Will legal marijuana lead to decreased alcohol sales?

As numerous US states make the move under the nose of the Federal Government to legalize recreational marijuana, these same states are also witnessing a dip in beer sales. Data correlating to legalizing recreational cannabis and monthly beer sales in certain US states suggests that...

As numerous US states make the move under the nose of the Federal Government to legalize recreational marijuana, these same states are also witnessing a dip in beer sales. Data correlating to legalizing recreational cannabis and monthly beer sales in certain US states suggests that beer and cannabis are substitutes. This means that people choose between beer or cannabis, one or the other.

Now there are exceptions. Some reports are showing fluctuations between markets such as Colorado where beer and cannabis have been competing on a casual basis through the black market long before official legalization. This may suggest that the impact of cannabis legalization on liquor sales will not be heard in similar markets such as British Columbia (Larson, 2014).

So, Where’s the Proof?

Numerous sources over that past decade have dabbled with the concept of marijuana as a substitute to alcohol. The follow describe their methods and the evidence to back their claims:

Higher minimum drinking age increases marijuana use - By raising the minimum drinking age marijuana use increased among young adults who were forced to continue acquiring either liquor or marijuana on the black market. (T. Lemieux, 2001)

Nearly 5% decrease in beer sales following legalization - Mathematical modelling using 20 years of data from 1990-2010 has been analyzed to determine the economic relationship between marijuana and alcohol. The results suggest a nearly 5% decrease in beer sales should the estimation hold true. (D. Mark Anderson, 2013)

Marijuana use decreases at age 21 - This study from the Journal of Health Economics demonstrates the significant drop in marijuana use as individuals turn 21. This would suggest that individuals are choosing to drink alcohol instead of using marijuana. (Benjamin Crost, 2012)

Less traffic fatalities following cannabis legalization - These authors found a significant decrease (7.2-13.2%) in traffic fatalities related to the legalization of recreational marijuana. “The negative relationship between the legalization of medical marijuana and traffic fatalities involving alcohol lends support to the hypothesis that marijuana and alcohol are substitutes.” (D. Mark Anderson, 2013)

Marijuana and beer spending comes from the same budget - These authors note a correlation between purchases that demonstrates a shared budget between a consumers choice between alcohol OR marijuana. The gap is noticed mostly among casual users. (Clements, 2014)

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The Impact on liquor stores as cannabis dispensaries are on the rise?

If this above statistics hold true, certain US states and Canadian provinces who follow the model of legalizing recreational marijuana could witness a nearly 5% decrease in beer sales. The Liquor Control Board of Ontario reported annual sales of $5.2 billion in 2014. If this figure drops by the suggested 5% experienced in certain US states, LCBO could bear witness to a dramatic $260 million drop in sales over the following 12 months.

Similar to what has happened in Colorado we need to understand that certain markets, such as British Columbia, already have liberal laws on recreational cannabis and to use the five percent beer sales comparison would not hold true. It is likely that in beer sales markets in BC are already competing with recreational cannabis. Particularly with the instance of craft breweries on the rise, it would be difficult to directly tie cannabis legalization to declining alcohol sales without a decade worth of data.

Benefits to Reducing Alcohol Consumption

The data then raises the question: What are the costs and benefits to this change? One author has suggested that these behavioural patterns can lead to several benefits; of these are reduced traffic fatalities and reduced violent crime. Ask yourself, when someone drinks how do they behave? They are much more likely to become belligerent than if they partake in cannabis. The likelihood with marijuana products is that users will fall asleep on the couch and become hungry.

Evidence shows that marijuana is a substitute for alcohol. As a result the negative consequences associated with alcohol consumption will be reduced traffic fatalities and domestic abuse related to drunk driving and alcohol abuse.

Reduced Traffic Fatalities

One study from the Journal of Law and Economics reports a 7.2% decrease in traffic fatalities in non-alcohol related accidents and a 13.2% decrease in traffic fatalities where alcohol was present (D. Mark Anderson, 2013). If this holds true that would mean a potential reduction in traffic fatalities Canada-wide by roughly 300 people per year (MADD, 2010).

Furthermore, allow us to examine the difference between drivers that are impaired on cannabis as opposed to alcohol. One author proves that “[e]ven at low doses, drivers under the influence of alcohol tend to underestimate the degree to which they are impaired drive at faster speeds, and take more risks” (D. Mark Anderson, 2013). I am not suggesting that driving under the influence of marijuana is safer. The data simply suggests that perhaps those under the influence of marijuana are choosing not to drive altogether.

Reduced Alcoholism

There is an inevitable link between alcohol abuse and domestic violence. One study demonstrates the advantages of cannabis for alcoholics (O'Shaughnessy, 2014). “As could be expected among patients seeking physician approval to treat alcoholism with cannabis, all reported that they’d found it “very effective” (41) or “effective” (38).”

Conclusions

As more and more states and provinces move towards the legalization of cannabis as both medicinal and recreational, I believe it is imperative for competing industries to analyze the potential impact legalization will have on their bottom line. Some industries, such as snack foods, will likely benefit while others, such as pharmaceutical drugs or beer, could lose sales.

Bibliography

MADD. (2010). Retrieved 01 26, 2015, from The Magnitude of the Alcohol/Drug-Related Crash Problem in Canada: Overview: http://madd.ca/madd2/en/impaired_driving/impaired_driving_statistics.html
 
Benjamin Crost, S. G. (2012). The effect of alcohol availability on marijuana use: Evidence from the minimum legal drinking age. Journal of Health Economics, 112-121.
 
Clements, K. W. (2014). Economics and Marijuana: Consumption, Pricing and Legalisation. Cambridge: Cambridge University Press.
 
D. Mark Anderson, B. H. (2013). Medical Marijuana Laws, Traffic Fatalities, and Alcohol Consumption. Journal of Law and Economics, 333-369.
 
Larson, J. (2014, 07 14). Vice News. Retrieved 01 27, 2015, from Legal Marijuana in Colorado Might Be Selling More Booze: https://news.vice.com/article/legal-marijuana-in-colorado-might-be-selling-more-booze
 
O'Shaughnessy. (2014, 06 19). How Cannabis Acts as a Substitute for Alcohol and a Cure for Alcoholism. Retrieved 01 27, 2015, from Marijuana: http://www.marijuana.com/news/2014/06/how-cannabis-acts-as-a-substitute-for-alcohol-and-a-cure-for-alcoholism/
 
T. Lemieux, J. D. (2001). Alcohol, marijuana, and American youth: the unintended consequences of government regulation. Journal of Health and Economics.

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