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The Marijuana Menace

Jul 14, 2017 07:52AM ● Published by Leland Rucker

The headlines have been as intriguing as they have been ominous: “Weed will soon clobber beer sales, Wall Street Says,” CNBC. “Beer Industry Could Lose $2 Billion from Legal Marijuana,” Forbes. “Big Alcohol Is Working to Undermine Marijuana Legalization, Wikileaks,” SFGate. “Why Is Booze Business Against Legal Pot?,” Boston Globe.

The stories, many in business sections or magazines, indicate that companies in the alcohol industry should be increasingly wary of the possibility that cannabis might eat into future market share. A new study conducted by Monocle Research for OutCo, a cannabis company in California, suggests that 50 percent of millennials in California will choose cannabis over alcohol when it becomes legal for recreational use on January 1, 2018. A study by financial analysts Cowen & Co. suggests that beer volume sales in Colorado, Oregon, and Washington—three states where cannabis is legal for adult use—are down 2.5 percentage points. It’s not too surprising that the alcohol industry went on the offensive.

A WikiLeaks dump during last year’s election cycle exposed a paid segment by the national Wine & Spirits Wholesalers of America encouraging politicians to be wary of marijuana legalization. In Massachusetts, the Beer Distributors Association’s political action committee gave $25,000 to the Campaign for a Safe and Healthy Massachusetts to fight that state’s adult-use initiative last year, and the Wine & Spirit Wholesalers of Massachusetts kicked in another $50,000. Arizona’s 2016 ballot measure to legalize adult use was defeated at least in part by $10,000 donated to the opposition by the Arizona Wine and Spirits Wholesale Association. In Canada, the alcohol industry is lobbying to ensure cannabis faces the same kinds of advertising restrictions as spirited products when adult-use cannabis sales begin in the country next year.

Sounds ominous for alcohol. But it raises some big questions: Is the cannabis industry, currently valued at $8 billion and projected to be $20 billion in five years, a threat to the $220 billion alcohol industry? Are millennials ready to switch their allegiance from beer and wine to cannabis? Or are we reading too much into this?

At least part of it is our current meme mentality: a tendency to oversimplify complex subjects in a sentence or pithy comment. Just because beer sales are down a couple of percentage points in states with legal cannabis doesn’t necessarily mean that cannabis is the cause. People might be drinking less beer because they’re mixing more cocktails, or they might be using cannabis to wean themselves from pharmaceutical drugs instead of trading it for beer. Correlation does not imply causation; just because two things are happening doesn’t mean that one caused the other to happen. Proving causality can be a bitch. So why the alarm?

The director of the Brewers Association, an agency dedicated to promoting and protecting the interests of small and independent breweries in the US, says the Colorado brands he represents aren’t feeling particularly threatened. He notes that the state still has a vibrant tourist economy, and he questions whether beer sales are actually flat or dropping in Colorado. State tax figures for sales in brewery taprooms are notably unreliable, and state revenue data indicate that beer sales are actually slightly up in cannabis states. “Some cannabis users tend to be a little younger and trend toward craft beer over lagers,” he says. “If there is damage, it could probably be to large industrial lagers. It could benefit craft brewers.”

The jury is still out on whether people are switching allegiance from brew to bud, says Taylor West, executive director of the National Cannabis Industry Association. Consumers say they are drinking less, she says, but it’s still too early to tell if people are switching from one to the other. “We’re seeing no panic in the alcohol industry. People are still doing both, and I think that’s likely to continue.”

Hezekiah Jones heads the National Growers Association, a trade organization for agricultural cannabis operations in California that focuses mostly on state policy, licensing, and legislation there. He notes that there will be those who will only consume cannabis, or only consume beer, or consume both, and that probably isn’t going to change. “If they prefer cannabis to beer, they’ll do that. I don’t think it’s going to be that revolutionary a change.”

In California, there seems to be more consideration of synergy between the industries rather than fear of competition. Alicia Rose is CEO of the HerbaBuena Cannabis Company in Marin County, California. A consultant for many years in the high-end wine industry, with a specialty in family-owned wineries, she founded HerbaBuena, a licensed medical marijuana collective, two years ago, with the goal of applying the same standards of purity, quality, authenticity, and sophistication to cannabis that she championed in the wine world.

She says that the current uncertainty reminds her of the days when the wine industry fretted as craft beer grew in popularity. “We had the same conversations when Two Buck Chuck came out,” Rose says of the popular Trader Joe’s cheap wine offering. What they realized then is that people weren’t necessarily trading one for the other. But, she notes, as with any other product, as consumers’ palates become more discerning, their tastes are always changing.

Rose developed the HerbaBuena Social Club for wine/cannabis pairings and tasting experiences that started out as a way to introduce cannabis to curious people who didn’t know where to start. “That has evolved with Proposition 64,” she says, “and now we’re able to offer more lifestyle experiences.”

Rose and the NCIA’s Aaron Smith are both speaking at the Weed & Wine Symposium August 3 in Santa Rose. California. George Christie, who organized the event, has a long history in the state’s wine industry. One of the many hats he wears is hosting vinery trade shows. In the last week of a December 2016 show, a one-hour session was added to examine adult-use cannabis and its possible impacts on their products. “It was the busiest session we have ever had,” Christie says. “Multi-generational wine-industry people who I didn’t expect showed up,” he says. “One speaker asked, ‘Only an hour, George?’”

That pushed him to dedicate an entire day for Weed & Wine, a deep dive into what legalization means and what opportunities might be available. The response, he says, has been unbelievable. Even before he came up with speakers and topics, hundreds of people began asking about sponsorships and offering suggestions. “It became apparent when you have a situation with more questions than answers, this is what needs to happen,” he says.

Christie says among the topics they’ll be discussing will be legitimate concerns over real estate, water, and labor issues that could arise between the industries, but they won’t be particularly focusing on threats to their bottom line. “Our mission for one day is to help educate the wine industry on what’s happening.”

Christie says he’s learning as he goes, and that things are always changing rapidly. The other day, he got a call from someone developing a cannabis strain that tastes like chardonnay. “I don’t think that cannabis people would dispute that they could be looking at the wine industry to enhance the experience. I certainly see the logic to talk about food and wine and cannabis together.”

And those kinds of opportunities and synergies are what might actually be the future of cannabis and wine and craft beer. A recent BDS Analytics survey of cannabis users indicates that many like to pair wine, beer, and spirits with their favorite strains. That’s not as likely to change as quickly as analysts are predicting.

Christie says that most wine operators understand they will be sharing the neighborhood with cannabis. “At the end of the day, a lot of experts are talking, but nobody knows how it will unfold,” Christie admits. “Personally, I think when it all nets out, the opportunities for collaboration are going to outweigh the competitive aspects. It makes good business sense to know what’s happening with your neighbors.”
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