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Even in a bear market, alcohol stocks tend to do well. But the growing legalization of cannabis poses a serious threat to this industry.
Beer stocks are stocks from beer-producing companies. But companies that exclusively produce beer — also called pure play investments — are rare in the beer category. That’s because most publicly traded companies that offer exposure to the beer market also produce other beverages, like wine, spirits and soft drinks.
Beer stocks are typically considered a sin stock: stocks from companies that produce products that may be considered unethical. Sin stocks usually include the following industries:
What constitutes a sin stock in one country may not qualify as a sin stock in another. And that’s because sin stocks are difficult to define. Whether or not you choose to add sin stocks to your portfolio depends on your risk tolerance and personal investment preferences.
You can purchase beer stocks from companies based in the US or internationally. If you’re interested in investing in global beer stocks, you’ll find some listed on US exchanges, while others must be purchased over-the-counter.
While there are no ETFs dedicated entirely to tracking the beer market, there are some ETFs with limited exposure to alcohol stocks.
Beer — like most other alcoholic beverages — tends to enjoy consistent consumer demand. For this reason, some experts suggest beer stocks are a recession-proof investment that typically performs well in a down market.
Another benefit of investing in beer stocks is the stable profits many beer companies enjoy. The regulatory risks that dominate this market make it challenging for startups to enter. As a result, low competition lends itself to stable profits for companies and reliable dividends for shareholders.
An emerging market disruptor has begun to threaten the alcohol industry: cannabis. With more and more states legalizing its medical and recreational use, cannabis consumption is on the rise. Statista reports that in 2018, the global cannabis sector was worth $13.8 billion. But by 2025, the sector is expected to swell to $43 billion.
Now, the growth of one sector doesn’t necessarily detract from another. But alcohol consumption isn’t what it once was — at least not among US millennials. A 2019 Monitoring the Future study found that daily alcohol consumption among college students dropped from 6.6% in 1987 to 3.8% in 2019.
Another concern for investors is the higher tax rates associated with sin stocks. Higher taxes have the potential to dig into a stock’s bottom line, affecting profits for investors.
To invest in beer stocks, you’ll need a brokerage account. Compare your options below.
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The beer market tends to perform with consistency, even in a down market. But consider the risks posed by the growing legalization of cannabis before you invest in this popular sin stock.
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