The Horse Race Between Weed and Beer

Apr 20, 2016 in Alcohol Beverage, Mobile, Startups

Did you know that Colorado’s journey to legalized marijuana started in 2000 with Amendment 20? This amendment permitted less than 2 ounces or six plants per person for medical-marijuana use. Some patient caregivers moved into a commercial-distribution role, which the Colorado Department of Public Health and Environment attempted to block in 2007 and again in 2009. Sensible Colorado sued and won both times, allowing caregivers to distribute to an unlimited number of patients. Following this court victory, David Ogden, Deputy Attorney General, directed that federal resources should not be used against medical marijuana.

Colorado’s next legalization move came from implementing the Colorado Medical Marijuana Code. Two bills, SB 10-109 and HB 10-1284, moved dispensaries from a legal gray area into a fully regulated industry. HB 11-1043 introduced additional regulations and cleaned up some problem areas from the original bills. With the full approval of Colorado’s government and the federal government limiting its interference, the legal marijuana industry is growing faster than the plants themselves. The alcohol industry is known for lobbying against marijuana-legalization efforts, but there may be no competition. Are weed and beer companies actually at odds with each other in Colorado?

Two Distinct Markets

Many alcohol-related businesses worried that marijuana would cut into their customer base. While weed and alcohol both fall under the so-called “vice-industries” label, the two markets don’t necessarily cannibalize each other. Customers enjoy recreational activities in both markets, which appeal to two distinct audiences. A major difference lies in product use. Cannabis users can’t sit in a business and smoke. Instead, they consume weed on private property. Colorado’s beer drinkers, particularly the vibrant craft-brewing segment, have a more social experience at bars, breweries and restaurants. Each product provides a vastly different consumption style, which helps to keep both markets strong.

The Marijuana Industry’s Impact on Colorado Alcohol Sales

Colorado’s marijuana industry grew rapidly in the two years after legalization, with a $1 billion valuation in 2015. About $135 million of that goes to taxes and license fees, creating a significant boost in the state’s tax revenues. Early business ventures in this industry spent some time finding their footing, but startups are firmly on the path to a mature model. You’ll see that no major companies control the cannabis marketplace, although some acquisition and consolidation efforts take place. It mirrors Colorado’s liquor landscape, which has hundreds of breweries, wineries, and independent liquor stores. Despite the alcohol industry’s fears that legal cannabis would eat into their profits, Colorado’s liquor businesses are seeing increases up to 3 percent in alcohol sales.

A boost in tourism also brings many travelers in to the state, with a record-setting 71.3 million people visiting in 2014. Colorado continues to see steady increases in tourists, who seek out both craft breweries and marijuana dispensaries. Some people refer to the state as the “U.S. Amsterdam.” The cannabis and beer industries can clearly establish a symbiotic relationship.

Limited legalization countrywide also limits marijuana-related product sales to specific markets, while Colorado-based craft beers can hit shelves across the country. Extended market reach and better opportunity for brand awareness allow alcohol brands to largely mitigate any negative impact from marijuana sales.

Industry Crossovers

The industries have some crossovers as companies experiment with weed-infused alcohol. For example, the Dad & Dudes Breweria offers an IPA with cannabidiol oil. The brewery debuted the product at the Great American Beer Festival. It’s creating a “Canna-Beer” series, which positively leverages Colorado’s marijuana industry. The cannabidiol doesn’t contain pot because it comes from the hemp part of the plant, thus allowing widespread distribution of this beer.

Vodka comes in hundreds of flavors, so it’s no surprise a micro-distillery wants to use this spirit as the base for weed-infused liquor. Humboldt’s Finest focuses on capturing the herbal flavor of fresh cannabis while remaining within legal limits. The product stays under 0.3 percent THC so that this “pot-vodka” won’t create a “high” effect. It does, however, contain 40-percent alcohol.

As legalization efforts increase across the United States, more opportunities for partnerships will develop for related businesses. While Colorado’s alcohol sales receive a boost from the weed industry, alcohol-related companies can leverage crossover products to expand an existing customer base and piggyback on marijuana’s marketing efforts. For example, Ska Brewing Company threw a Pints and Pipes party, which featured the company’s signature craft beers and a free, branded marijuana pipe.

The Future Influence of the Cannabis Industry

Many states are considering legalizing medical or recreational marijuana, but these efforts go slowly in many areas. If all 50 states adopt legal-cannabis regulations, the market potential reaches $36.8 billion. The alcohol industry sees $211.6 billion in revenue, so even if every state embraces marijuana, both markets can coexist peacefully.

For the alcohol industry, dispensaries and marijuana legalization efforts are not competition. Breweries and alcohol conglomerates alike should play up the social experience spirits and other beverages bring, reach out to nationwide markets, and look for ways to partner with the rapidly growing weed industry.