Craft Beer, Best Buds

Craft Beer

In the world of spirits, craft beer has really only one best bud. Well, that is in a matter of speaking, of course. With recreational marijuana staging a spectacular comeback in Colorado and Washington, there has been much talk about the barley taking a beating from weed. So far, there have been no complaints from the beer industry, and it is likely that there will not be any reason to complain in the future either.

Before delving into the details, it would be helpful to understand how craft beer is different from big breweries, like Budweiser.

Size does define this industry, and though it is small, it has some time-tested qualities of being independent, traditional, and innovative. These brewers are more likely to be involved in many local activities including philanthropy, and taking a more personal approach to their customers’ taste in beer, unlike their bigger brothers who have to cater to their shareholders. Brewpubs, microbreweries, regional breweries, and contract breweries define the industry of craft beer. As of June 2013, there were 2,483 total craft breweries in the U.S., as compared to only 24 large, non-craft breweries. This huge difference between the number of craft and large breweries provides some idea of how different the two business models are. While one is bulk production with little to no innovation, the other is crafted for its customers’ unique tastes.

According to the figures released by the Brewers Association, craft brewers grew by 18 percent in volume and 20 percent by revenue in 2013. This growth was better than 2012 when craft brewers grew by 3 percent in both categories. On the other hand, the overall U.S. beer sales were actually down by almost 2 percent by volume in 2013, and the imported beer was down -0.6 percent during the same time. This trend has been consistent over many years now, and is likely to continue. As of 2010 census, Vermont, Oregon, Montana, Alaska and Colorado were the top five states in breweries per capita in the U.S.

As for the new “bud tenders,” craft beer may be their other best friend. Colorado Governor John Hickenlooper said his state is expecting $134 million in tax revenue from the sale of medical and recreational marijuana this fiscal year. “It’s well on its way to being a billion-dollar industry,” told Michael Elliott, the executive director of the Marijuana Industry Group, to The New York Times. Sure, there is the problem that this industry is not legal under federal laws, and therefore, new business owners cannot get small-business loans from banks. However, considering the initial stages of recreational marijuana, and the potential tax revenue opportunity for the federal government, it is likely that it takes a friendlier approach to these entrepreneurs.

The demographics of the consumers in recreational marijuana use may well be the key for this industry establishing itself with U.S. government’s blessings. According to data from the Substance Abuse & Mental Health Data Archive (SAMHDA), close to 50 percent of adults age 18 to 49 have used marijuana at least once. Of these, almost 45 percent are white, 38 percent African-Americans, 27 percent Hispanics, 16 percent Asians, 46 percent Native Hawaiians, and 44 percent from other races. Another interesting fact is that marijuana use is higher for those with 1 to 3 years of college education (50 percent), and 45 percent for those with 4+ years of college. Finally, 52 percent of divorced or separated, and 48 percent of those who have never married, have smoked marijuana. These statistics are likely to be in favor of the push to make marijuana a legitimate business not just in a few states, but most.

Looking at both craft beer, and marijuana in this light, these two industries are more likely to be best buds in just a few years to a decade or so. It may not be true however, for the big brewers, but they can take comfort in the fact that they had their days. Perhaps, it may even behoove them to support college education, for that still appears to be one place where their beer may have advantage over craft beer, not necessarily because it is good, but because it is beer, and it is cheap.

Opinion by Amit Singh

The Motley Fool
Brewers Association
Substance Abuse and Mental Health Data Archive (SAMHDA)