Progress report for GNC21-337
Project Information
The emergence of niche crop markets and local food and drink value chains have offered small farmers an opportunity to diversify crop selection and increase profitability, but burgeoning markets are subject to boom-and-bust cycles that can leave farmers without an end-buyer. The craft alcohol movement has become one of these budding markets, with the number of local breweries, cideries, distilleries, and wineries growing steadily over the past decade. With this, the North Central region has seen a boost in specialty crop production to supply locally-sourced inputs to these craft producers.
The 2018 Farm Bill also legalized industrialized hemp production, offering yet another specialty crop for local farmers to consider. Industrialized hemp has several end-uses including fiber and feed, but the use of particular relevance here is the commodity’s cannabidiol (CBD) content. While countless CBD products have entered commerce—from CBD-infused muscle rubs to lotions to edible food and beverage—little is known about the long-run potential for cannabis-infused products, leaving farmers wondering about the economic longevity of producing for the industry. Further, many states have cannabis with tetrahydrocannabinol (THC), which could serve as an economic complement or substitute for craft beverages. It is unknown to what extent this policy reform will impact craft beverage markets, but any effect on craft beverage producers will also impact the profitability of farmers supplying the ingredients for alcohol production.
The proposal outlined here, titled “Consumer preference for alcohol and cannabis products and its impact on the economic sustainability of local farms and craft beverage producers,” considers analyzing consumer preference for alcohol and cannabis products to uncover the preferences for the two goods and identity the demand for cannabis-infused, non-alcoholic beverages. In achieving these objectives, we will evaluate how cannabis reform is likely to affect the alcohol supply chain, and we will offer market insight to farmers and craft beverage producers on how to adapt to these evolving markets to mitigate risk and uncertainty.
We use data from an online survey distributed to a representative panel of U.S. households to understand consumer preferences, attitudes, and consumption habits of alcohol and cannabis products. Examining these two markets within a single experiment allows us to identify how alcohol markets could change given cannabis reform.
Expected output includes three to four academic publications as well as outreach publications. Information will be disseminated to our target audience of farmers and craft beverage producers through conference presentations. Project findings will also be shared with a more general audience through podcast episodes, popular press articles, and social media campaigns.
We identify three primary learning outcomes associated with this grant proposal. First is a more thorough understanding of the alcohol and cannabis laws regulating production, distribution, and commerce, emphasizing the North Central region. This understanding will be obtained through a review of the academic literature and state policies. Knowledge will be disseminated to our target audience, including craft beverage producers and farmers, through various outreach and extension outlets, increasing awareness of the laws regulating farmer, producer, and consumer behavior.
Second, by identifying consumer preferences for alcohol and cannabis products, we will calculate substitution patterns, or elasticities, within the industry. Generating and sharing this knowledge with our target audience will leave members of the alcohol supply chain better equipped to manage these evolving markets.
The final learning outcome is understanding the demand for alternative beverages, as this demand affects farmers and beverage producers alike. Uncovering consumer demand for cannabis-infused beverages will equip farmers and beverage producers with the knowledge to make production decisions.
The proposal also has three intended action outcomes. Primarily, for small-scale farmers with specialty crops, the expected output will better inform decision-making on niche crop selection, mitigating uncertainty about the longevity of these markets, which in turn increases expected profits. Next, the output will influence local craft beverage producers' production decisions as they continue to innovate. Finally, the proposal seeks to heighten industry collaboration amongst stakeholders across the alcohol and cannabis supply chains, increasing market coordination, participation, and lobbying efforts.
Cooperators
- (Researcher)
Research
We construct a survey instrument to achieve our main objectives. The initial proposal outlined three surveys, each focusing on cannabis and a single alcohol type. Instead, we use one survey that combines cannabis and all alcohol types because of insights from conversations with industry members and advancements in the choice modeling literature. In brief, our discussions have conveyed that having a holistic view of the beverage market is essential (i.e., do not consider the relationship between one type of alcohol and cannabis in isolation). Many adults consume more than one type of alcoholic product, and we wanted to create a hypothetical setting that mimicked the real-world purchasing environment. If we only focused on one alcohol type at a time, we may bias the estimates since we do not observe the whole market. Recent advancements in the economics literature provide a convenient tool to address this change in the study's framework.
The survey begins with a series of demographic questions to ensure we obtain a sample representative of the U.S. population with respect to gender, age, income, education, and region. Following these questions, respondents will participate in a hypothetical economic experiment. This serves as the primary portion of the study. In this experiment, known as a basket-based choice experiment, consumers will be presented with multiple types of alcohol and cannabis products that vary in price. Consumers will be asked to select the alcohol and cannabis products they would select if they faced this decision in real life. In analyzing the responses to this experiment, we will address the primary objective of this study, which is to understand whether alcohol and cannabis are economic complements or substitutes.
A secondary objective of this study is to analyze the demand for cannabis-infused beverages. The experiment described above partially addresses this goal by including cannabis-infused sparkling water in the experimental framework. For a more comprehensive analysis, however, respondents will answer a series of follow-up questions regarding their willingness to pay (WTP) for various cannabis-infused beverages. Specifically, respondents will be asked to state their WTP for 14 products, including CBD- and THC-infused options. We ask about the WTP for a 12 oz. can of non-alcoholic beer, wine, ready-to-drink, and cider for both CBD and THC. We also ask about their WTP for 12 oz. cans of sparkling water, sweetened iced tea, and iced coffee to understand the demand for more general cannabis beverage product offerings (as opposed to adult beverage-inspired cannabis drinks). Respondents will be presented with a sliding scale that ranges from $0 to $10. From this, we can construct demand curves based on their stated WTP for the product. As stated preference methods can have hypothetical bias, leading some consumers to overstate their WTP, we will include cheap talk scripts following our profession's best practices.
After the questions of WTP for various cannabis-infused beverages, we will ask respondents additional questions about their personal and household characteristics to perform market segmentation analysis. The survey instrument received IRB approval from Michigan State University, and we hired Qualtrics to assess with data collection. Quotas ensure the sample is representative of the U.S. population with respect to key demographics, and screening criteria were implemented to ensure we target the relevant population. Ultimately, we were able to collect data from 2,685 U.S. adults 21+.
Data collection occurred in May 2023 (following IRB approval in March 2023), and primary data analysis occurred from June 2023 to February 2024. However, data analysis remains ongoing. Nonetheless, the current project updates include three academic paper drafts, with expectations to prepare a fourth in the Summer 2024. We summarize the key insights from these papers and list their stage in the peer-review process below.
- "Beer drinker perceptions of cannabis-infused beverages" under review at the Agricultural and Resource Economics Review. Given the rise in non-alcoholic beers, this paper uses survey data from 1,094 U.S. beer consumers to understand attitudes toward and willingness to try CBD- and THC-infused, non-alcoholic beverages. (Note: the sample of beer drinkers listed here is a subset of the full sample.) There are two main components of the study. First, we use regression analysis to uncover which consumers are most likely to try cannabis-infused beverages. Within the survey, respondents report whether they would be willing to try CBD- and THC-infused beverages. Their responses are then used in multinomial logistic regression analysis to understand the characteristics and behaviors most associated with a willingness to try these beverages. The results suggest that more than 50% of beer drinkers in the sample would be willing to try cannabis-infused beverages, and age is the leading predictor. Additionally, craft beer drinkers are more likely to be willing to try THC-infused beverages. Secondly, in developing a hypothetical craft brewing company in the survey, we assess perceptions of alcoholic beers relative to cannabis-infused beverages. The results suggest beer drinkers expect similar safety and nutrition ratings for the traditional and cannabis-infused alternatives. They also expect price premiums on the cannabis-infused options relative to conventional beer.
- "Canning cannabis: Consumer preferences for CBD- and THC-infused beverages" under review at the Journal of Wine Economics: This article uses survey data and double-bounded contingent valuation methods from the total sample of 2,685 U.S. consumers to understand their attitudes toward and willingness to try CBD- and THC-infused, non-alcoholic beverages. This study offers three key findings and builds off the findings presented in the first paper. First, in targeting a nationally representative sample of U.S. adults with respect to different demographic characteristics (rather than just the beer drinkers previously), the study suggests that more than 50% of respondents would be willing to try cannabis-infused beverages, with age being the leading predictor of openness to consumption. Secondly, in constructing 16 hypothetical cannabis-infused beverages and estimating willingness to pay for each product, we show that, on average, consumers are willing to pay $0.60 more for THC-infused beverages than CBD-infused beverages, with juices, iced coffee, and sweetened iced tea being the most popular product options. Finally, it is important to understand the demographics and consumer characteristics driving the acceptance and willingness to pay for new, emerging products. The study determines which consumers are willing to try these products and how much each consumer is willing to pay. In doing so, it evaluates the characteristics associated with higher potential CBD- and THC-infused beverage consumption. The results reveal that age, alcohol use, and recent cannabis consumption best predict a willingness to try and a higher willingness to pay.
- "Sin goods in a basket-based choice experiment: Who bundles alcohol and cannabis?" in preparation for submission to the Journal of Economic Behavior & Organization: This paper presents the results of the basket-based choice experiment using data from 2,010 U.S. adults. The sample size differs from the second paper because we had to exclude respondents who took the survey on their phones due to display differences. This paper achieves the main objective of this proposal in analyzing alcohol and cannabis preferences. It also identifies the consumers most likely to simultaneously consume these substances. Through basic summary statistics, multivariate logistic modeling, and exploratory regression analysis, we challenge the dichotomous generalization of classifying alcohol and cannabis as complements or substitutes. Instead, we show that most consumers view these substances as independent markets, while a non-trivial population views them as complements. The exploratory regression results reveal that males and younger consumers are most likely to bundle these substances. We also show that personality correlates with this bundling behavior, where higher agency, openness, neuroticism, extraversion, and lower conscientiousness predict simultaneous purchasing behavior. These results offer valuable insights that can be used in health policies but also by stakeholders.
A fourth paper will be prepared in the summer that more closely examines the bundling behavior in the third manuscript from an industry stakeholder perspective. This fourth paper will target an entrepreneurship journal.
Extension educators and news media are aware of the work being conducted, which will allow us to effectively disseminate results to our target stakeholders across alcohol and cannabis supply chains once the findings have been published.
Educational & Outreach Activities
Participation Summary:
The study was first presented at the 2022 Agricultural and Applied Economics Association (AAEA) Annual Meeting in Anaheim, CA, where we discussed the framework of the project and the next steps in data collection. It was also discussed in an MSU Extension hop working group meeting, where opportunities will arise for a presentation at least one state beer conference.
The data were then collected in May 2023, and we have since prepared three articles for peer review, with expectations for a fourth in the summer of 2024. The results of these papers will also be presented at two international conferences in the summer of 2024, including Beeronomics (Milan, Italy) and the American Association of Wine Economists Annual Meeting (Lausanne, Switzerland). Here, we will disseminate key results to a global network of industry and academic professionals and receive important feedback on our project.
As we wrap up the project, additional outreach articles will be prepared, and we expect news media interest upon publication.
Project Outcomes
From an economic perspective, the emergence of craft beverage and cannabis markets has allowed farmers to diversify crop selection, which could increase farm profitability. By uncovering consumer demand, willingness to pay, etc., the results assess the long-term viability of these markets to help farmers think about risk and expected future profits. As for the social benefits, many studies have shown that craft beverage manufacturers and cannabis markets have boosted state and local economies through job creation, tax revenue, etc. In sharing our results, we provide insights into the demand for different alcohol and cannabis products. Highlighting these consumer results will have implications that affect local beverage manufacturers and cannabis producers, which affects on-farm decision-making.
During the first year of this project, I have increased my understanding of (i) the regulatory landscape of alcohol and cannabis supply chains; (ii) the manufacturing process of cannabis-infused beverages; and (iii) the delicacies of niche supply chains as they relate to farm profitability and sustainability. In addition, I have increased my survey and experimental design skills, including learning novel mathematical models to model consumer choice in our alcohol and cannabis setting.
During the second year of the project, I (i) improved my survey design capabilities, (ii) learned new analytical tools, and (iii) improved my software programming proficiencies. These advancements have translated to multiple papers seeking publication that highlight the complexity of this new emerging market.