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The ongoing wave of cannabis legalization is good for pot companies, but the trend could be a downer for alcohol stocks, warns DataTrek.

The back story. Cannabis stocks tend to be volatile, but that hasn’t stopped a wave of enthusiasm for the sector on Wall Street. Other consumer staples companies are also looking to get exposure to the fast-growing market (even as cannabis companies are diversifying themselves).

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The road to federal marijuana legalization may be a longer one in the U.S. than in Canada, but plenty of states from New Jersey to Washington are moving ahead with their own approvals. Still, it has been an uneven year for performance, with stocks like Aurora Cannabis (ticker: ACB), Cronos Group (CRON), and Canopy Growth Corp. (CGC) notching high double-digit gains, while others, like Tilray (TLRY) and Intec Pharma (NTEC), struggle to make headway in 2019.

What’s new. DataTrek’s Jessica Rabe took a look at the latest data from communications and public relations firm Quinn Thomas’ marijuana survey, writing that the research shows that marijuana users aren’t the stoner tropes long depicted in popular culture, but rather tend to mirror typical middle-class people. That could mean that the market is bigger than just a small segment of the population.

In addition, she notes that more than a third of marijuana users drank less alcohol post-legalization—a “significant statistic” that encompasses regular, occasional, and infrequent users.

Looking Ahead. Rabe sees three main takeaways from the study. First, legalization has led to increased marijuana use (even if the study doesn’t account for the continuing black market). That is good news for pot companies, although less so for beer, wine, and spirit makers.

That is perhaps the biggest message for investors in more traditional areas of the stock market, as “this important substitution effect...has a meaningful impact on public liquor companies. Many have already been vocal about this risk. Liquor and beer sales are slowing or declining and further marijuana legalization across the U.S. will likely accelerate these trends.”

While plenty of companies, like Constellation Brands (STZ) and Molson Coors (TAP), have made investments in cannabis, Rabe warns that those who have not may have a tougher fight ahead.

Finally, she notes that for many people, alcohol is still their substance of choice for going out, while marijuana is associated with staying in. That’s not surprising given the legal risks of public pot use in many locations, but it could change along with laws that lead to a more normalized use of cannabis. Thus, alcohol makers could face an additional headwind if pot achieves an equal playing field in public.

Write to Teresa Rivas at teresa.rivas@barrons.com