The debate and conversation about cannabis is changing. And changing fast. No doubt driven by what is happening in North America. First with the legalisation of cannabis use in Canada and the fact 10 US states have followed suit, including California. The UK has now agreed to legalise the medical use of cannabis and there are an increasing number of legal CBD cannabis products in the market, across health and beauty, oils, coffees and now soft drinks. So what, if anything, does all this mean for the drinks industry? Richard Siddle looks at the key factors and trends we all need to know about.
With a market worth billions in potential extra tax revenues it is not surprising that governments around the world are looking closer at legalising cannabis. First for medical and then personal use. But what does it mean for the drinks industry?
Cannabis. Just that one word used to be as toxic as, well, Brexit. Bringing it up in polite conversation and you were guaranteed to polarise opinion.
For decades the issue of decriminalising cannabis has been bubbling under the surface, occasionally having its moment as part of a latest government review. But time and again cannabis has been put back in its place, or for some, handed over to criminals to do what they want with.
But the debate around cannabis is now very different. The pendulum has swung and the momentum and debate around cannabis appears to be moving very much towards legalisation.
Much of which is being influenced by what is happening around the world. Particularly in North America. Last October Canada became the biggest country to legalise the personal use of cannabis. Up to 10 US states, most notably California, have followed suit with three more, including New York, in the pipeline to do so.
In Europe things are moving fast too. Whilst it is still illegal to sell cannabis for commercial purposes in Spain you are now allowed to grow it and use it for personal use. There are now 100s of private member cannabis clubs in major Spanish cities that allow the legal use of cannabis. Portugal and Luxembourg are on the road to decriminalising it altogether and Belgium allows you to have up to 3gm of cannabis for personal use.
And we all know about cannabis, Amsterdam and the Netherlands.
Attitudes are changing
The situation is moving fast in the UK as well. Last November, under the radar of Brexit, the Home Secretary, Sajid Javid, introduced new laws to allow the medicinal use of cannabis in the UK.
The focus is now on allowing personal use. So much so that the Evening Standard is currently running its own “Cannabis Debate” initiative with a series of articles exploring the issue and what it could mean for the country.
It says public opinion is very much in favour of legalising cannabis. At least in London where 63% of its readers said they were in favour compared to 47% for the rest of the country. With 30% against and 23% undecided, according to its own commissioned poll.
It’s perhaps not surprising the government is starting to look at what other countries are doing. For whilst cannabis is currently the UK’s most widely used illicit drug with an estimated 3 million users. It is also a market worth an estimated £2.5 billion. A sector that, if made legal, could bring in potential additional tax revenues of £1 billion, according to the Institute of Economic Affairs.
Statistics that sit very comfortably with the public, say the Evening Standard. Its research shows that 72% of people found it “persuasive” that legalising cannabis could take £2.5 billion out of the hands of criminals and bring this money into the regular economy, whilst 68% approved if the extra £1bn of tax revenues could be spent on public services.
Drinks industry concerns
All of which should be a chief concern for the drinks industry. It has already sent off alarm bells across the major drinks giants in the US and Canada. Throw in research from a respected US investment house, Cowen, that estimates 80% of people lower their alcohol use when using cannabis and you can see why they are worried.
Particularly when you look at the numbers being quoted for the potential size of the legal cannabis market. BDS Analytics, a specialist US cannabis data insights business, claims the global cannabis market is going to increase by 39% to $17 billion in 2019 alone.
Clearly all eyes are on the US and the big steps being made there to legalise cannabis in more states. BDS says the US cannabis market was already worth $11bn in 2018, up from $9 billion in 2017, and on track to hit $23bn by 2022. Euromonitor is not far behind in its estimates and puts the legal US marijuana market at $20 billion by 2020.
It’s why we are seeing so much interest in the major drinks companies in cannabis. Constellation Brands has been the biggest mover and last year completed a $4billion stake in Canada’s biggest player, Canopy Growth, which means it now owns 37% of the business. That was on top of an initial stake of $179m it made in the business in October 2017.
Molson Coors is another major drinks player taking cannabis very seriously. Being Canadian based it is closer to it than most as Canada was one of the first major markets to legalise cannabis across the country from October last year. It has signed a joint venture with Canadian cannabis producer, Hexo, to develop “non-alcoholic, cannabis-infused products” and sees cannabis as a $3bn potential opportunity in Canada alone.
But are drinks companies right to be so worried about cannabis that they feel they need to be inside the tent and looking to change their business models to compete?
There are those who can’t see past cannabis as the industry’s biggest threat, and there are those who think it has been blown out of all proportion. But the market is so new it’s hard to make strong claims whatever side of the fence you are on.
It’s all about CBD
There are, though, already hundreds of cannabis products in the market. But only those that are made from CBD (from cannabidiol) which does not have the psychoactive properties associated with cannabis.
The health and beauty sector in particular has cashed in on CBD and there are all sorts of CBD-based products from body creams to lip balms.
Leading US cannabis players such as House of Jane, that produces a range of ‘cannabis-infused’ coffees and teas drinks, claims it has the potential to become “the Starbucks of cannabis” and has a $48bn market to go after in the US.
The Centre for Medicinal Cannabis claims the market for CBD products in the UK could be as many as 1.3m people and could be worth £1bn by 2025. The Cannabis Trades Association UK claims the number of cannabidiol consumers increased from125,000 in 2017 to 250,000 in 2018.
There are also now an increasing number of CBD drinks products coming into the market which clearly tap right into the growing demand for non-alcoholic and healthy drinks amongst so many consumers.
The key factor to take into account when talking about cannabis-related products is that they can’t be infused with cannabis that contains THC (tetrahydrocannabinol) which is the addictive element of cannabis.
Rules and regulations
Any wine or drinks producer looking to cash in and make the most of cannabis has to tread extremely carefully as there are, not surprisingly, extremely tight rules about what they can do.
Let’s look at the US. Under Californian legislation is not legal to grow grapes, make wine and grow cannabis on the same property. It is possible for one business to hold licences to make wine (an Alcoholic Beverage Control licence) and a separate one to grow cannabis (under MAUCRSA), but they have to be run separately and certainly not on the same property.
US legal firm, Hinman & Carmichael LLP, is quoted in Forbes with this very clear advice. “Alcohol and cannabis products need to stay in their own lanes – they need to be either cannabis beverages or alcohol beverages, not both,” said partner, Rebecca Stamey-White.
Open door to consumers
The average US consumer appears to have made up his mind, according to the latest data. BDS, for example, says 80% of Americans aged 21 and older approve of legalising cannabis. But approving of it is another thing from actually buying cannabis when it is legal. Which makes BDS’ follow up research particularly interesting when it claims 32% of those living in US states where it is possible to use cannabis for either personal or medical use had consumed cannabis in the previous six months.
The reason, arguably, so many interested parties in the wine and wider drinks industry are so concerned about the take up of legal cannabis is the average demographic of those people most likely to be regular users.
BDS Analytics says the average cannabis consumer is 42 years of age, likely to be male and has a high income and college education. A similar study by the Miner and Co Studio says the average cannabis customer is also male (65%), but a little a younger at 30 years of age, and were earning more than $75,000 a year.
Ease, which produces a number of cannabis products in the US, says recent research of 4,000 of its 450,000 regular customers, revealed that that older consumers, above 50 years of age, are willing to spend on average $95 a month on cannabis products compared to $89 for Generation X-ers users, and $72 for millennials and $62 for Generation Z.
Strikingly a large proportion of these users are not looking for the classic high from marijuana. But instead see these products as helping them live healthier lives. Which mainlines straight into one of the biggest issues facing the drinks industry. The backlash against booze and all its perceived and heavily publicised issues around health, and diet.
Miner & Co found nine out to 10 of those cannabis users it polled said they liked cannabis products as it allowed them to lead better, healthier and mindful lives. Crucially less than a third actually wanted to get the feeling of being ‘stoned’. Instead 90% wanted to use cannabis as part of a wider wellness programme, 88% see the ‘cannabis culture’ as being overall healthy and 80% do not associate themselves with the typical “stoner” cannabis user.
All of which makes the timing of the first drinks industry event to look seriously at the ramifications of cannabis very timely. Cannabis Drinks Expo, which takes place in San Francisco on July 25, is the first of its kind. A summit dedicated to discussing, analysing the overall cannabis market, its potential growth areas, and both the threats and challenges it poses to the wine and wider drinks industry.
Crucially it will also be the first time that many of the major cannabis players will have shared the same conference space with leading wine brands and producers. So equally a chance to meet, network, exchange views and business cards and test the waters, try each other out and see just what the other side is thinking about the other.
The event will look at what are the cannabis-infused drinks brands most likely to make an impact, the issues around marketing, promoting and distributing cannabis products and the legislative issues that everyone in the sector needs to be aware of.
One of the straplines for the conference is “Cannabis is the New Category”. No question mark needed. Which shows how far the industry has come in such a short period of time.
It makes perfect sense to be holding such an event in California as that is where so much of the business growth, entrepreneurs and business community that has built up around cannabis is located.
It has also been legal since January 2018 for businesses to start growing, producing and selling cannabis in California under the Medical Marijuana Regulation and Safety Act (MAUCRSA). That ruling changed the agenda as it opened up cannabis from just being used for medicinal purposes, but can now be used in California for recreational use.
There are now estimated to be close to 3,000 marijuana businesses in California alone and a market with nearly $850m a year.
So it’s not surprising the wine and drinks industries – as well as our politicians – are taking cannabis so seriously. Both as a threat and an opportunity.
* Cannabis Drinks Expo takes place on July 25 at the South San Francisco Conference Center. To find out more click here.