Technomic's Take: Five Ways Legal Marijuana Impacts Restaurants

Recreational marijuana is legal in 10 states, with as many as 12 more expected to approve in the next 18 months. Pressure from changing social norms, product marketers and the mind-boggling tax revenue potential is likely to prompt the federal government to change marijuana’s classification by 2023 at the latest, opening the door for a cannabis boom.

Current recreational use regulations largely prohibit marijuana and cannabis consumption in public spaces, including away-from-home establishments, particularly those where alcohol is sold or served. So, while menuing beverages with THC as an ingredient or patrons lighting up on a restaurant patio are not likely to occur any time soon, legalization has implications for the restaurant industry. Some are immediate and some are further out, but all warrant consideration.

  1. Keeping consumers home? Marijuana use occurs most often at home, prompted not only by regulations but also because consumers prefer to relax in the privacy of a home, either their own or someone else’s, according to Technomic’s The Marijuana Effect study. Nearly one-fifth of operators in key states confirm slower traffic since recreational use became legal as some patrons are staying home to consume cannabis products, while more than three in 10 operators observe an increase in takeout and delivery orders since legalization.
  2. Patrons under the influence. Pregaming with marijuana—it’s a thing. Nearly two-thirds of cannabis consumers use marijuana or cannabis products before going out to a restaurant or bar. Four in 10 consumers bring a marijuana product with them when going out to a restaurant or bar. While smoking is the preferred format, edibles or other ingestible formats also appeal—the latter takes longer for the user to feel the effect. In either scenario, identifying whether a consumer is under the influence of cannabis can be tricky, presenting challenges relative to alcohol service. What’s more, some consumers substitute marijuana and cannabis products for alcohol, indicating a profitable restaurant category may be at risk. On the upside, cannabis use prompts more food consumption, giving rise to opportunities to increase check averages and market to occasions that involve marijuana, as some QSR chains are already doing.
  3. Menu matters. While consumer interest in incorporating cannabis components such as CBD, hemp and even marijuana into food and beverage items is, for lack of a better word, high, this is an area where caution is advised. FDA regulations currently prohibit the inclusion of CBD and THC in food and beverages. However, hemp juice and other hemp-specific components are not specifically banned. Operators and suppliers alike should monitor regulatory developments on this front and would do well to examine target consumers’ receptivity to such ingredients and the potential impact on brand perception. Despite changing social norms, being marijuana-friendly may prove polarizing.
  4. Adding to labor woes. The burgeoning cannabis industry is a new competitor for already scarce employees, as producers and dispensaries actively recruit bartenders, servers, managers and even pastry or dessert chefs. In addition, one-third of operators in key states indicate finding new hires able to pass a drug test is challenging. Marijuana use prior to and during shifts is another issue facing many operators who indicate such scenarios are typically handled similarly to employee alcohol use.
  5. A new competitor? Consumers express strong interest in cannabis lounges—away-from-home locations where they can ingest cannabis products in a social environment with amenities like those found in bar or restaurant. A handful of establishments licensed for on-premise cannabis consumption exist, however, their number is likely to increase as regulations evolve. San Francisco has seven lounges, and Denver has one. The Los Angeles neighborhood of West Hollywood is making moves to tap into the cannabis tourism and leisure industries with cannabis centers that involve dispensary, delivery and lounge operations. Nevada dispensary operator Essence was granted the first lounge license; the unit is expected to open by year’s end. Should the number of such lounges proliferate rapidly, restaurants and bars will face a highly appealing new competitor for consumer occasions.

As recreational marijuana legalization expands, Technomic data points to increased consumer engagement with cannabis products, and not just among young male adults. Foodservice operators and suppliers must recognize that the growing social acceptance and availability of these products broadens the consumer occasion decision tree: Stay at home and order delivery or go out? Use with alcohol or as a substitute? Patronize a cannabis lounge or a traditional restaurant or bar? Monitoring current and evolving regulations—at the local, state and national levels—is crucial to understand and potentially shape the rules around social use, incorporation into menu items, employee issues and more. Legalization of recreational use will impact the restaurant industry on myriad fronts, shaping consumer occasions and expectations now and for years to come.

Want more? Download the white paper, The Effect of Marijuana on Restaurants

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