Weed will soon clobber beer sales, Wall Street says

Key Points
  • Cowen says historical alcohol consumption has a "notable inverse correlation with cannabis use."
  • The firm lowers its Molson Coors price target to $105 from $120 due to the risk from the rising marijuana market.
Pot pushing out beer sales
Pot pushing out beer sales

Leave it to Wall Street to come out on 4/20 with comprehensive research about the negative ramifications of rising cannabis use on alcohol consumption.

Cowen lowered its rating for Molson Coors on Thursday to market perform from outperform, saying the beer company's sales will suffer due to increasing marijuana use.

"We believe alcohol could be under pressure for the next decade, based on our data analysis covering 80 years of alcohol and 35 years of cannabis incidence in the US," analyst Vivien Azer wrote in a note to clients. "Since 1980, we have seen 3 distinct substitution cycles between alcohol and cannabis; we are entering another cycle."

The analyst noted during the three most recent cycles of alcohol consumption there was a "notable inverse correlation with cannabis use." She cited how during the 1980s and 1990s alcohol consumption fell 22 percent while marijuana use rose 18 percent.

In addition, alcohol drinking in the 18 to 25-year-old demographic has declined for five straight years through 2015 as marijuana use increased, according to Azer.

Source: Cowen

"For TAP, the emerging cannabis category could prove more problematic, given the company's exposure to mainstream beer in both the US and Canada," she wrote. "While we are confident in TAP's ability to generate their targeted cost savings, we are lowering our volume outlook to reflect our expectations for persistent volume headwinds for the beer industries in these two markets."

As a result Azer decreased her Molson Coors price target to $105 from $120, representing 9 percent upside from Wednesday's close.

"Coming out of the recession, alcohol's recovery has been uneven, while cannabis incidence (and legal sales) have both risen markedly. We believe this sets up the alcoholic beverage category for another cycle of falling per capita consumption," she wrote. "With cannabis adoption accelerating, alcohol volumes will remain under pressure."

— CNBC's Michael Bloom contributed to this story.