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The Effects of Pot Legalization on the Alcohol Industry

With elections less than two weeks away, there are more ballots with drug policy reform questions this year than ever before, including Alaska and Oregon voting on whether to legalize marijuana statewide.

As the legalization of recreational marijuana gains momentum, many eagerly await to see what effect it will have on other industries. The alcohol industry is a particularly interesting one to watch, as the outcome likely depends on how cannabis and alcohol interact in our culture—that is, whether the two will complement one another or if people will choose marijuana as an alternative to drinking.

For analysts attempting to calculate the costs and benefits of legalizing marijuana, this question matters a lot. If marijuana and alcohol are complements, states legalizing marijuana would expect to see high consumption on both sides—likely leading to increased competition and modified regulations. If marijuana and alcohol are substitutes, marijuana legalization may reduce alcohol consumption.

According to economists D. Mark Anderson and Daniel Rees, co-authors of The Legalization of Recreational Marijuana: How Likely Is the Worst-Case Scenario?, initial studies indicate that marijuana and alcohol are substitutes.

Anderson and Rees claim that as marijuana becomes more readily available, adults will respond by drinking less, not more. They found that marijuana legalization is associated with a reduction in heavy drinking amongst 18- to 29-year-olds and a five percent decrease in beer sales.

Consistent with their hypothesis, Prof. David Nutt, co-author of Popular Intoxicants: What Lessons Can Be Learned from the Last 40 Years of Alcohol and Cannabis Regulation?, states that alcohol consumption could fall as much as 25 percent with the legalization of Dutch-style cannabis cafés.

As voters across the country once again get a chance to accelerate the momentum of marijuana reform, companies must adapt to the challenges and stigmas surrounding its use and find new ways to interact with the changing paradigms of legalization.

Abby Hofmeyer is senior strategist at LPK who is passionate about digging into new projects and uncovering a deeper understanding of how and why things work. Building on her past experience as a fashion designer, Abby brings a unique perspective to branding and design with invaluable insights in the areas of fashion, beauty, retail and socio-cultural influencers and events. Abby has a BA in fashion design from the University of Cincinnati and an MPS in design management from the Pratt Institute with a focus on sustainable business practices. You can contact her by email at abby.hofmeyer@lpk.com.

 

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