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February 1, 2019

Impact to Wisconsin Brewers with Legalization of Marijuana

After hearing Milwaukee’s MillerCoolers communicated this year to all employees that there will be no bonus or raises for 2019 I began to wander if profits were down due to the impending legalization of Marijuana. Here is what I found researching:

In conjunction with cannabis legalization is the creation of countless jobs that are associated with the marijuana industry. How will that impact Wisconsin employment? Not only are jobs directly created with the intent of producing, manufacturing or selling marijuana as a plant, but there are now impending career opportunities within local companies making edibles, topicals or concentrated waxes and oils. There will be increased local legal firms working with marijuana-specific legislation and marketing agencies that help cannabis companies targeting consumers and hope to be more easily recognized amongst their target audience. Don’t forget the courier services transporting all of these products and the staffing agencies pairing employees with employers in addition to all those Amazon orders.

This rush of a green-friendly Wisconsin market will make for an economic boost like it has in other areas impacting countless industries. However, in states where cannabis legislation has already been enacted, there is an opposite reaction, an industry dealing with the turbulent times that might be a surprise for some – this being the beer, wine and spirit industry. Alcohol has long been considered a staple for many Wisconsin households, if for nothing more than to wind down after a long work week. But with cannabis as a new alternative for relaxation, consumers will soon be faced with the decision as to where to allocate their hard earned weekend money.

As Wisconsin voters took to the recent polls and voted favorably attempt to legalize recreational marijuana at the end of 2018, we’re now on the clock as we wait for the new Wisconsin Governor Evers to legalize medical marijuana and dispensaries to start popping up on every corner like you can already see in Denver or Seattle. When people go to clock out and head home after a long week of work, will they be more likely to stop at the nearest dispensary over their favorite dirty liquor store?

In states that have already enacted cannabis legislation, we’ve seen as much as a 15% drop off in alcohol sales. MillerCoors, one of the top alcohol distributors in the country, reported a 4.4% decline in sales of Coors Light over a two-year span and those numbers are likely to get worse. Microbreweries and other small distilleries are noticing even larger hits. As some pundits associate alcohol and cannabis to be substitutes for one another, we can see why there is this initial decrease in alcohol sales – even for some of the largest distributors in the world.

Colorado is a unique case, as they not only paved the way for cannabis legalization – but the state is also home to some of the biggest breweries on the planet. Japanese brewery Sapporo has a hub in Wisconsin, but the state is more known for its number of microbreweries that have popped up over the last decade. While bigger alcohol companies may be able to sustain the tumultuous time that comes with cannabis legislature, many wonder how small breweries will sustain during the infancy stages of legalization.

Despite an initial downtime for alcohol sales already impacting local Milwaukee employee’s bonuses and raises, the bigger picture may just be coming into focus. Will brewery employees start seeing coworkers cut?

The true key here to evaluating how cannabis will affect alcohol sales might be to look at things from a larger comprehensive view. While many states initially reported a decrease in alcohol sales, further observation has shown a rebound effect in many areas. Despite its initial drop off, Colorado reported an increase of 7.6% for spirit sales in 2017. This same study showed an increase in sales of 5.4% in Washington and 3.6% in Oregon.

This rebound effect brings to light more questions as to how the average consumer looks at alcohol and cannabis consumption. A 2015 study by the RAND Corporation concluded that results varied when assessing whether cannabis and alcohol are substitutes or complementary purchases of one another.  With this in mind, we can then look at the aforementioned information stated in the previous paragraph. While cannabis legislation may have resulted in an immediate decline in alcohol sales, consumers have demonstrated that purchases for spirits will sustain as economic forces settle out. This can be the case as consumers determine how to best allocate their income towards discretionary purchases.

Aside from an individual’s personal economic standing, and how this correlates with the public in entirety, there are other contributions as to why alcohol sales have been raucous in these first years of legislation. Not only are purchasing habits still settling out, but so are the rules and regulations for cannabis legalization in general. As legislature continues to iron out, so will the true evaluation of economic impact that cannabis has on alcohol and spirit sales. This will especially be the case if cannabis prices continue to lower – a direct factor in legalized growing and the ability to increase supply without having a massive increase in cost.

Looking to the future, the best observation for how cannabis will impact the Wisconsin alcohol industry might likely been seen in the 18-25 age demographic. Without the budget that other consumers might have, this age group has the ability to greatly affect the future of cannabis and alcohol sales. A new study has suggested that the average American adult spends roughly $645 on alcohol each year, compared to $640 on cannabis amongst active users. Those on a limited income, or even potentially on a college budget, will be the individuals that start creating purchasing habits that we will be able to observe in the future. After all, if consumers begin using cannabis and minimizing alcohol consumption, these same purchasing patterns are likely to continue as the circumstance evolves.

While there have been many in favor of cannabis legalization since states first started enacting policies back in 2012, some industries are hesitant due to the impact it may have on their specific niche. This can be directly observed in the alcohol industry – as many consider this a competing indulgence amongst the average consumer. As those in the alcohol industry in Wisconsin prepare for how it will affect them, the best way to prepare for any financial instability may be to evaluate what’s going on in states like Colorado or Washington. We can assume that there may be an initial decline in sales as people rush to their nearest dispensary to load up on new strains of flower or types of edibles that are going to be on shelves. However, once this initial wave has its impact, we can see how alcohol sales may regain traction like they have in other states.

Legalized cannabis in Wisconsin will surely have its effect on countless industries, and it’s safe to assume that this impact will be seen in the alcohol industry as well. How much an impact will it have? That is to be seen as Wisconsin starts legalizing and opening dispensaries now that the voters have spoken and the new Governor is sure to act on their wishes.

~Michael Goetzman