While there are far fewer cannabis users than consumers of alcohol in the world, cannabis use will eventually become more common than smoking cigarettes, Shane MacGuill, head of tobacco research at Euromonitor, predicts.
The cannabis market (legal and illegal) sits at roughly $150bn globally, more than a third the size of the alcoholic drinks category, representing a large revenue opportunity, considering it “remains largely within an extremely limiting grey market without opportunities for branding and without opportunities for actually expanding,” senior drinks analyst Spiros Malandrakis said.
“I think another driver or rationale for why the tobacco and alcohol industries might want to move into a legal cannabis environment is declines in their own industries,” MacGuill said.
Focus on Canada
According to MacGuill and Malandrakis, Canada offers the “most immediate” opportunity for a convergence of the cannabis and alcohol industries despite being half of the market size of the US. Canada, which has legalized medical marijuana across the country, is also set to legalize recreational marijuana by the end of 2018.
Canada is also home to an emerging corporate environment for cannabis with companies such as Canopy Growth Corp. (which received investment from Constellation Brands last year), Aurora, Terra Tech, and Kush Bottles.
“The US has much bigger potential through the sheer scale and scope of the population, but it’s a very fragmented market currently,” MacGuill said.
“The lack of federal regulation makes it very difficult to invest in, if not 'uninvestable,' but it does contain some of the bigger individual markets (i.e. California and Nevada).”
California is one of the most important spaces in terms of GDP growth with one in three 18- to 25-year-olds in the state saying they have tried or experimented with cannabis over the past year, according to Euromonitor.
“This is a huge percentage,” Malandrakis said. “It is up to the alcohol industry to embrace this opportunity without fear and prejudice.”
Cannabis consumer products
Malandrakis pointed out that the concept of fully hybrid products that would combine alcohol and the psychoactive components of cannabis are a long way off, but instead, consumers will dip their toes in products that combine cannabis flavor profiles or wording on its packaging.
“The language is already happening,” Malandrakis said. “Slang, semantic associations, ‘nose’, and ‘aroma’… All of these are copy and pasted from the alcoholic drinks playbooks.”
DC Brau’s “Smells Like Freedom” IPA has packaging designed to support the legalization of marijuana and Humboldt Distillery’s cannabis-infused vodka features herbaceous, earthy notes meant to mimic marijuana. And both products are legal on the federal level because they do not contain THC.
The most advanced products on the market have been wine fermented cannabis, therefore eliciting a psychoactive effect.
“Hybrid products like that will probably be the last stage of the evolution of the category and we’re going to have many more stages before that,” Malandrakis said.
“But the fact that it’s already out there without the legal framework to support it, showcases the momentum being built and ready to be used in the category.”
Malandrakis added that early signs of cannabis and alcohol pairings have been taking place to add value to the category as well as cross pollination of hops and the cannabis plant in beer brewing.
"Craft beer, small-scale wine and artisanal spirits appeal to a similar sense of 'connoisseurship' to premium cannabis strains, and can be used to bridge the gap between the two industries through hybrid products and cooperation," he said.