Constellation Brands announced a $3.8 billion investment in Canopy Growth today, to expand the strategic partnership that was established last year, a few short months before Canada opens its recreational market. There has been money pouring into Canadian LPs since recreational legalization was announced but this is a new level of investment. By comparison, the entire global cannabis market in 2017 was only $7.7 billion. This indicates they are getting ready to completely change the game.
Cannabis has been growing in popularity in states where it has been recreationally legal, with consumption beginning to normalize and new consumer groups emerging who would never have thought of using only a few years ago. A recent Brightfield Group survey of more than 2200 cannabis users in California, Colorado, Washington and Oregon showed that 19% of cannabis users began using after recreational markets opened, and another 22% used cannabis in their youth then returned to cannabis, either for recreational or medical purposes. According to the NSDUH, the usage rate of cannabis by adults over the age of 26 nearly doubled after the legalization of cannabis, from 11% in 2008/09 to 20%. Canada had one of the highest rates of cannabis consumption in the world prior to legalization, and with a fully legal recreational market expected to open, we can expect consumption rates to increase dramatically over the coming years.
The normalization of cannabis is already cutting into the sales of alcohol and this trend can be expected to continue as legalization moves forward. However, the occasions of consumption between cannabis and alcohol are still largely distinct. The same Brightfield Group survey found that most cannabis users are using cannabis at home, either to wind down at the end of a long day or in a party or social gathering in a friend's home. Heavy cannabis users will use as a consistent part of their day, at work, at school, during yoga, working out, etc. However, as of right now, most social engagements, work events, family gatherings, date nights and celebrations such as weddings still swing overwhelmingly towards alcohol use over cannabis use.
The alcohol companies investing in cannabis infused drinks are betting they can switch that trend. There are several key obstacles that would prevent cannabis drinks being consumed during similar occasions as alcohol. The first is the delayed onset effect of edibles. Most edibles take an hour or two to fully kick in and can last up to 8 hours. This means that if you brought a six pack of cannabis beers to a barbeque, drink one or two, you would essentially feel the effects on the way home and be stoned for the entire rest of the day and potentially into the next morning. Alcohol, by contrast, has a nearly immediate effect and is typically metabolized in a few hours time. If this delayed onset and time of metabolization can be overcome, it would pave the way for greater normalization and a more 1:1 substitution for cannabis to alcohol in social gatherings. Other obstacles involve price, regulations on-trade consumption/channels of distribution and social stigmas; none of which are insurmountable and can be overcome with a scaled supply chain and sufficient budget for marketing and lobbying. Constellation is betting they can overcome these challenges and fundamentally change the way people consume cannabis and really interact socially. Will other alcohol companies make the same bet?