Why the alcohol industry relies heavily on cannabis


The tide has changed for cannabis in the US, and the alcohol industry is taking notice – and increasingly getting into the game. Cannabis sales in the US are expected to reach $21.6 billion in 2021, with cannabis beverage sales accounting for around $210 million BDS Analytics.

These blockbuster sales come as cannabis legalization spreads; only three states — Idaho, Kansas, and Nebraska — lack any form of legal cannabis, according to the report National Association of the Cannabis Industry. New Jersey and Arizona, among others, passed adult recreational cannabis use last November, and New York is poised to be next.

While previous studies on whether cannabis legalization is affecting alcohol sales have been mixed, health and well-being have increasingly become consumer priorities, and 81 percent of cannabis users believe cannabis is safer than alcohol, according to a survey by New Frontier Data. Many alcohol companies have hedged their bets and made significant investments in cannabis — particularly in the cannabis beverage space.

Cannabis sales in the US are expected to reach $21.6 billion in 2021, with cannabis beverage sales accounting for approximately $210 million.

Constellation Brands made waves in 2017 with its 10% investment in a Canadian cannabis company canopy growth; It has since exercised expiring warrants to hold a larger stake in Canopy, even than Constellation reportedly lost millions as a result. This started a chain of large alcohol companies dealing in cannabis: A Canadian subsidiary of Southern Glazer’sGreat North Distributors, began distributing the cannabis brand aphria 2018 and early 2021 Molson Coors started half-timbered, a CBD sparkling water. Both Lagunitas (owned by Heineken) and pope have launched THC-infused beverages.

Despite talk of cannabis as a threat to alcoholic beverages, industry leaders see opportunity in the cannabis beverage category. Can the influence of big liquor help this growing niche and overcome the ongoing legal and financial challenges?

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The cannabis beverage market consists of two main categories: THC beverages and hemp-derived CBD beverages. Each is subject to its own legal requirements and therefore has different avenues for marketing. However, they attract consumers for similar reasons: Non-alcoholic, slightly fizzy, and low-calorie or zero-calorie cannabis drinks are considered healthy alternatives to alcohol.

Cannabidiol, or CBD, is the most common of the many cannabinoids found in the Cannabis sativa L. plant, from which both marijuana and hemp are derived. the Agriculture Act 2018 Hemp containing only trace amounts of tetrahydrocannabinol or THC removed by US Drug Enforcement Administration Schedule I List of controlled substances. Meanwhile, marijuana, which contains more than 0.3 percent THC, remains a controlled substance.

Because CBD is typically derived from hemp, there has been an influx of hemp-derived CBD products onto store shelves, from lotions and oils to hair products. Canopy estimates that market demand for hemp-derived CBD products will be $10 billion by 2023, with CBD beverages accounting for about $1.1 billion of that.

Photo courtesy of ALT.

“Cannabis is benefiting from the overall shift toward health and wellness as millennials drink less alcohol,” said Robert Davis, co-founder of ALT, a liquid cannabis company that allows consumers to add THC to any beverage. Douglas Siegel, another beverage alcohol insider (most recently at Allied Beverage Group), saw the same health trend in the beverage industry and created Zolt, a hemp powder blended with “Superherbs” to be added to cocktails and soft drinks.

Interestingly, most beverage alcohol companies investing in cannabis are losing what they’ve become experts at with these new products: alcohol. THC and CBD are not allowed in alcoholic beverages, although the TTB allows hemp in alcoholic beverage products if manufacturers follow theirs hemp policy. However, hemp-infused beverage alcohol products are not yet popular; Only 15 labels have been approved in 2020 and none so far this year.

Cannabis beverages that have the backing of a well-established beverage alcohol company could be poised to take the top spot faster.

As a case study for cannabis, Colorado continues to lead the way, and post-COVID, Colorado’s social use licenses — which allow companies to sell cannabis to adults for on-site recreational use — are expected to drive significant growth in cannabis beverages and bringing cannabis into hospitality spaces . “This will open up a whole new avenue for sales,” says Eric Knutson, founder of the cannabis beverage company Keef Brands and formulator of the cannabis portion of Ceriaa THC-infused non-alcoholic craft beer from former brewmaster Blue Moon.

In addition to legalization, better cannabis beverage technology has made it easier for alcoholic beverage brands to enter the beverage space. companies like SōRSE technology have found ways to make CBD, THC, hop oil, and other terpenes water soluble, resulting in a faster and more predictable onset after consuming cannabis beverages. Consistency, which has long been one of the criticisms of cannabis edibles and beverages, is catching up with alcohol use and lending credibility to the category.

Photo courtesy of Quatreau.

Companies like Constellation-backed Canopy Growth, which recently debuted Quatreau, a four-flavor CBD sparkling water, in the US – see an opportunity to lead the still-growing cannabis beverage market. “There are many players but no major national leader,” said Tara Rozalowsky, the company’s vice president of beverages and edibles.

Cannabis beverages that have the backing of an established beverage alcohol company might be poised to grab that top spot faster. “Constellation’s vast distribution network allows for national reach and allows us to get products to market faster,” says Rozalowsky.

Enduring Challenges

Although the increasing legalization of cannabis has allowed cannabis beverages to become more widespread, the category still has legal hurdles and market challenges to overcome. Although THC products are licensed for recreational use in fewer states, THC beverage products have a clearer route to market: Manufacturers can be licensed to become, or sell to, pharmacies.

However, the FDA hasn’t been able to propose the same clear path with hemp-derived CBD edibles and beverages, despite a broader legality of CBD products in general, slowing growth on this side of the category. CBD is a gray area because the FDA bans the use of CBD in food and beverage products, says Austin Stevenson, the CIO of vertosawhich, among other things, supplies the cannabis emulsion used in Pabst’s THC Seltzer.

Photo courtesy of Vertosa.

“It’s not CBD [generally regarded as safe]’ said Ashley Simpson, senior counsel at the Denver-based company Hoban rights group. “It is used in Epidiolex, a prescription drug, and you cannot put drug ingredients in food. However, more and more products are coming to market, she says, because the FDA simply has limited scope to enforce violations, so it only targets “unapproved new drugs,” which include CBD products that make medical claims (like curing cancer or healing depression). Congress reintroduced legislation in February to make hemp-derived CBD legal for use as a food ingredient.

This year could be a milestone for cannabis. Thanks to in-depth pronouncements from Democratic government and public policy, Bob Hoban, the President and founder of the Hoban Law Group, is proposing to decriminalize cannabis in 2021. “States should have the right to define state consumption,” he says, noting that the post-COVID economic recovery is motivating states to legalize cannabis.

Even without full federal certification, the adoption of the Safe Banking Act (launched in 2019) would give the cannabis industry access to funding. Because cannabis is illegal at the federal level, banks cannot accept money from cannabis companies. The Safe Banking Act would allow cannabis companies to do banking with FDIC institutions, a major win for cannabis.

“To scale these businesses, we need tools like debt capital or PO financing to get larger orders and reduce costs,” explains Vertosa’s Stevenson.

Still, it’s challenging for consumers to use cannabis beverages for casual social consumption when a six-pack can cost $60 in some states, says Adam Stites, the CEO of the THC and CBD beverage maker joy provisions. “The tax burden is unfairly placed on cannabis,” he notes.

For example, the tax on a 12-ounce can of Bud Light is approximately $0.12, while the tax on a 12-ounce can of Mirth Provisions THC Legal Tonic is $5.53. That puts Bud Light at $1.21 versus Legal Tonic’s $9.76, making it difficult to attract new customers. “Long term, how sustainable is the THC side [of business] when we can’t add new customers?” asks Stites.

Supporting lobbying for tax breaks and pushing cannabis beverages down to $5 per unit or less is the right thing to do Association of Cannabis Beverages, which represents this growing segment of the cannabis industry, and as more beverage alcohol companies — like Pabst Labs, a member of the Cannabis Beverage Association — invest in the category, momentum is sure to increase. No stranger to lobbying legislation, backing big alcohol companies could give cannabis drinks a real place at the social libation table.

Ryan Malkin is lead counsel at Malkin Law, PAa law firm serving the alcoholic beverage industry. Nothing in this article is intended to be specific legal advice and should not be construed as such.

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