Could Pot Legalization Hurt Alcohol Companies? (BUD, SAM, TAP)

Proposition 19, on the ballot in California next week, would legalize marijuana for recreational purposes. While no one is exactly sure how a legal pot economy would work - or if the Feds would allow it - one thing is for certain: alcohol sales would be affected. "It's no surprise...that the California Beer & Beverage Distributors have come out against Proposition 19," writes wine blogger Tom Wark, in a post titled "'Booze Dollars' vs. 'Dope Dollars'". According to a CNBC report, "Wark writes that the alcoholic beverage industry isn't against legalizing pot in principle. Instead, he says, they claim Prop 19 is badly written. "I don't believe them because I know they are smart, I know they spend money to protect their financial interests and I know that beer will lose sales to dope. And so do they." Mr. Wark makes a good point. Indeed, a new mind-altering substitute to alcohol would make for an increased competitive environment in an already cut-throat business. Alcohol companies are naturally defending the status quo, where noteworthy profits are made consistently. While no business is completely immune from the cyclicality of supply/ demand dynamics, alcohol companies benefit from a fairly consistent demand year-round. If marijuana's legal use was suddenly a new alternative to spending money on booze, though, then the economic equation is altered. Unfortunately, a slow recovery and a hesitant consumer have already dampened traditional spending habits. To be sure, companies like Anheuser-Busch InBev NV BUD, The Boston Beer Company, Inc. SAM, and Molson Coors Brewing Company TAP aren't likely to be significantly affected in the near-term if marijuana is legalized in California. Company managements should be aware, however, that the growing public consensus is that pot isn't worth the financial burden on the taxpayer. If local governments can cut enforcement spending and potentially raise revenues through new taxes, then more ballots are likely to pop up in other states. Should this be the case, then the aforementioned beverage companies would most certainly feel the fallout over the long-term. The material impact of consumer spending on legal marijuana cannot be underestimated, and investors should be cognizant of this reality.
Market News and Data brought to you by Benzinga APIs
Comments
Loading...
Posted In: NewsShort IdeasPoliticsGlobalTrading IdeasGeneralCNBC
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!