The Jokers, The Tokers, Millennials & Gen Z-ers are The New Age Smokers - Cowen Takes a Look at Cannabis Use Among Younger Cohorts
On Wednesday, Cowen released their "third annual proprietary Gen Z and Millennial survey across six sector verticals". The survey focuses on transformational shifts in spending power, variance in spending preferences, and analyzes how sustainability continues to resonate widely with younger consumers. The analysts see digital transformation rapidly accelerating and unit economics and margins improving, which will support creating robust DTC potential for brands and select retailers, helping to empower brands and create new marketplaces and services.
Of the six sectors that were covered, the sector that resonated most was cannabis and its relationship to younger demographics consumption rates. Cannabis incidences continue to rise in the U.S. with an increase in the number of states adopting adult use and medical cannabis programs. It was approximately three years ago when Colorado became the first state to legalize marijuana for recreational use. So of course the upcoming presidential election will play a big role in the future success of cannabis as well. A potential Joe Biden win could pave a path towards federal legalization while another Trump presidency poses more of a challenge.
Cowen analysts are stressing the prevalence of cannabis consumption in the younger generations compared to tobacco use some years back. As mentioned in the note, "according to NSDUH, over the last 16 years, past month cannabis incidence has broadly expanded 450 bps to 10.5%, while the 18-25 and 26-34 cohorts are up 380bps and 890bps respectively." While incidence for Millennial and Gen Z remains above the total adult population, regulatory shifts will be just as important to market formation as demographic shifts."
The options of consumption amongst the age groups were also studied in the note with analysts suggesting an increased mix towards younger consumers results showing more sales of flower and vapor cannabis products, which over-index against the broader population. However, edibles appear to be mixed as consumers 18-24 under-index vs. average at 33.6% while the 25-44 over-indexes at +40%. As a 30 year old, I can say that from what I've seen and heard a lot of consumers in my age range prefer flowers over vapor, but swear by edibles.
The analysts also studied whether the Millennial and Gen z cohorts are allowing legislative laws to curb their cannabis enthusiasm. As offered in the note, the analysts' results suggested as more states come online, incidence levels for younger consumers are more likely to increase relative to older cohorts. Among consumers who have never tried cannabis before, 21% of adults 18-24 and 19% of those 25-34 indicated they would use cannabis if it were legal, compared to 16% for all adults.
I am in agreeance with a lot of what the Cowen’s survey expressed. Cannabis use is rampant all around us. It has been decriminalized in some states and the amount of young "mary jane" smokers continues to rise. Tobacco & alcohol sales could struggle to keep up in the future. My recommendation to investors is this: whether you partake or not, cannabis is a rapidly growing industry and one every investor should take note of. As the landscape becomes more clear, there will no doubt be some good opportunities out there to help your portfolio fly high.