incredibly profitable. But whether the two can peacefully exist side by side remains to be seen.
If ventures such as the Constellation Brands investment and the Southern Glazer’s Wine & Spirits and Aphria partnership are successful, it’s likely that we’ll see the overlap between Big Alcohol and cannabis grow in the years ahead.
Photo credit: ELEVATE