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Walter Armstrong Walter Armstrong

Hints Emerge of Legal Pot’s Threat to Alcohol Sales

The evidence is good that when marijuana is legally available, it takes a bite out of booze profits. One liquor company has just voiced its fears.

2 Substance

There has been talk for the past year or so that the trend toward the legalization of marijuana will put a dent in alcohol sales. Economists call this “the substitution effect”—consumers move to a new product when it becomes available if it is cheaper or safer or maybe they just like it before. Big Booze—the liquor industry—has put up the “What, me worry?” front typical of business, although analysts have confirmed the risk.

On Friday, Brown-Forman, the maker of Jack Daniels, became the first big alcohol company to acknowledge that the use of recreational pot poses a potential threat to its bottom line. The Tennessee-based whisky distiller included in its annual report this warning to shareholders: “Consumer preferences and purchases may shift due to a host of factors, many of which are difficult to predict, including…the potential legalization of marijuana use on a more widespread basis within the United States.”

“Big Alcohol is watching marijuana legalization closely, and it’s very likely that these companies are highly concerned,” cannabis stock specialist Alan Brochstein told Benzinga,

Others, of course, think otherwise. It can be hard to get a candid take on the dynamic not only because it is a novel one but also because today’s prediction effect tomorrow’s stock price.

Two academic economists, however, agree with the “substitution effect” view. In the Journal of Policy Analysis and Management, Montana State University’s D. Mark Anderson and University of Colorado’s Daniel Rees found that “studies based on clearly defined natural experiments generally support the hypothesis that marijuana and alcohol are substitutes.” According to Forbes, they examined stats related to drinking age for alcohol, which show that many kids who smoke pot when younger than the minimum switch to, rather than add on, alcohol when they turn legal. Another study demonstrated that in states where medical marijuana was legal, beer sales drop.

While Big Booze may need a stiff drink when they consider these conclusions, public health officials are breathing a sigh of relief. In another study, the economists found a correlation between the legalization of medical marijuana and a decline in traffic fatalities. Why? Because pot doesn’t make you see triple painted lines on the asphalt.