Jason Vegotsky, CEO of Petalfast
Jason Vegotsky, CEO of Petalfast, explains why the alcohol industry should seize opportunities brought about by new developments in the cannabis market, and embrace CBD before they get left behind.
Throughout history, alcohol has played a significant role in our culture and lifestyles. Whether it be colleagues meeting for a drink after work, toasting with champagne to celebrate major milestones, drinking a beer at a sporting event, or relaxing at home with a glass of wine, alcohol has been widely prevalent in society for decades. Cannabis, on the other hand, has been left out of the commercial equation for over 84 years, and social use is often limited due to prejudice, federal illegalities and significant regulatory hurdles.
However, federal legalisation is on the horizon. As more states begin to legalise cannabis for medical and recreational use, the stigma around this ingredient will continue to decrease, and there will be a noticeable change in how we publicly celebrate special moments and live our daily lives.
In the past few years, we have seen a massive shift in consumption behaviour. Consumers desire a healthier and safer alternative to alcohol, and the increased availability of cannabis has led to more consumers replacing alcoholic beverages with cannabis products.
Recent data from Statista found that alcohol consumption has decreased since the 1980s, especially among younger generations, due to a better understanding of the risk factors involved with alcohol consumption. According to New Frontier Data, “81% of current cannabis consumers believe that cannabis is safer than alcohol, with younger generations (i.e., Gen X, Millennials and Gen Z) being especially more likely” to hold these views. The growing purchasing power of these younger generations will be hugely consequential to the alcohol industry.
While total alcohol sales continue to outpace cannabis, a report by New Frontier Data estimated that legal and illicit cannabis sales in the US grew to $97 billion in 2021. A 2021 study shows a decline in alcohol sales in states with legal cannabis programmes, like Colorado, where there was a “13% decrease in purchasing for all alcohol products combined and a 6% decrease in purchasing for wine products when compared to all non-policy states”.
Alcohol companies can have a massive impact on the newly developing and rapidly growing cannabis-infused beverage category, which is expected to reach $2 billion by 2026. In Canada, the market share of infused beverages has grown nearly 850% since 2020, according to a recent Headset report. This trend is expected to follow in the US. A study by LeafLink determined that the cannabis-beverage market in the U.S. “has grown at an average rate of 5% each month in 2021 and 2022”.
As we enter a new chapter for cannabis, consumers who previously found smoking, vaping or eating cannabis incompatible with their lives may begin to replace their drink of choice with a cannabis-infused beverage alternative, such as a seltzer from Cann or a nightcap-infused cocktail from Pamos. With the end of cannabis prohibition on the horizon, the alcohol beverage industry should capitalise on this billion-dollar industry as it continues to gain momentum and becomes a staple within our culture and daily lives.
Alcohol beverage companies’ well-established regulatory and business models align with cannabis’ complex operating environment. Historically, state regulations on cannabis have differed from alcohol regulations, but the three-tier alcohol distribution model, where brands and products are sold by producers to a distributor or wholesaler and then to a retailer, can be easily transferred to the cannabis industry with the right partners.
As more legal markets open and people have access to safe and quality products, cannabis will be a daily mainstream ritual, and alcohol beverage companies will feel those effects unless they begin exploring the cannabis market. Cannabis companies are already recruiting top talent from the alcohol industry to navigate regulations, develop their brands and implement strong business models that will lead to long-term success.
Alcohol brands and companies looking to break into cannabis should take advantage of their years of learning how to navigate state and federal regulations and their long-standing brand-building and marketing playbooks. These skills will allow them to compete in the market and produce high-quality products that become ingrained into consumers’ everyday lives. Brands take time to build, and the time to enter the market is now.
Every cannabis supplier and distributor is working to figure out their niche in the market, so alcohol companies should begin testing their brand thesis and distribution models sooner rather than later. Money alone does not buy success in cannabis. Alcohol beverage companies that assume they will enter and immediately win the market because they have the largest amount of capital will likely fail. Brands that stay humble and take the time to learn and appreciate the culture of cannabis will be better suited to win the consumer today and down the line.
The alcohol beverage and cannabis industries can learn a lot from each other to create an accessible and inclusive space for operators and consumers. As the cannabis market grows and the beverage category begins to form, alcohol beverage companies would be wise to enter the cannabis market now – after all, nothing compounds like time.
© FoodBev Media Ltd 2023
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