By: Todd M. Schoenberger, @TMSchoenberger, @JonesFallsPub
The U.S. wine industry is smokin’. Sales are projected to rise as much as 6 percent this year, compared to a five-year annual average of 4 percent. And the harvest in California, which is the nation’s largest wine-producing state, is expected to climb 7 percent to a record 4 million tons crushed.
Wine distribution is even hotter. In 2016, nearly 4 percent of all U.S. wine sales were sold by and delivered from wine producers direct to consumers (DtC), totaling $2.33 billion. The DtC channel is still a fraction of the overall annual total of $60 billion in wine sales, but it does represent an 18.5 percent increase over 2015 data.
So what can keep a cork on this great news?
Marijuana. And it’s giving the wine industry a serious headache.
As of today, eight states have legalized marijuana for recreational use, and more than a dozen additional states have approved cannabis for medical use. All in, Americans and Canadians have spent an estimated $53.3 billion on marijuana annually, according to ArcView Market Research.
ArcView reports illegal purchases of pot represented 87 percent of all sales last year, down from 90 percent in 2015. However, sales on the legal market increased by 34 percent, and the forecast is projecting legalization will grow this segment to $21.6 billion by 2021.
This hypergrowth in the marijuana industry is already making a dent in the domestic beer market. Marquee names like Budweiser and Coors have cited pressure on revenues from the pot community and the feeling from Wall Street analysts is the wine industry is just as vulnerable.
Higher priced wines—those in the $12-$25 bottle category—are not expected to be impacted by the growth of marijuana sales. But for the $9 and under market, trouble is budding up, which explains why companies such as low-cost distributor Constellation Brands (NYSE: STZ) have seen weaker performance in its stock. For the rolling six-month period, Constellation Brands has given up nearly 9 percent of its value, while the S&P 500 is up almost 5 percent.
Meanwhile, pink sheet ganja darlings like Cannabis Science Inc (OTCMKTS: CBIS) have popped nearly 500 percent in the prior six-month trading period. Wine is fine, but pot is hot.
Disclosure: The author does not own wine stocks or marijuana stocks. In addition, the author does not smoke marijuana and has never smoked marijuana, but does enjoy wine.
Todd Schoenberger 