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COVID-19 has created a wild run for the country’s biggest breweries as shoppers have turned to grocery stores as a pivotal source of alcoholic beverages during the pandemic. And during what is traditionally the biggest week of sales for cannabis thanks to the 4/20 “holiday,” there may be more to celebrate in the future for cannabis as the coronavirus’ economic fallout could force the hand of financially-strapped states.
Whenever things return to some semblance of normal, state legislatures and governors could find it attractive to add millions to their coffers that were never available before. Washington State tallied almost $396 million in fiscal year 2019, and Colorado brought in $302 million in the 2019 calendar year. Prior to COVID-19, California expected about $360 million of tax revenue in 2020.
Not every state will have this same kind of windfall, but budgetary dire straits could make cannabis more attractive than ever for politicians thanks to its high tax margins and medical component that includes repeat customers. The irony of real-time missed opportunities like this is not lost—just look at the incredible price decline for oil and gas, the latter of which is now at late-90s levels per gallon and could help prop up sagging budgets.
To date, there has been no evidence to suggest that legal cannabis sales make things harder for beer, but any advances in legalization are bound to re-up those conversations and analysis, especially during a recession. As beer drinkers have shown from recent purchase decisions, price sensitivity has become even more top of mind during the outbreak, and if the market devolves into hunting for a “share of buzz,” the prospect of cannabis taking occasions away from alcohol is going to become another anecdote to monitor.
There have already been COVID-related rumblings of how people have focused on higher-octane spirits in recent months, on top of how high-ABV beers have pushed their category. At least in IRI-tracked chain stores, spirits (14.7%) have outpaced wine (8.2%), and beer (3.7%) in volume sales over the first three months of 2020. So while it’s impossible to say a slimmer economy would lead to greater competition across categories, there’s at least a theoretical reason to consider how some Americans pay to pursue a weekly buzz.
Case in point: New Jersey, which has been functioning at an annual revenue deficit since 2002. A recreational legalization effort is set to go to voters this fall—medical cannabis has been available for a decade. Doing so could bring in $118 million to $300 million a year, which already sounds good before considering how COVID-19 is further decimating the state’s budget in one of the country’s hottest spots. Likewise, the coronavirus put a pause on New York's recreational legalization, but budgetary pressures may soon force the issue.
In Colorado, a 15% state excise tax means $1.50 from a $10 pre-rolled joint from Denver's High West Dispensary goes to the state. Four miles away, a single pint "serving" of Station 26 Brewing Co.'s 303 Lager would amount to about 17 cents with state tax on beer production and sale. To put that in context: if one person drank that one pint every day for a year it'd be about $62 in tax revenue. If they smoked that pre-rolled joint three times a week for a year, it'd amount to $234 of tax.
Continued pushes could come as no surprise, especially with almost half U.S. states showing big declines in money set aside for unemployment benefits. A Marijuana Business Daily poll showed respondents saying COVID-19 would accelerate legalization efforts elsewhere. More reassuring to proponents: most states where cannabis is legalized had dispensaries deemed as “essential” so they could stay open, giving a political and economic boost to future efforts thanks to states officially declaring their value to the public.
Some states have doubled-down on this, allowing curbside pick-up and giving hope to dispensary owners for it to continue post-COVID. Like the variety of delivery options being used by breweries to stay afloat, this seems to be set as a future conversation. This would add a further layer of intrigue to any beer-or-cannabis discussions, as the barrier of purchases continues to lower for some Americans. What was once a black market-only item has since become legal, and then even more convenient to purchase.
BDSA, a cannabis market research firm, recently shared that California has settled in at 40-50% of sales taking place via pickup or delivery. Broadly speaking, more parents and young people are seeking food delivery services, ingraining familiarity with the process that could hold over for some—already an expectation for beer.
“I truly believe this whole COVID-19 outbreak is going to change consumer purchasing habits not just for cannabis but in general,” Peter Marcus, communications director for Colorado's Terrapin Care Station, told Leafly. Terrapin's online orders have increased 1,800% since March 10. “Those people still want cannabis in a time of crisis, but they don’t want to go into the stores.”
Of note during this crisis is that sales of cannabis mirrored just about everything else, including a similar up-and-down pattern that we've tracked with beer.
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Looking at individual states the change gets even more drastic:
Mitch Baruchowitz, managing partner at private equity group Merida Capital Partners, told New Frontier Data that customer stock-ups on cannabis shows the value of legal supply chain because “people are going to go to dispensaries because they don’t know if they can go to their [illicit] dealer, or get the same variety. That makes [the legal market] not only recession-proof, but global-crisis-proof.”
In another take-it or leave-it point of data, there’s also been a shift in cannabis consumption methods, with edibles showing particular resilience, presumably because COVID-19 can more easily be contracted by those with respiratory issues and being homebound might have people rethinking smoke in their direct living areas or in a home where smoking isn’t allowed—the growth has come largely at the expense of pre-rolled joints. Whether or not access and experimentation with more modern forms of cannabis change anything long term is a post-COVID conversation.
And in a follow-up later this week, we’ll consider if there could be a change in buying habits should cannabis become more readily available.
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