XPost: alt.support.marijuana, alt.politics.economics, seattle.politics
XPost: or.politics, alt.california
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Will Marijuana Industry Overtake Beer As Legalization Spurs Innovation?
Marijuana industry
Big money is pouring into the marijuana business market, giving
struggling beer and tobacco companies an avenue for growth. (IBD
illustration)

BILL PETERS9:04 AM ET
On the leading edge of the flourishing marijuana industry is MedMen's
West Hollywood cannabis dispensary, which resembles an Apple (AAPL)
store crossed with an upscale ski lodge. Touch-screen tablets on large,
hazelnut tables display the buds' names and their prices. Clear,
snowglobe-sized pods containing pot samples have a small latch at the
top that customers can open to take in the fragrance. A staff member,
one of many in a red MedMen T-shirt, relays customer orders via a small,
clip-on microphone to a pickup counter.

Big money is pouring into the legal cannabis market, potentially
steering more U.S. consumer spending toward weed. And as the marijuana
industry evolves into everyday consumerism, struggling beer and tobacco
companies might find an avenue for new business in some of the
increasingly popular products in Med Men's store: the cannabis drinks
stacked in a refrigerator near the corner, or the sleek vaping devices
and tins of prerolled joints, showcased in the tables' inset,
fluorescent-lit displays.

The trend has spurred Constellation Brands (STZ), the parent of Corona
beer, to place a bigger bet on cannabis drinks. The creator of Blue
Moon, the wheat beer owned by Molson Coors (TAP), wants to make THC
beer. Former beverage execs have switched to the marijuana business. As
for big tobacco companies, vaping devices alone could hand them a huge
chunk of the pot market, a top Wall Street analyst says.

Such moves face obvious obstacles. Pot is still federally prohibited,
forcing shops to deal strictly in cash, even as California, the biggest
marijuana market on the planet, and other states break away to legalize
recreational use. Mixing alcohol with THC is also illegal. Less obvious
obstacles include creating a cannabis drink that tastes like the
alcoholic beverages we know and not, say, a weed fiber supplement.

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Still, Andy Thomas, CEO of Craft Brew Alliance (BREW), whose beer brands
include Red Hook and Kona, told IBD that pot is "potentially one of the
most disruptive factors" to the beer industry, whether it's smoked,
vaped or swallowed.

"I think regardless of what kind of path you take, you can't help but
say it's going to be another one of those forces that changes the way
people socialize," he said.

"You have to look at it as an opportunity," he added later. "Otherwise I
think we're kind of putting our head in the sand."

Marijuana Industry As Big As Beer?
This month, Cowen & Co. estimated U.S. marijuana business could reach
$75 billion by 2030 if fully legalized, indicating explosive growth. Its
forecast two years ago put 2026 sales at $50 billion. That projection
also compares with some estimates for current annual cigarette sales of
$77 billion and beer sales of $110 billion, both of which are on the
downtrend.

Baby Boomers, seeking pain relief, are already buying more pot in
general. So are more women, as cannabis products become easier and safer
to buy in legal states. A report from the marijuana delivery platform
Eaze, which operates in California, found that monthly marijuana
spending last year among its thousands of users increased to $179-$189
from $125-$152 in 2016. An average-size pot dispensary draws more
average yearly sales per square foot than a Whole Foods, and slightly
less than a Costco (COST), research from Cowen and Marijuana Business
Daily has shown.

As the marijuana business shakes off threats from the Trump
administration, MedMen, which has stores and other facilities in
California, Nevada and New York, is trying to undo the stereotype of the
pot dispensary as a windowless, cavernous weed deli.

Marijuan store products
Cannabis stores are mimicking the look and feel of Apple stores as
legalization brings in new customers. (Elaine Low/IBD)
The company's stores have a bright, browsing-friendly atmosphere with
staff who recommend cannabis products based on customers' preferences.
In MedMen's store in downtown Los Angeles, shelves of creams, pet meds
and Gummi candy line one wall. Near the checkout, wooden bins loaded
with joints, packs of tea and other edibles, make up what spokesman
Daniel Yi likened to an impulse-buy display.

"Just the same way you shop at BevMo for your favorite Cab, the consumer
wants to experience the store," he said during an interview in March.

He said then that cannabis products that come in alternate forms —
rather than the dry stuff people have been grinding, packing and rolling
themselves for generations — could soon make up a majority of legal
cannabis sales.

Amid the influx of new marijuana users and shifting consumption habits,
alcohol and tobacco companies have particular reason to take notice.

As of 2016, the monthly rate of binge drinking was around 13% lower in
states that had fully legalized pot than in states where it was illegal,
Cowen's research this month shows.

Meanwhile, Canada has been grooming itself to be a global leader for the
cannabis industry. Toronto-based Cronos Group (CRON) has listed on the
Nasdaq. Others, like Aurora Cannabis and Canopy Growth Corp., plan to
follow.

"Ultimately, I see no reason why the global cannabis industry won't be
as large as the brewing industry," said Cam Battley, chief corporate
officer of Aurora.

Tobacco, Beer Companies Eye Cannabis Market
However, tobacco companies like Altria Group (MO) and British American
Tobacco (BTI), which includes Reynolds American, might have an easier
time carving a way forward.

"Vaping is one of the fastest-growing segments in both nicotine and
cannabis," Cowen analyst Vivien Azer said in 2016. "Upon federal
legalization, big tobacco could leverage its expertise to explore the
legal cannabis market through vapor."

Marijuana store products
Marijuana vaping products on display at MedMen. (Elaine Low/IBD)
She estimated then that big tobacco companies could nearly double their
underlying growth via the cannabis market and grab around a fifth of the
overall share of the marijuana industry by 2036 in a fully-legal U.S.

Rather than try to snuff out the marijuana industry threat, beer giant
Constellation agreed in October to take a minority stake in Canopy
Growth. Bruce Linton, CEO of Canopy, said the investment followed nearly
a year of conversations. Canopy, he said, was inspired to reach out
after Constellation expressed interest in the cannabis market.


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