The Summer’s Hottest Trends Are Colliding
For years I've enjoyed sharing my thoughts on emerging trends with you here at Investment U. I've covered everything from commodities to tech stocks to seasonal investing and beyond.
As you're probably aware by now, Investment U is undergoing a transition. And this, sadly, will be my last column for the publication.
So I want to leave you by covering two of my favorite investing trends... which happen to be colliding.
Memorial Day weekend is now behind us.
While it traditionally marks the start of summer, the holiday also marks the start of one of my favorite - and one of the most profitable - times of the year: beer-drinking season.
A lot happens this time of year to spark an uptick in drinking... besides the fact that parents have to deal with kids being home every single day for the next few months.
The sun doesn't set until after prime-time programming hours. The barbeque gets dusted off and rolled out to its place of prominence on the deck or patio. Family and friends bask in the warmth of the evenings and lazily finish off coolers of cold ones. The NBA and NHL wrap up their playoffs, while the MLB just starts to hit its stride.
Beer drinking begins in earnest during Memorial Day weekend. In fact, the holiday ranks No. 2 as the biggest day for downing suds...
The only time Americans drink more beer is when we celebrate our independence on July 4.
Seven of the top 10 beer-drinking holidays happen in or after May. (And there are honorable mentions, like Father's Day, included in that stretch too.)
It's an important time for brewers...
Though all's not well in the world of beer.
For example, in 2006, 65% of alcohol consumed by 21- to 27-year-olds was beer. By 2016, this had tumbled to 43%. And beer sales now make up only 46% of the total U.S. alcohol market.
Now, that doesn't mean beer - or beer season - is dead. There are states seeing growth.
But there's a new emerging threat that's poised to hurt beer sales even more.
In Colorado, Oregon and Washington, beer sales (especially those from large brewers) have fallen sharply over the past two years.
MillerCoors and Anheuser Busch InBev (NYSE: BUD) witnessed sales of Coors Light and Bud Light slip nearly 4.5% each in those three states. Meanwhile, sales of Budweiser and Coors overall have inched 2.4% lower. And in Denver, total beer volumes fell 6.4% in 2016.
What do those three states have in common?
They all legalized recreational marijuana sales.
It's not just the shifting tastes of younger consumers turning their noses up at beer in favor of wine and spirits. It's also the arrival of legal, adult-use cannabis.
This is the biggest potential threat to the beer industry right now.
In fact, in 2016, the amount of money people spent on legal pot products hit $647. That topped the average $645 people spent on alcohol annually.
And this is why we've seen a major push from alcohol companies - not tobacco companies - to acquire either stakes in or partnerships with large cannabis producers.
Last year, Constellation Brands (NYSE: STZ) made the biggest outside investment into the cannabis industry when it bought a 9.9% stake in Canada's Canopy Growth Corp. (NYSE: CGC). (Canopy also became the second pure marijuana play to be listed on a major U.S. exchange last week!)
In February, fellow Canadian cannabis producer Aurora Cannabis (TSX: ACB; OTC: ACBFF) bought a stake in Liquor Stores N.A. In May, Aurora increased its stake in the alcohol distributor, which changed its name to Alcanna (TSX: CLIQ) - signifying a combined alcohol and cannabis approach going forward.
In April, Lifford Wine & Spirits launched a subsidiary called Lifford Cannabis Solutions.
And just days ago, Great North Distributors announced a distribution agreement with Aphria (TSX: APH; OTC: APHQF), another international cannabis powerhouse. This allows Aphria to sell its adult-use cannabis products throughout Canada in the liquor distributor's locations.
Great North Distributors is a subsidiary of Southern Glazer's Wine & Spirits, the largest wine and spirits distributor in North America.
And another interesting fact is cannabis sales have a similar seasonality as beer sales: They spike during the summer months. And that isn't too surprising since it's the height of the tourist and summer concert seasons.
Marijuana investing is the sector to watch in 2018, especially with the midterm elections on the horizon and four more states weighing cannabis measures. But it'll also be a major investment story for years to come. And "big alcohol" has woken up to the threats the industry poses... as well as the opportunities.
Savvy investors must do the same.