Easy Canna Peeps, Alcohol Is Here To Stay
TD Cowen, an investment bank, recently published a report contending that cannabis usage is replacing alcohol, particularly among young people. The report said: “Alcohol sales in legal cannabis states have underperformed by 100-150 bps over the past five years. With $29 billion in sales in 2023E, we expect U.S. cannabis sales to grow at a 7% CAGR over the next 5 years, as the category is set to gain 18 million past-month users (while alcohol could lose 2 million users).”
TD forecasts U.S. legal cannabis retail sales hitting $37B by 2027.
It wouldn’t be the first time a Bank made bold claims about cannabis consumption and promoted them with large market size estimates that never seem to pan out.
My concern is how management and journalists interpret the data & conclusions and then use them as decision-making inputs or to promote an industry point of view .
Handle TD’s conclusions with care for these reasons:
1. Underlying data and methodological problems
The study relies on NSDUH data, which has issues with veracity and neutrality (Google it if you don’t believe me). And consider the logic of their premise: do people really switch between a drinkable, ubiquitous product like booze and a primarily inhalable, less accessible product like weed? The paucity of quality weed consumer research doesn’t mean we should rely solely on NSDUH-based conclusions.
2. Metric problems
What you measure, matters. The study’s NSDUH past month incidence metric is not the same thing as long-term consumption nor is it linked to what really matters: volume and revenue. Looking at these metrics will tell a very different story.
3. Forgetting Statistics 101
Correlation is not causation. Even if the NSDUH data is accurate there could be many explanations for the findings. Other factors such as demographics, switching between alcohol categories and weather are more highly correlated with changes in alcohol consumption.
Developing strategy based on shaky assumptions and suspect data is risky. So is cockiness.
You would be misguided or naïve to think that alcohol executives see cannabis through the same, narrow analytical lens and are standing idly by while their franchise evaporates.
I don’t have to be convinced that cannabis is better for people than alcohol. I also know that many prefer the effects of weed over booze. However, it’s way too early to declare cannabis’ victory.
Passionately wanting something to happen for good reasons or relying on a limited analytical view is not evidence that it will happen soon.
Mission-critical cannabis decisions must be based on high quality consumer research and bias-free critical thinking.
#strategy #alcoholicbeverages #beerindustry #spiritsindustry #alcohol #TDCowen