The Future of Cannabis is Beer
According to the Marijuana Business Daily Factbook 2017 report, the number of cannabis growers and manufacturers finished the year at approximately 5,000. That doesn't even include dispensaries, which is close the same count. Clearly, as more states legalize recreational usage, more players are jumping into the ever expanding pond. Growth, it seems, is inevitable.
But we’ve seen this dynamic play out before. Consider the beer industry.
Going all the way back to 1873, there were 4,131 breweries in operation in the U.S., or one for every 9,300 Americans. Fast forward, to 1900 and the number of breweries had dropped 1,816. And this consolidation and reduction was exacerbated by a legislation shock—prohibition. While the number of breweries dropped to 0 (officially) during prohibition, the years after the repeal of prohibition didn’t automatically return the market back to its norm of a mix of big brands and regional brews. Instead a handful of breweries you likely know controlled the market, and it took approximately 70 years for companies like Sierra Nevada and Boston Beer Company to change consumer mindsets and palates when it came to suds.
What does this have to do with cannabis? While many in this industry are hoping and waiting for that next big legislative shock—full legalization, allowing banks to work with cannabis companies—many outside of cannabis are waiting for just that. We’ve already seen the signs: Constellation Brands taking a stake in Canadian firm Canopy Growth; U.S. tobacco company Alliance One acquired controlling interests in (again Canadian) Island Garden and Goldleaf Pharm. Faced with slow growth or even declines in their core product categories, these two are following the money.
And where there is a return, there is investment. And consolidation soon follows.
For investors in U.S. cannabis, this is obviously good news. For manufacturers, depending on how to plan to compete, it’s a mixed bag. For consumers, time will tell.