Aloha everyone. As per my custom, below is an unedited  paper written by Tracy Dudick (a rockstar evening student at McGeorge) during my last Craft Beer Law class. This paper examines the sometimes complex relationship between craft beer and legal cannabis.  While there are some similar studies out there, Ms. Dudick provides some great insights and ideas.  See below

Craft Beer and Cannabis Can Coexist

There has been a shift in consumer choice and what is considered culturally acceptable when it comes to legal intoxication. Where nights that used to be filled with a case of domestic beer and joints of a friend’s uncle’s marijuana, now involve a twelve pack of local craft beer and a stop by the neighborhood dispensary. Even more recently with the coronavirus pandemic, the cannabis industry has reached a new level of legitimacy – as cannabis, as a whole, was deemed an “essential” part of life nationwide.

As the cannabis industry continues on the road to legalization, it has been predicted legal marijuana usage could adversely impact the demand for alcohol. However, data suggests legalization in the short term has not affected craft beer sales. In fact, these fears are predominately felt by Big Beer and further pushed through media outlets to create hesitation among the alcohol industry to support marijuana legalization.[1] Despite this rising fear, it seems local craft breweries and some of the world’s largest macro-breweries are leaning into the cannabis industry. At this point, there is no reason to think cannabis and craft beer cannot peacefully coexist, or even support one another.

  1. Craft Beer and Cannabis Can Coexist.

As a preliminary note, marijuana and hops are cousins in the plant world. Cannabis and craft beer are both products of counterculture – where craft brewers have fought for their place in the beer industry, cannabis continues on a slow and uncertain road to legalization. Unlike craft beer, the marijuana industry’s approach to start-up cultivation is considerably more difficult because of higher entrance barriers and stricter regulations.[2] Specifically, the federal government remains marijuana’s most prominent barrier to reaching its full potential. While craft beer is successful at navigating regulatory hurdles, the industry still faces blockades from all levels of government that hinder its true growth.

When the craft brewing industry emerged, the focus departed from America’s typical macro lager and shifted to traditional styles from Europe.[3] This departure led to craft brewers competing to make stronger beers, which subsequently led to greater consumer choice. The craft beer industry’s ability for innovation allows them to offer new products that give consumers choices they previously did not know existed, thus uncovering preferences they did not even know they had. Alike, cannabis innovation can come from anywhere – a grower in their garage or a corporate lab.

According to BDS Analytics, a cannabis market research company, 54% of cannabis users drink beer; however, about half of the cannabis consumers who drank alcohol do not view the two products appropriate for the same occasion.[4] In fact, over a sixth month study, BDS found only 13% of cannabis consumers said they paired marijuana with craft beer. Nevertheless, 68% of cannabis users said their consumption of craft beer stayed the same.[5] Therefore, the evidence suggests the craft beer drinker is not substituting craft beer for a cannabis product – but rather consumes different products at different times.

However, this is not necessarily true in Canada, where marijuana has been fully legal nationwide since October 2018.[6] According to analysts at Wall Street’s Cowen and Co., they believe Canadians are smoking more marijuana than drinking beer because beer sales dropped off by nearly 6.8% in March 2019, which at the time, was the most significant hit in over two years.[7] Moreover, analysts directly connect Canada’s fading interest in beer to the country’s move to legalize marijuana.[8] However, it begs the question if this data considers the considerable change in the beer market in Canada – where mass-marketed, light-bodied lager are on the decline and craft beer is on a rise. Can one really blame it on the weed?

Maybe not. Bob Pease, president and CEO of the Brewers Association, believes the brewing sector is only getting bigger in states that have legalized marijuana – specifically in Colorado, California and Washington. For example, Colorado was one of the first states to legalize marijuana for recreational use and beer sales have not shown any signs of being in jeopardy.[9] In fact, Colorado broke a beer sales state record last year – consuming 1.6 million more gallons of beer than the same month in 2018.[10] A major reason for this boost was lifting the state restrictions – where beer had a 3.2 percent ABV cap on beer sold in retail outlets. Notably, the Colorado cannabis industry recently broke a sales record in March 2019 – further supporting the argument that craft beer and marijuana can live together in harmony.[11]

Furthermore, this arbitrary fear pushed into the media of legal marijuana negatively affecting the beer industry is predominately Big Beer’s fear. In the past decade, Americans have experienced a change in taste regarding food and drink – with farm to fork menus, craft cocktails, and craft beer at the forefront of this change.[12] When Big Beer faced a drastic decrease in the market share, they began to unfairly influence the marketplace by purchasing ownership interest in craft breweries in order to penetrate the market and recover its lost market share.[13] Just like craft beer, Big beer also likely views legalization of marijuana a threat to its market place. Big beer has and continues to lobby against the legalization for fear of a competitive threat.[14] Therefore, it makes sense Big Beer would push against legalization for fear of losing anything more than they already have.

2.  Does Co-Existence Include the Combination?

Now that we have established the growing industries can co-exist in the world of legal intoxication, but can they be combined? In 2017, alcohol infused with hemp or cannabis became a new phenomenon and craft beer circumvented regulatory hurdles and federal prohibition by making a beer that only had cannabinoids and does not contain THC – the psychoactive property of cannabis.[15] But as of 2019, infused beverages only made up a mere 2 to 3 percent of total sales – indicating the possibility that consumers do not want to consume their cannabis the same way they consume beer.

However, the coronavirus pandemic has also impacted consumption behavior recently. As of April 2020, cannabis infused beverage sales have increased by 14%, which is a big jump for the category. The change in consumer sales is seemingly based on the fact the virus attacks the respiratory system, so consumers prefer to eat or drink their cannabis instead of smoking or vaping it.[16] Despite the recent jump in consumption of infused drinks, it is still unclear whether consumers are demanding the infusion of craft beer and cannabis – but that has not stopped Big Beer from investing.

Although most of Big Beer lives in fear of legalization, the large alcohol craft beer acquirers are taking a more progressive approach. Specifically, Big Beer has invested significant money in the cannabis industry, partnering with large legal marijuana producers to invest in cannabis beverage ventures.[17] For example, in 2018, Molson Coors took a controlling stake in a joint venture with a licensed pot producer in Canada. Anheuser-Busch InBev put $50 million toward a similar joint venture with the British Columbia-based Tilray. Lagunitas, now owned by Heineken already sells a hop-flavored, pot-infused sparkling water at marijuana dispensaries, in partnership with Sonoma’s CannaCraft. Constellation Brands, which includes Corona and Modelo, threw down nearly $4 billion — the biggest investment in the history of marijuana — on a 38 percent share in the largest Canadian marijuana producer.[18] For a market player to actively lobby against legalization, these investments beg questions of Big Beer’s intent. Most likely, the reality is Big Beer is trying to break into the market to help increase the slow, steady decline from the past couple decades. However, the logistics of doing this at a commercial level are nearly absurd, as the regulation at state and federal levels are uncertain and unclear. Thus, craft beer should not be concerned with Big Beer’s overwhelming investment. The newly formed relationship between cannabis and Big Beer seems comparable to a business executive marrying a trophy spouse – where appearances seem fun but even if it works, it will most likely be short lived. As legalization continues to change the regulatory environments in states, and eventually the federal government, the production of cannabis-infused beer is on the rise, but it will take time to see if they are here to stay.

Despite the fear peddled by Big Beer, there is no evidence to suggest craft beer and cannabis cannot co-exist in the world of legal intoxication. As consumer palates evolve and counterculture makes its way into culture, we will likely see more of the two industries working in harmony, rather than in competition. Although the change in consumption may demand more batches of cannabis-themed beer, regulatory uncertainty still remains, particularly with the combining THC with alcoholic beverages. As craft brewers and craft growers continue to advance in their innovations, it seems most reasonable for the two industries to support each other as they combat Big Beer and regulatory barriers.

[1] Hayley Peterson, Yep, Marijuana Legalization is Bad News for Beer Sales, SLATE (Dec. 7, 2016),

http://www.slate.com/blogs/business_insider/2016/12/07/beer_sales_take_a_hit_in

_states_where_marijuana_is_legal.html (“The data indicates that many beer drinkers are swapping their six-packs for marijuana instead”, then later citing that mainstream beer sales are down more than craft beer sales. Id.).

[2] Jim Tankersley, How Pot and Hippie Beer Explain the Future of the American Economy, THE WASH. POST (Nov. 7, 2015), https://www.washingtonpost.com/news/wonk/wp/2015/11/07/in-the-land-ofmicrobrews-and-marijuana/?utm_term=.36889bdcc11c

[3] Newman, Tyler, Escape from the Underground: Lessons to the cannabis industry from craft beer, The Growler (Mar. 27, 2018) https://growlermag.com/escape-from-the-underground-lessons-to-the-cannabis-industry-from-craft-beer/

[4] Kendall, Justin, Beer Institute Examines the Marijuana Industry During Annual Meeting (Jun. 13, 2018)   https://www.brewbound.com/news/beer-institute-examines-marijuana-industry-annual-meeting

[5] Id.

[6] Hauser, Lyle, Canada’s legalization of marijuana offers a blueprint for the U.S. (Mar. 22, 2019) https://www.statnews.com/2019/03/22/canada-legalize-marijuana-lessons-united-states/

[7] Adams, Mike, Is Legal Marijuana Hurting Beer Sales Or Helping Them? (May 21, 2019) https://www.forbes.com/sites/mikeadams/2019/05/21/is-legal-marijuana-hurting-beer-sales-or-helping-them/#6358947f47bd

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] 5 N. DAVEY NEAL, CURRENT AND FUTURE ISSUES FACING LOCAL BREWERS AND VINTNERS (2015), 2015 WL 9875437, at *3.

[13] Eileen Faust, Fast Fact About the Merger of Anheuser-Busch InBev and SABMiller, THE MORNING CALL (Oct. 5, 2016) http://www.mcall.com/business/getsmart/mc-fast-facts-about-anheuser-buschinbev-merger-20161005-story.html; For a full list of craft breweries purchased by AB InBev, see The Cut Off – List of Imposter Craft Beer Brands, BREW STUDS, http://wearebrewstuds.com/craft-beer-cut-off/

[14] Scheherazade Daneshkhu and Lindsay Whipp, US Drinks Industry Ponders Effect of Cannabis Legalization, FINANCIAL TIMES (Nov. 25, 2016) note 105 (specifically citing Boston Beer Company, though calling themselves craft beer, as another Big Beer conglomerate).

[15] Press Release, Malkin Law, Cannabis Infused Alcohol (Feb. 14, 2017), http://www.malkinlawfirm.com/cannabis-infused-alcohol/. While hemp-infused beer is technically legal, the regulations by the federal government are abundant: This adds to the already tedious amount of regulations which brewers must face every day).

[16] Salarizadeh, Cynthia, Cannabis Consumer Behavior Alters With Covid-19 Quarantine: Edibles & Drinks Surge (April 3, 2020) https://www.greenmarketreport.com/cannabis-consumer-behavior-alters-with-covid-19-quarantine-edibles-drinks-surge/

[17] Alicia Wallace, Alcohol Goliath Pours $190M into Canadian Cannabis Company, THE CANNABIST (Oct. 30, 2017), http://www.thecannabist.co/2017/10/30/constellation-marijuana-investmentcanopy/91171/.

[18]Lewis, Amanda Chicago, Big Alcohol is pouring billions into the drinkable marijuana market. But is that how anybody wants to get high? (July 30, 2019) https://www.theverge.com/2019/7/30/18639829/weed-beer-drinkable-marijuana-cannabis-drinks-alcohol

 

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