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Joe Biden’s administration is planning to reclassify cannabis as a less harmful drug with a smaller legal penalty, in a historic shift for US drug policy, said people familiar with the matter.
The recommendation from the Department of Justice’s Drug Enforcement Agency would remove cannabis from a list of the most dangerous drugs, including heroin and LSD, and recognise its medicinal use, putting it on par with substances such as ketamine.
Some people were already getting high when we pulled this chart yesterday afternoon:
Although weed’s not what it used to be:
This update has been in the offing for a few months, with the United States Department of Health and Human Services submitting a recommendation to the Drug Enforcement Agency last August (reported about then by Bloomberg and fully revealed in January by Texan lawyer Matthew Zorn) that cannabis be moved from a Schedule I to Schedule III product.
Such a reclassification — putting pot level with products like ketamine and anabolic steroids — is still a significant practical step away from legalisation, by dint of not being legalisation.
Thanks to state-level regulatory changes, legal cannabis is already a roughly $30bn revenue industry in the US, which — given the existence of a little thing called tax — is one of those stats that makes you wonder why it has taken so long for these changes to happen. For context, that’s about a dollar being spent on cannabis for every ten that goes to alcohol:
Whatever happens, it’s not super common that a discretionary spending option flips so suddenly from illegality to being mainstream, and $30bn of spending doesn’t come out of nowhere, even when the mighty, mighty US consumer is involved.
Analysis released by Bernstein last year produced an estimate of $61bn in revenue for the total potential size of the US legal cannabis market without federal legalisation, the same size as wine or spirits, and $95bn with it.
The (perhaps) $65bn question: is federal legalisation the next step? (The the halfway house the US might be about to enter, with cannabis federally cleared for medical reasons, would arguably be a boost for the illegal market.)
Where is that extra spending going to come from? It helps to know who’s buying. If Canada is anything to go by, they’re probably male, probably aged 25-40, and they’re probably middle class. The older they are, the more likely they are to be male.
The wider picture is more surprising. Bernstein estimates that 50 per cent of demand for legal cannabis in Canada is coming from buyers who were previously making illegal purchases. Which, if true, is remarkable, because it means roughly half of the demand is basically new. Within this half, the typical customer is a middle-class woman “with a preference for either vapes, edibles or beverages”.
And if they’re buying cannabis now… what aren’t they buying any more?
The clue is above: alcohol.
Beer didn’t have a great 2023 in the US, with volumes down 1.7 per cent (probably a social good, but who cares about those?). One factor was weed, with 2/3rds of cannabis consumers reporting a reduction in alcohol consumption according to Citi’s write-up of the Beer Summit in San Diego this January. The effect is even more acute among younger consumers, and more in states where cannabis has recently been legalised:
Looking specifically within alcohol categories, beer looks the most likely victim: in Canada, beer sales volumes are down about 2.3 per cent per capita on an annualised basis, while wine (which had a bad 2022) is less than half that and spirits are largely unaffected.
But these numbers are obviously pretty hazy. After all, there are lots of reasons people may be drinking less beer — health consciousness, the strength of pre-mixed drinks, and changeable societal engagement with the fundamental badness of alcohol being some of the most obvious ones. Bernstein analysts say “we believe it is fair to argue that a significant amount of the change in CAGR could be attributed to cannabis”, but that’s clearly pretty open to debate.
It might be a while until the smoke is clear.
(Quick endnote: while researching this we were checking on the provenance and reliability of the phrase “beer before grass, you’re on your ass”, and in the process discovered that Jane Street is also the name of an online weed publication run by a marketing company. So now you know.)
