Cannabis Musings - May 15, 2025

Hemp's Faustian bargain.

Friends – I’m verklempt about my upcoming appearance on the High Spirits podcast, hosted by AnnaRae Grabstein, CEO of Wolf Meyer advisory, and Ben Larson, CEO of Vertosa. We’ll be talking about the cannabis industry, federal policy, and why I keep doing this. The podcast will stream live on Thursday, May 22^nd at 10am PT, and then be available on your favorite podcast platforms shortly after. Don’t miss this – AnnaRae and Ben offer great perspective and are terrific hosts.

Also, if you like hearing lawyers talk about the law to other lawyers, I’ll be participating in the cannabis banking and finance law panel at the International Cannabis Bar Association’s Cannabis Law Institute on June 13^th in Denver, with Ati Khatri, Counsel at Kilpatrick Townsend & Stockton, moderating.

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We’ve been talking since the early days (2018!) of Cannabis Musings that there’s a logical business synergy between cannabis and alcohol. It’s a thread that’s continued over the years, thinking about when and how the adult beverage industry could, would, and should play a role in U.S. licensed cannabis. We’ve of course seen its presence on the margins – Coppola Wines and Lagunita’s Hi-Fi Hops being the early players, Pabst Labs, Johnson Brothers, etc. – without a direct play because, well, cannabis is still illegal. That hasn’t kept us from talking about whether and how it kind of makes sense for the alcohol industry to be involved post-legalization – robust infrastructure, marketing prowess, well-settled distribution networks, and access to deliciously cheap capital.

So, imagine my delight at the recent pronouncements by two alcohol beverage trade groups – the Wine & Spirits Wholesalers of America (WSWA) and the American Beverage Licensees (ABL) – actively trying to shape federal (so-called) intoxicating hemp policy. The WSWA is a very large trade group representing distributors, while the ABL, although a relatively smaller presence, still plays a role in alcohol beverage policy. In particular, the WSWA has been advocating for a few years now in federal cannabis policy, pushing for a three-tier system of distribution, which would, naturally, benefit the alcohol distributors. Now they’re eyeing hemp drinks, which are now prevalent at big box alcohol stores (though still apparently ignoring the FDA’s pesky Food, Drug, and Cosmetics Act).

On the heels of that news, we learned earlier this week about a bill making its way through Delaware’s House that would not only regulate and limit hemp-derived THC products, but, if passed, would limit their sale to licensed package stores, and only allow for shipment into the state through licensed warehouses. On a similar note, Alabama’s new hemp THC law only allows for sales through retailers licensed by the state’s alcohol beverage control authority.

Nu? See where this is going? It kind of looks like the alcohol beverage industry (manufacturers and distributors) are shaping hemp-derived THC policy. This isn’t news to some in the industry, who are directly seeing the lobbying efforts, and it really shouldn’t come as a surprise to just about anyone else. There’s a lot of pearl clutching lately over fears that the alcohol beverage industry is struggling, which is a subject of a lot of debate within that industry, and a lot of cherry picking of statistics by those outside (another example of why not to just accept a headlines posted by someone on social media), but it’s obvious that alcohol sees an opportunity in hemp beverages (an opportunity we discussed at length a few weeks back).

It's fascinating to watch this all play out in real time. Hemp-derived THC products have undoubtedly taken the wind out of licensed cannabis’ naches (which were already flagging for some time). The licensed cannabis industry had a fair window of opportunity to rally together and stop the hemp train, but, in something of an own goal, never really addressed (or even perceived) the threat, undoubtedly sure of its own path. Yet, here we are. The alcohol beverage industry appears to be poised to subsume the hemp beverage CPG market into its orbit.

What does this all mean, if this plays out as it looks like it will (assuming, of course, the 2025-ish Farm Bill doesn’t entirely eviscerate the hemp THC category, although, if the deep pockets of the alcohol industry are lobbying Congress, this scenario seems less likely than it used to)? For one, the winners and losers will be determined fairly quickly, and the product’s market will take on the hourglass shape that we’ve talked about for licensed cannabis post-legalization. We’re likely going to see federal licensing, labelling, and marketing regulations similar to what we see in alcohol (more on that to come). And, because you get what you ask for when you make a Faustian bargain, potentially some sort of three-tier distribution requirement, where, in order to sell products interstate on a wholesale basis, hemp beverage manufacturers are required to sell through a distributor (generally the case for alcohol in the U.S., with some exception). This system, which has been around for decades, ostensibly exists for “safety” reasons (scare quotes are intentional). It also has the effect of increasing the retail price materially – in addition to the retailer’s markup, the distributor typically makes a margin in the area of 30% (sometimes more, sometimes less). Now, imagine federal and state governments making this mandatory. This is why there’s such a love-hate relationship between alcohol beverage companies and their distributors, and why the hemp industry shouldn’t cede control of its own destiny.

This may be a bargain worth making. A shlekhter sholem iz besser vi a guter krieg (“Better a bad peace than a good war.”). But, the hemp industry can’t say it wasn’t warned.

© 2025 Marc Hauser. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form. The foregoing represents my own views and not those of Jardín.