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Business Briefing Marijuana a ‘significant threat’ to alcohol industry as Canadians choose between bud and Budweiser

Briefing highlights

* Marijuana a threat to alcohol

* Toyota to upgrade Ontario plants

* Markets at a glance

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* U.S. jobless rate at 3.9 per cent

* U.S. makes trade demands on China

ho*ser

n.

Canadian slang

A clumsy, boorish person, especially an uncouth, beer-drinking man.

— The American Heritage Dictionary of the English Language

Bob and Doug McKenzie might consider this downright un-Canadian, but marijuana producers are poised to give the alcohol industry even more of a run for its money.

As this chart from AltaCorp Capital shows, tokers are already spending more than hosers on a per-capita basis.

(Apologies to Rick Moranis and Dave Thomas, but I’m using hosers to describe all alcohol drinkers rather than just the clumsy, boorish, uncouth, beer-drinking men they portrayed so wonderfully as SCTV’s Bob and Doug.)

“Of the over 22 million alcohol consumers in the country, the average annual spending per head was $985, or $82 per month, in 2016, while the average cannabis consumer – of which there were an estimated 4.87 million in 2017 – spent $1,180 per year, or just over $98 per month,” AltaCorp said, referring to Statistics Canada data.

“Given nearly all of the cannabis demand was served by the black market, the lack of developed distribution would suggest this figure will increase as access improves.”

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Which, of course, it will, as Canada heads toward legalization.

The cannabis market “remains a significant threat to alcoholic beverage producers,” AltaCorp added.

“While estimates of total cannabis spending is only 25 per cent of the size of the Canadian alcohol market, expectations for growth, compounded with higher per-capital spending for cannabis users, threaten to draw more of consumers’ disposable income away from the alcohol market.”

Indeed, AltaCorp analysts cited studies that indicate legal marijuana could slash sales of alcohol by 15 per cent.

“Furthermore, new product development in the coming years will engage a large segment of consumers who previously had not been users, as improvements in dosage and delivery via edibles, beverages and other consumables make usage more convenient and socially acceptable.”

And the drinks industry is “keenly aware” of this. Note that Constellation Brands, for example, has taken a stake in Canopy Growth. And, as AltaCorp pointed out, the chief executive officer of Heineken has warned that “beer companies should be concerned by the cannabis threat to their industry.”

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Beer is already taking a hit from the rest of its industry, by the way.

Fresh numbers will be released next week, but the most recent study by Statistics Canada shows that “Canadians still prefer beer, but not like they used to.”

Beer still dominated the sector. Indeed, sales rose 2.3 per cent in the fiscal year ending March 31, 2016, but wine, spirits and cooler-type drinks also climbed.

Here’s another way of looking at it: By dollar value, beer’s market share fell to 41.5 per cent in 2015-16 from 46.7 per cent in 2006-07, while wine’s share rose in the same time span to 31.6 per cent from 27 per cent.

Marijuana companies with “extensive” production and distribution operations “will benefit from the significant pent-up legal demand for cannabis by being the first to market, and securing placement on shelves across the country,” AltaCorp said.

And one last number for you from Statistics Canada as governments scramble to get a marijuana regime in place:

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“Net income and other government revenue derived from the control and sale of alcoholic beverages, including excise taxes, retail sales taxes, specific taxes on alcohol, and licence and permit revenues, was $11.5-billion in 2015-2016.”

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Toyota to upgrade plants

Toyota Motor Corp. will announce plans today to spend more than $1-billion to upgrade its two Canadian assembly plants to build the next generation of its RAV4 crossover vehicle, sources familiar with the company’s plans said.

Prime Minister Justin Trudeau and Ontario Premier Kathleen Wynne are scheduled to announce that each of their governments will provide more than $100-million in financial support for Toyota, The Globe and Mail’s Greg Keenan and Robert Fife report.

The plans for the assembly facilities include a hybrid version of the vehicle and spending on research and development.

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Markets at a glance

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U.S. jobless rate falls

America’s jobless rate now stands at just 3.9 per cent, its lowest in more than 17 years.

The number of jobs created in the U.S. in April, according to the Labor Department today, was below the estimates of economists, at 164,000.

But it’s still solid, Bank of Montreal and others say.

“Amid growing labour shortages and trade policy concerns, hiring looks to have downshifted to a new normal, but healthy, range from the heated pace of late last year,” said BMO senior economist Sal Guatieri.

“Despite the downshift and relatively calm wages, a sliding jobless rate should keep the [Federal Reserve] on track to lift rates in July.”

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