Cannabis is increasingly outpacing alcohol in market growth, with a projected 20 million new users in five years and sales expected to hit $37 billion by 2027, as its legal status and consumer preferences change. The data also reveals a decline in alcohol consumption in regions with legal cannabis, with surveys showing public perception of cannabis as less harmful compared to alcohol and tobacco.
In the latest report from an international investment bank, it was revealed that cannabis is becoming a significant competitor to the alcohol industry. It is projected that in the next five years, the number of regular cannabis users will increase by nearly 20 million people, while the alcohol market will lose about two million consumers. Cannabis sales are also expected to reach $37 billion by 2027, as more states introduce legalization.
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Growing Market and Changing Consumer Preferences
An analysis by TD Cowen showed that cannabis sales reached $29 billion in 2023, accounting for about 11% of the alcohol market’s value. This marks a considerable increase from 4% five years earlier. Cannabis consumption is expected to grow at a rate of about 7% annually over the next five years.
The report, titled “Cannabis Beats Booze,” highlights that in the next 5 years, the cannabis category will gain 18 million new consumers, while the alcohol market will lose 2 million. Changing consumer preferences, particularly among young people, are contributing to this trend. TD Cowen’s study found that over two-thirds of cannabis users report reducing their alcohol consumption.
State-Level Market Developments
The report also notes that developing cannabis markets in individual states, as well as upcoming regulations in states that have recently legalized cannabis, like Minnesota and Ohio, will contribute to achieving sales of an estimated $37 billion by 2027.
Alcohol Industry’s Response to Market Changes
The analysis points out that in the short term, alcohol companies are likely not to face problems adapting to changing consumer trends. However, in the medium and long term, some brands may face competitive challenges.
The report emphasizes that “alcohol will continue to underperform in states with legal cannabis,” and beer sales are most at risk. The average number of drinks consumed on a single occasion is lower in states with legal cannabis, which is partly attributed to cannabis’s influence on alcohol consumption.
Canadian Market as a Case Study
TD Cowen’s report also analyzes the Canadian market, where cannabis was legalized nationally in 2018, as a “useful case study.” It was found that Canadian cannabis sales now account for 20% of the alcohol market’s value.
Impact of Legalization on Other Substance Use
Furthermore, a study published last month showed that legalization of cannabis might be associated with a “substitution effect,” with young adults in California “significantly” reducing their use of alcohol and cigarettes following the reform.
Survey data from Gallup in August also indicated that Americans consider cannabis less harmful than alcohol, cigarettes, e-cigarettes, and other tobacco products.
A separate survey conducted by the American Psychiatric Association (APA) and Morning Consult in June showed that Americans perceive cannabis as much less dangerous than cigarettes, alcohol, and opioids, and also less addictive than each of these substances, as well as technology.
State-Level Market Trends Confirm Analysis
The state-level cannabis market also confirms TD Cowen’s analysis. For example, in Michigan, cannabis sales surpassed purchases of beer, wine, and spirits combined in the last fiscal year, according to a new report from an independent state parliamentary fiscal agency.
Similarly, in Illinois, legal cannabis brought in $451.9 million in the last fiscal year – about $135.6 million more than alcohol.
In Colorado last year, cannabis generated more revenue than alcohol or cigarettes, and nearly as much as alcohol and tobacco combined. Similar milestones have been achieved in Arizona and Washington State.
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