As regulation on cannabis use is loosened around the U.S., and various scientific research reveals the medical benefits of marijuana and the relatively low risk of recreational use versus drinking alcohol, young adults are rapidly shifting their perception on the once-taboo drug.

Cowen analyst Vivien Azer wrote in note on Thursday that Millennials​ ages 18 to 25 have decreased their incidences of alcohol consumption 2.5% each consecutive year. Over the same period, they have upped their marijuana usage 4.6%. To the greater expense of American beer giants such as Molson Coors Brewing Co. (TAP) and Craft Brew Alliance Inc. (BREW), the trend doesn’t end with Millennials, as consumers in the next-oldest age bracket, from 26- to 29-years-old are also holding off on the booze, with consumption down 2.8% over the past two years. (See also: Study: US Spirits Gain Market Share Against Beer.)

Pot Up, Booze Down

Azer attributes Millennials’ evolving consumption habits to a change in risk perception, with a Yahoo News poll in March indicating 56% of American adults say cannabis use is socially acceptable and nearly half support legalization. A recent report by medical marijuana delivery startup Eaze reports 82% of its customers reduced their booze consumption as a direct result of cannabis use. A Cowen survey in Ontario indicated that 72% of respondents using marijuana said that they drink less.

"As cannabis use continues to increase, this preference to avoid dual use, or to moderate alcohol to accommodate dual use, would represent a sustained headwind for alcoholic beverage trends," wrote the Cowen analyst.

Preparing for the Competition

Azer proposes that the most well prepared in the alcoholic beverage industry to manage the new competition is Victor, N.Y.-based Constellation Brands Inc. (STZ), due to its strong wine portfolio. (See also: Constellation: Analysts Cheer Unexpected Q4 Report.)

The Cowen analyst suggested that the American beer importer and spirits maker “has among the most defensive alcohol portfolios as it related to cannabis risk ... tend[ing] to under-index to cannabis consumers." With middle-to-high-income consumers and women both preferring wine over beer and less likely to consume marijuana, Azer says Constellation hedges against the weed craze better than its beer-focused and lower-quality beverage peers. Further, the company’s imported beers target young, high-frequency drinkers and Latino costumers, with the lowest rate of cannabis consumption of any ethnic group.

On the other hand, the Cowen analyst warns against Molson Coors’ narrower, lower-priced beer portfolio, with its target demographic groups in Canada and California as some of the most likely to switch over to marijuana use. Craft Brew Alliance is also at risk, suggests Azer, with over half of its sales in the burgeoning weed markets of California and the Pacific Northwest. While Azer says the craft beer industry’s overall decline presents long-term issues for BREW, AB InBev’s (BUD) 31.5% stake in the company and option to acquire it within the next few years offers “both good downside support and upside potential.” (See also: Legal Pot Sales to Exceed Cereal Sales in 2 Years.)

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