In a recession, demand for pot is as inelastic as alcohol
Alcohol and cannabis are two things consumers can’t seem to go without, even in the midst of a global pandemic and a halted economy.
The newly legal marijuana industry has never weathered an economic downturn, so the industry wasn’t entirely sure how it would perform in one. A survey of 1,005 U.S. consumers by MKM Partners found that demand for pot appears to be just as inelastic as demand for alcohol.
When asked whether they were spending more or less on various discretionary categories as a result of the coronavirus pandemic, media, alcohol and cannabis were the categories that showed the highest indications of spending.
The two intoxicants, along with media, also had the fewest respondents who indicated they were spending less, MKM analyst Bill Kirk said in a note published Wednesday. Alcohol’s performance is consistent with the financial crisis that kicked off in 2008, when beer sales were stronger than any other 12-month period over the last decade, he said.
“Most sectors are facing major growth concerns related to reduced economic activity,” Kirk wrote. “Alcohol and cannabis are not facing those demand headwinds.”
Kirk recommended investors stick to pot stocks with strong balance sheets, including buy-rated Cronos Group Inc. Within alcohol, he has buy ratings on Molson Coors Beverage Co., Constellation Brands Inc., Boston Beer Co. and Craft Brew Alliance Inc.