Wine may battle cannabis for key consumers with legalization

Charles Day ( Charles.Day@rabobank.com ) is senior vice president and area manager of the North Coast Wine & Agriculture group of Rabobank, N.A. The content, views and opinions in this article are based, in part, upon research produced by RaboResearch Food & Agribusiness, a unit of Rabobank Group. The information contained herein is intended for general educational purposes only and is not to be construed as legal, tax, or financial advice. Please consult with your own legal, tax or financial advisor for guidance with your own particular circumstances.

Cannabis legalization is rapidly spreading across the United States. Nine states have legalized adult-use cannabis, i.e., recreational, and Michigan, which will likely have legalization on the ballot this November, is poised to become the 10th.

While the scientific evidence for exchanging alcohol with cannabis use is not overwhelming, existing research, including a recent paper produced by RaboResearch,“Three Reasons Wine Could Be Hurt by Marijuana Legalization,” does indicate that rising cannabis use will negatively affect the growth of beverage alcohol. RaboResearch asserts that the wine industry, in particular, should keep a close eye on its consumers as cannabis use continues to rise. The demographic likely to choose one product over the other might have more in common than you think.

OVERLAP OF CONSUMERS

A 2017 Marist/Yahoo News poll asked respondents, “If the federal government legalized cannabis would you... buy and use cannabis?” Every demographic group expected their consumption to rise, but the increase was especially significant among women and older, wealthier consumers, the core demographic groups of the wine consumer. The rise in expected cannabis use of this particular consumer group makes sense, as these individuals conceivably have the most to lose (i.e. mortgages, higher-paying jobs) if caught using/possessing illegal drugs.

Another reason why wine should be wary of cannabis: both products are competing for the health-conscious consumer. According to the same poll above, 72 percent of consumers believe that cannabis is safer than alcohol. Around 75 percent of wine consumers think that wine is healthier than other alcoholic beverages. Personal health is particularly important to older consumers. Medical cannabis is now legal in 29 states, and its association with medicine has undoubtedly assuaged consumer fears about cannabis use.

For weight-conscious consumers, a group skewing slightly female, cannabis has another advantage: it is calorie free. Research has repeatedly shown that cannabis use does not lead to an increase in body mass index (BMI), and is even correlated with a lower BMI. Heavy alcohol use, on the other hand, is consistently found to be associated with weight gain. The success of cannabis’ appeal to the health-conscious consumer, however, is based on the assumption that companies will market their brands as healthy, “lifestyle” products, highlighting cannabis’ health-related advantages over alcohol.

Finally, as we have seen to be true thus far, cannabis legalization is occurring in states with high wine consumption rates. According to beverage alcohol market analysis company IWSR, the average, per-capita wine consumption in states with legalized cannabis is 13.4 liters, while the average for states without legal adult-use cannabis is 8.2 liters. Over 30 percent of wine in the U.S. is consumed in states that have legalized adult-use cannabis. Conversely, only 22 percent of beer is consumed in states with legal cannabis.

LOCAL COMPETITION FOR RESOURCES

In Northern California’s famed wine growing regions, we have already begun to see large investment groups pour money into the purchase of vineyard properties for planned cannabis use. For example, San Francisco-based hedge fund Poseidon Asset Management was the lead investor last year in Flow Kana’s $3.5 million purchase of Mendocino’s historic Fetzer winery property. The company is converting the site into a new cannabis processing and distribution campus, where they are planning to also host tourists for consumption and education, similar to winery tasting rooms.

The growth of the industry raises questions regarding not only competition for consumers and land, but for employees. Cannabis and wine grape cultivation both require hand labor throughout the growing season. This can lead to labor shortages as the industries compete for the same full time and seasonal workforce. In both fields, qualified employees can make $15 to $30-plus per hour during harvest, depending on skillset and availability. Posing another challenge for the wine industry, cannabis harvest is typically less laborious and potentially more profitable.