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Marijuana versus alcohol: How the two U.S. industries are handling inflation and what that means for consumers

Aug 11, 2022 | Media Partners, The GrowthOp

This post is presented by our media partner The Growth Op
View the original article here.

Just because prices haven’t immediately skyrocketed does not mean there is no internal struggle

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If there are two things that Americans can’t escape right now, it’s rising prices and the discussion of rising prices.

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There is no denying that inflation is high, with the most recent rate at about 9.1 per cent, according to Bloomberg. Still, not all areas of the economy are being affected in the same way, including, for example, cannabis and alcohol.

While these two industries have been hit by rising costs and supply shortages, their product prices are not growing at the same rate as many other consumer goods. In fact, cannabis prices have gone down.

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But if one looks more closely at these two industries, it’s clear that just because prices haven’t immediately skyrocketed does not mean there is no internal struggle. Both have their own set of inflation problems and their own ways of coping.

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One major difference between alcohol and cannabis is how each can be bought and consumed. Marijuana is only legal in certain U.S. states, and as such, must be purchased through a licensed recreational or medical dispensary.

Alcohol, on the other hand, can be purchased and consumed in many ways. A consumer can buy it from the source (a vineyard or distillery), at a wholesale club, at a retail store or at a bar or restaurant. All these different methods of purchase have a different experience, and come with a different price.

This wide variety of buying methods makes alcohol affordable to pretty much all Americans, but rising costs has resulted in a decrease in some of the more expensive ways in which the product is normally consumed.

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Per a poll by Morning Consult: “More than eight in 10 respondents who say they’ve made adjustments are eating out at restaurants less often. Roughly three-quarters are going to bars less often.”

This means that while the alcohol manufacturer may still be able to sell the same amount of product, certain aspects of the industry are suffering.

Many people who might have had a few beers at a bar may be more likely to buy a six-pack on sale at the store instead. This makes any price increases less obvious, since the consumer is likely left feeling like they have saved money by buying at a store rather than a bar, even if the tab for that beer or wine purchased has still gone up.

Even if alcohol sales have not plummeted as of yet, the cost of doing business appears to be starting to trouble even the most successful alcohol manufacturers. This is not just a U.S. issue either.

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Take the wildly popular international beer brand Heineken as an example. The brewer’s chief executive, Dolf van den Brink, told the Financial Times the following: “Across the board, we are faced with crazy increases. There’s no model that can handle this kind of inflation.”

Even if alcohol sales have not plummeted as of yet, the cost of doing business appears to be starting to trouble alcohol manufacturers. /
Even if alcohol sales have not plummeted as of yet, the cost of doing business appears to be starting to trouble alcohol manufacturers. / Photo by HASLOO / iStock / Getty Images Plus

The company is not alone, with overall beer prices already up 4.3 per cent throughout Europe, according to The Guardian.

Marijuana manufacturers, on the other hand, are having a different price problem. Cannabis must be bought from a licensed dispensary, but increased competition in the legal market and persistent illegal competition has made it difficult for companies to raise prices.

As previously reported, “The cost of cannabis has been declining in many major markets for months, with consumers seeing prices per milligram trending down for most of the year.” As so many other prices rise, the cost of weed is getting more affordable.

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This might seem like great news for consumers — and for now, it is — but, eventually, cannabis cultivators will have to pass the rising costs of business on to the consumer. Since increasing prices is currently seen as too risky in the current marijuana market, many large companies have scaled back operations and even laid off portions of their workforce.

This also means less variety of product at many stores. So, while marijuana may appear to not be affected by inflation given its shrinking prices, a deeper look will show that the business at its core is struggling to grow.

Cannabis is still a new business, and it is enduring another test from the financial powers that be.

Alcohol, on the other hand, has been through prohibitions, recessions and depressions before. This doesn’t it does not struggle as much as other industries, but it does mean there have been some lessons learned, which, in addition to being legal on a federal level, offers a bit more wiggle room to set prices and grow in these times.

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Regardless, both cannabis and alcohol industries are reporting profits, maybe just not as much as expected. Perhaps more importantly, both sectors remain affordable for the consumer.

That does not mean, however, that one day one or both of these industries might need to raise prices to ensure they stay afloat and profitable.

The, a U.S. lifestyle site that contributes lifestyle content and, with their partnership with 600,000 physicians via Skipta, medical marijuana information to The GrowthOp.

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