Cannabis Innovation

in Alcohol and Tobacco

SHANE MACGUILL AND SPIROS MALANDRAKIS

Not to be distributed without permission.

The data included in this document is accurate according

to Passport, Euromonitor International’s market research
database, at time of publication: September 2019
Cannabis Innovation in
Alcohol and Tobacco

Shane Macguill and Spiros Malandrakis

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© 2019 Euromonitor International

Contents

1 Introduction

3 Cannabis Growth Potential

Cannabis aligns with and strengthens tobacco’s strategic direction
Alcoholic drinks impacted by cannabis legalisation

5 Key Regulation Issues

6 Brands Leading the Charge in Innovation

Canndescent
Omura
Indose
The Grower Series
Cambridge Bay
Grainwave

9 Future Trends
All in the mind: Cannabis, terpenes, mood states and cognition
Customisation: A vision of a hyper-customisable future

11 About the Authors

13 How Can Euromonitor International Help?

© Euromonitor International
Introduction

Tobacco and alcoholic drinks are mature, heavily regulated industries with flat growth rates in comparison
to the explosion in demand for legal cannabis at a global level. Both industries are struggling to generate
revenue growth as they run into barriers of declining volumes, tightening regulation and consumer
fatigue. Cannabis legalisation will likely act as both an accelerator of prevailing trends in alcoholic drinks
and tobacco as well as a potential avenue to future revenue for companies operating in these areas.

Comparative Market Sizes: Cannabis, Alcohol and Tobacco 2018

TOBACCO ALCOHOLIC DRINKS CANNABIS

USD839 bn USD774 bn USD150 bn*

+1.2% +1.4% +40%

(2018–2023) (2018–2023) (2018–2023)
*legal and illicit

Source: Euromonitor International

© Euromonitor International
2 Introduction

Source: Euromonitor International

Rising health awareness, demographic changes and substantial attitude shifts are producing consumers
who are more averse to legacy offerings from alcoholic drinks and tobacco companies. These ongoing and
fundamental changes are apparent in the rise of mindful drinking as a key trend with more brands offering
non-alcoholic adult cocktails, beers and spirits. In tobacco, vaping is symbolic of a widespread consumer
desire to manage harm through new, reduced-risk delivery technologies.

© Euromonitor International
Cannabis Growth Potential

Cannabis aligns with and strengthens tobacco’s

strategic direction
The tobacco industry’s mission has always been to deliver moments of pleasure and stress relief under
the wider umbrella of what could be classified as mental wellbeing. Of course, this has been obscured and
outweighed by the immense physical harm that the delivery of nicotine in combustible format causes.

Vapour technology and changing consumer preferences are currently driving a transformation of the
tobacco industry. This provides an opportunity to deliver nicotine in a reduced-risk context but also a
fundamental reinvigoration of the industry’s core mission.

Cannabis legalisation expands the range of substances that tobacco companies can offer beyond nicotine,
especially in the context of alternative delivery platforms like vapour. In the future, current tobacco
entities could supply cannabis, stimulants, broad-based medication and other currently illegal drugs.

Alcoholic drinks impacted by cannabis

legalisation
The alcoholic drinks industry has been on the defence due to health concerns, demographic pressures
and a generation of millennials who are drinking less. Cannabis, however, is not the main cause of the
current cultural and macro headwinds impacting the alcohol industry. More consumers are switching
from alcoholic to non-alcoholic beverages, which could accelerate declines and change drinking rituals
and occasions.

The alcoholic drinks industry is only beginning to acknowledge the danger and opportunity of cannabis.
On one hand, cannabis is perceived as healthier than alcohol by younger demographics. According to trade
sources, one in four people who had consumed alcohol in the previous week had also consumed cannabis.
On the other hand, U.S. states where cannabis is legalised have not seen steeper declines in alcohol
consumption compared to the federal level. Non-alcoholic adult beverages are catering to the
health-conscious consumer, and brands should capitalise on the perceptions of cannabis as a healthier
alternative to drive sales once legal.

© Euromonitor International
4 Cannabis Growth Potential

The ultimate goal for replicating such occasions will be the onset of effects as well as standardisation,
consistency and scalability of production issues, which are yet to be resolved. The current generation of
added-value cannabis-based products available—edibles and beverages, which are competing for the same
drinking rituals, consumption effects and disposable incomes—are still in their nascency.

According to Euromonitor International’s 2018 Alcoholic Drinks Industry Insights Survey, nearly 60%
of alcoholic drinks industry professionals acknowledge the potential for cannabis to provide added
opportunities and revenues.

Impact of Cannabis on Alcoholic Drinks Industry 2018

Cannabis has the potential to provide additional
revenues for the alcohol industry through
collaboration, hybrid products and a symbiotic
relationship

Legalisation of cannabis makes it a competitor for the
alcoholic drinks industry

The legalisation of cannabis will have no effect on the
sales of alcoholic drinks

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Agree Somewhat agree Neither agree nor disagree Somewhat disagree Disagree Not sure

Source: Euromonitor International

Alcoholic drinks are going to provide inspiration and positioning propositions for added-value cannabis
innovations. Branding, packaging and similar references to drinking rituals will gain further traction,
bringing the alcohol and cannabis industries closer together.

© Euromonitor International
Key Regulation Issues

A challenge tobacco and alcoholic drinks companies may experience is the question of what role their
legacy substances have in this new cannabis space. To the extent regulatory regimes recognise the risk
reduction of cannabis use versus other substances, the interaction between cannabis and alcohol and
tobacco will likely be restricted, at least initially. This will take form both of explicit prohibitions on
products containing alcohol and certain cannabinoids and the delineation of public spaces creating
distinct either / or consumption occasions.

Combining cannabis with another substance, particularly THC or alcohol, significantly increases the
potential risks and harm. To date, research in this area is incomplete, so the scope of the issue and the
necessity of legislative action is not yet settled. There are beliefs that alcohol and THC can be combined
responsibly and products with low concentrations of each will play a role in the future.

In terms of tobacco, the potential problems are less acute but broader, relating to both substance
(nicotine) and delivery format (combustion). Combustion is problematic in the prescription of medical
marijuana, and governments in the future could attempt to prohibit or heavily disincentivise the inclusion
of tobacco in cannabis products. Combustion aside, it is not yet clear what, if any, significant effect
nicotine and cannabis have when consumed together.

© Euromonitor International
Brands Leading the Charge
in Innovation

Source: Canndescent

Canndescent
Canndescent is a high-end cannabis brand that claims to be the first to dispense marijuana with strain
names in favour of “effects-based architecture”, including Calm, Cruise, Create, Connect and Charge.
Canndescent is the top luxury flower brand in California with plans to expand into other U.S. states.

Omura
Omura’s Series 1 brings heated vapourisation
technology to the U.S. market even before the
launch of Philip Morris International’s iQOS heated
tobacco ecosystem, which it heavily echoes.
Specially adapted proprietary cannabis pre-rolls,
which Omura termed ‘flower cartridges’, are used
with the device for a more effective means of
delivering cannabinoids.

Source: Omura

© Euromonitor International

Sources top left to right: Indose, The Grower Series,
Cambridge Bay
Indose
Indose, a precise dosage vapouriser for cannabis,
allows users to measure doses of THC or CBD as low
as increments of 0.05 mg. As a consumer inhales,
their dosage is shown in real-time on an LED
display creating a controlled vaping experience.
The Grower Series
Launched in 2018, Coppola’s The Grower Series
is housed in a wine bottle shaped tin embossed
with a marijuana leaf. It contains 3 grams of
flower, a glass pipe, matches and rolling paper.
The tins include three organic cannabis flower
strains chosen to offer “distinct and memorable
experiences that reflect the diverse microclimates
of Humboldt County”. Mimicking a wine label,
Coppola’s cannabis tin states that the contents are
“sungrown in Humboldt County,” highlighting the
importance of terroir in wine.
Brands Leading the Charge in Innovation 7
Cambridge Bay
Province Brands normally produces non-alcoholic
beers that intoxicate using THC and other
phytocannabinoids. The firm says its
alcohol-free, cannabis-powered beers and spirits
aim to challenge the alcohol industry by offering
“a safer and healthier alternative that is also
gluten-free and low in calories and sugar”. Province
Brands recently expanded by launching Cambridge
Bay, their first hemp-based beer containing alcohol.
Cambridge Bay Imperial Pilsner is a beer brewed
from parts of the cannabis plant — including
stalks, stems and roots, which would otherwise
have no commercial value — instead of barley.
© Euromonitor International
8 Brands Leading the Charge in Innovation

Source: Grainwave

Grainwave
CERIA Brewing Co. launched Grainwave, a beer infused with 5 mg of THC. It is a “fresh, medium-bodied
ale with blood orange peel” and is available in cannabis dispensaries in Colorado and is due to roll out
in California and Nevada this year. CERIA is working closely with Ebbu, a cannabinoid research firm in
Colorado developing a set of formulations that “inspire specific sensations.”

© Euromonitor International
Future Trends

All in the mind: Cannabis, terpenes, mood states

and cognition
Trends around mental wellbeing, mood health and cognitive function improvement are increasing across
industries. For instance, in the form of neurocosmetics in beauty and personal care and nootropics,
adaptogens and natural stress relief in food, beverages and consumer health. Emerging cannabis products
will contribute to this trend and will enhance the tobacco industry’s future of being a mental wellbeing
substance provider. However, the precise nature of cannabinoids in this area, as well as the market
response, remains unclear.

While it is possible to link the effect of terpenes, fragrant oils that give cannabis its aromatic diversity,
directly to neurocosmetics and substantial evidence exists for cannabinoids functioning as stress relievers
and mood regulators, cannabis’ claim as a nootropic is less clear. As CBD is appearing in nootropic
products, the memory impairment related to long-term THC consumption could complicate its case.

Companies are beginning to make modest claims for products with wellness benefits. In order to sustain
or expand cannabis’ positioning as a mental wellbeing product, operators will need to be able to prove
the claims with scientific evidence. Without effectiveness, consumers will not continue to purchase even
more modest products, and without evidence, regulators will not allow companies to make claims of
greater gravity.

© Euromonitor International
10 Future Trends

Customisation: A vision of a hyper-customisable

future
The quest for customisation and personalisation is a key consumer driver, particularly among emerging
generations. Already a highly flexible substance, developments within the industry over the coming years
will increase its ability to tailor and target the specific needs of individual adult consumers. Strain variety
provides an initial building block for customisation. Cannabinoid ratios will increasingly be tailored to
meet particular needs, target specific occasions and achieve clearly defined sensations.

Terpenes will be layered to allow flavour and scent sophistication to reach new heights. It will also utilise
synergy attributes to tailor results further through the “entourage effect”, the concept that cannabinoids
act synergistically in concert.

Endocannabinoid system matching will be the end game. Mapping individual endocannabinoid systems
would allow for the creation of products tailored directly to their physiology, ushering in a new dawn for
the recreation, health and wellness and medical industries.

© Euromonitor International
About the Authors

SPIROS MALANDRAKIS
Industry Manager, Alcoholic Drinks
Euromonitor International
Connect on Linkedin

As the Industry Manager for Alcoholic Drinks research, Spiros has provided insights on the
evolution, branding and innovation of the global alcoholic drinks industry for more than a decade.
He currently highlights opportunities and pitfalls for the cannabis market and its intersection with
other FMCG industries.

Spiros is a key author for Drinks Business Magazine, contributor for Just Drinks and Drinks
International and regular contact for Bloomberg, the BBC, the Independent, Financial Times,
Reuters, TIME, WSJ, CNBC and other media outlets.

Spiros is a regular keynote speaker for some of the industry’s most high-profile conferences,
providing irreverent, opinionated and independent analysis.

© Euromonitor International
12 About the Authors

SHANE MACGUILL
Industry Manager, Tobacco
Euromonitor International
Connect on Linkedin

As the Industry Manager for Tobacco, Shane conducts in-depth research and provides strategic
analysis on tobacco and nicotine globally. He works with a range of industry stakeholders to map
the potential evolution of these industries and their relationship to cannabis.

Shane is a frequent contributor for media outlets on tobacco-related topics, including: CNBC,
Reuters, France 24, BBC, the Economist, Bloomberg, Financial Times, the Sunday Times and Times
of London.

In addition to contributing to key industry and retail conferences, Shane engages in research
forums and special projects with clients on topics such as regulation, reduced risk products and
future industry trends.

© Euromonitor International
How Can Euromonitor
International Help?

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