TD Cowen Research Unveils Shift In Consumer Behavior Towards Cannabis & Away From Alcohol

A new report by TD Cowen analyst Vivien Azer unveils a shift in consumer behavior, spotlighting the clash between legal cannabis and alcohol sales. “Alcohol sales in legal cannabis states underperformed by 100-150 bps over the past five years,” revealed Azer.

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Turning to growth projections, Azer’s research — first reported by the Green Market Report (GMR) — forecasted U.S. cannabis sales surging to $29 billion by 2023, with a robust 7% Compound Annual Growth Rate (CAGR) over the next five years.

Azer, the first senior Wall Street analyst to cover this emerging industry in 2014, anticipates a paradigm shift, projecting the cannabis sector to attract 18 million new users while potentially witnessing a decline of 2 million alcohol users. 

Shifting Preferences: Colorado Leading the Way

According to the TD Cowen report, Colorado stands as a symbolic vanguard of evolving consumer preferences, securing an 11% market share for cannabis — a remarkable ascent from a mere 4% five years ago.

Moreover, Azer emphasized a significant trend as two-thirds of cannabis consumers confessed to curbing alcohol consumption. Among 18 to 25-year-olds, cannabis retention soared to 68%, while alcohol experienced a dip to 74% in 2022.

States with legal cannabis access found themselves underperforming by over 100 bps, according to the U.S. Bureau of Economic Analysis (BEA) data.

The TD Cowen report noted, “While select Nielsen states showed a roughly 140 bps delta. Meanwhile, the 5-year alcohol volume CAGR for adult-use cannabis states had underperformed non-cannabis states by 150 bps in IWSR (data).”

Market opportunities and stock implications mirror this transformative trend. Azer suggested short-term resilience for alcohol stocks but warned of potential impacts on beer, which witnessed a notable drop in preference among recent cannabis users — falling by six points. On a positive note, spirits like tequila and bourbon are expected to thrive in this evolving market, she said.

The analysis cited data from the National Survey on Drug Use and Health revealing “that over 47% of past-month cannabis consumers use cannabis on a daily or near-daily basis (20-30 days/month),” wrote co-founder and executive editor of GMR, Debra Borchardt.

“Not surprisingly, our proprietary data also showed that past-month cannabis users who drink alcohol were more likely to participate in intentional abstinence than drinkers who had never used cannabis,” Azer said.

Furthermore, TD Cowen’s Azer pointed to declining soda consumption and increased scrutiny of energy drinks, creating potential growth avenues and offering investors new entry points into evolving markets.

Industry Outlook: Cannabis Ascends, Alcohol Adapts

Looking ahead, the cannabis industry is poised for an 11% growth in 2023, a stark contrast to the more modest 3% growth expected for alcohol, noted Azer forecasting an anticipated total U.S. legal cannabis retail sales to reach $37 billion by 2027.

In related news, Cowen Group was acquired by TD Bank Group in March 2023.

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