It’s looking like Dry January may no longer be a New Year’s resolution confined to a single month.

Even before the US surgeon general, Vivek Murthy, issued a warning about the link between alcohol and cancer, Americans were cutting back on drinking. Millennials and Gen Zers have led the charge of drinking less in recent years. A Gallup survey found that between 2021 and 2023, 62% of 18- to 34-year-olds in the US drank alcohol, down from 72% between 2001 and 2003.

Dan Ahrens, the chief operating officer and a portfolio manager at AdvisorShares, has been monitoring the alcohol space for over 25 years and oversees the AdvisorShares Vice ETF (VICE), a fund specializing in so-called “sin stocks” such as alcohol, tobacco, and gaming. America’s changing consumption habits have big implications for his portfolio.

“Years ago, we used to be able to think that alcohol and alcohol companies were recession resistant, that people would keep drinking no matter what was going on in the economy and the stock market,” Ahrens told Business Insider.

That’s part of the appeal of sin stocks — consumer demand for these companies’ products has traditionally remained high despite economic conditions. But that all-weather appeal is dropping as general demand for alcohol appears to be in a secular decline.

“The VICE ETF has probably less alcohol exposure than it’s ever had before,” Ahrens added.

Alcohol companies are rebranding

After Murthy’s report, released on January 3, made waves, alcohol companies felt the sting. Shares of Anheuser-Busch InBev, the producer of Budweiser, dropped over 2%. Shares of Diageo, the producer of Captain Morgan rum and Ketel One vodka, shed nearly 4%.

Ahrens isn’t planning to exit his fund’s exposure to alcohol altogether. The alcohol industry is large and fragmented, and companies are getting creative to keep up with America’s changing and increasingly nonalcoholic tastes.

In 2022, Constellation Brands, which produces brands like Modelo and Corona Extra, launched a nonalcoholic beer. Heineken reported earlier in October that it had seen an uptick in sales of its nonalcoholic beverages

“You have to look at individual companies. Some companies are very large and diversified across spirits, wine, and beer,” Ahrens said.

“In recent years we saw a lot of the big beer companies really lean towards alternative drinks like seltzers and ciders,” Ahrens added.

Dry (and high) January

Americans may have replaced one vice with another. Younger generations may be drinking less alcohol, but they’re consuming more cannabis, Ahrens said. Indeed, the percentage of Americans who report smoking marijuana has more than doubled over the last decade, from 7% in 2013 to 15% in 2024, a Gallup poll found.

Alcohol companies have taken advantage of this preference shift by incorporating hemp- and cannabis-based drinks into their product lines in addition to nonalcoholic ones, Ahrens said.

The increasing interest in cannabis-based beverages has been further spurred by a federal policy loophole in the Agriculture Improvement Act of 2018, more commonly known as the 2018 Farm Bill. This bill legalized the growth and sale of hemp, which contains low concentrations of cannabis compounds. As a result, even though cannabis legalization is a state-by-state endeavor, this loophole permits the sale of certain cannabis products nationwide.

“It’s kind of a backdoor legalization for a certain level of hemp,” Ahrens said of the Farm Bill. “In the last two years, hemp-based beverages have exploded.”

3 vice stocks to watch

Some beverage producers have been quick to take advantage of the increased demand for cannabis and build out their cannabis beverage lines, Ahrens said.

One holding in the VICE ETF, Boston Beer Company (SAM), unveiled a line of nonalcoholic cannabis cocktails in December. This follows the company’s 2022 launch of TeaPot, a cannabis-infused iced tea.

Second, the Canada-based cannabis company Tilray Brands (TLRY) has been pursuing an aggressive M&A strategy to expand into the beverage industry and break into US markets, acquiring four craft breweries from Molson Coors in August 2024.

“They’re also getting into the United States through the hemp-based beverages as well,” Ahrens said.

Ahrens also sees an opportunity outside cannabis beverages. Turning Point Brands (TPB) is another one of his picks. It’s known as a traditional tobacco company, but Ahrens noted they own Zig-Zag rolling papers, a popular product for cannabis consumers.

Correction: January 13, 2025 — An earlier version of this story misattributed a survey about US adults’ alcohol use. Gallup conducted the survey, not the Pew Research Center.