Could the Cannabis Industry Outsmart Craft Brewers?

May 14, 2018 .  8 min read

Craft brewers and the cannabis industry have a long relationship that is now flourishing

With names like Shastafarian Porter, Joint Effort Hemp Ale and Fresh Bongwater Pale Ale, craft breweries’ affinity for weed is unabashed and long-established.

“The character of craft beer has been driven by smoking pot,” says Lagunitas Brewing Company founder Tony Magee. “Craft beer and marijuana are kind of closely related, experientially.” For these reasons (and a long list of others) many in the cannabis industry are looking for nods from the booming business of craft beer. As of January 1, cannabis is legal in nine states, but with no precedent for what could be a billion commercial industry, many leaders are looking outward.

It was Lagunitas’ Magee—who last year became global craft director of Heineken after Lagunitas’ sold to the Dutch company—who the National Cannabis Industry Association asked to deliver the opening Keynote address at their Seed to Sale show in February. The two-day Colorado event is one of the organization’s largest conferences of the year and highlights new technology and advancements in the cannabis industry. “You’re in the early phase of something very exciting right now,” Magee recalls telling attendees. “The truth of the matter is that [cannabis is] going to be way, way bigger than craft beer.”

While Magee’s expectations for weed are limitless (he envisions mainstream, corporate companies like Suave releasing soaps and lotions containing cannabis), the industry is by nature, similar to craft beer. For one, because marijuana is still federally illegal and barred from being transported across state lines, it remains a limited industry, he says, contained to geographically isolated markets. The transition from black market to a legal market comes with a push and pull. While many envision marijuana as a brand new industry, its pioneers are actually those who have been growing, producing and selling weed in the dark for years preceding legalization. “Much the same as people who were brewers during prohibition, were the biggest brewers the day after prohibition,” Magee says. To understand the deep-rooted connection between beer and cannabis, look no further than the two products’ shared biological background. Both cannabis and hops—a key component of beer—are part of the Cannabaceae botanical family. Both plants also contain terpenes, a type of organic compound that gives varying hops and strains of weed their unique flavor and aroma. In fact, these terpenes have fueled flavor wars on both fronts, with craft breweries touting specific hops and churning out potent double IPAs, and cannabis companies competing to produce the purest terpenes for maximum flavor.

Numerous craft breweries have even tapped into the tastebud potential of cannabis by releasing specialty beers that incorporate cannabis terpenes into their recipe. When isolated, terpenes are legal for use but still pack pungency, so last year Magee’s own Lagunitas released a terpene-packed IPA dubbed Supercritical. Produced in partnership with AbsoluteXtracts, the symbiotic relationship came full circle as Lagunitas not only used Absolute’s cannabis terpenes in their beer, but the weed company used hop terpenes from Lagunitas in a series of vape cartridges. “You can smoke that vape cartridge in public and it smells like someone just opened a beer,” Magee mentions.

“The truth of the matter is that [cannabis is] going to be way, way bigger than craft beer.”

And Colorado-based Dad and Dudes Breweria took this mash-up concept one step further in 2015 when they debuted General Washington’s Secret Stash, a beer that contained cannabidiol (CBD), a non-psychoactive element found in marijuana (and in this case, hemp). The ground-breaking brew debuted at one of the country’s largest beer fests, which takes place in Denver, Colorado. “We had the longest lines at the Great American Beer Festival and immediately I realized …everybody who likes craft beer is totally down with the plants,” said Dad and Dudes co-founder Mason Hembree. “I’m not an island at this point.”

While production of their CBD beer has been halted as the brewery awaits the resolution of lawsuit against the federal government over a particular hemp law, the kinship between beer and bud remains as strong as ever. The two even share some common language. “In the [craft beer] industry, we mention that something smells dank, for obvious reasons,” said Hembree. He attributes this close relationship to the “rebellious vibe” of both industries, and expresses his camaraderie with cannabis through the details of his brewpub—in the names of pizzas such as Pineapple Express, The Munchies and 420 Pizza, and beer handles, like Dank IPA. While these may seem like light-hearted jabs at stoner culture, Hembree emphasizes that his decision to cross over into cannabis was part of a larger, more impactful effort. “That was our primary goal, was to assist in legitimizing the cannabis industry, because it is as normal as pizza and beer to me,” he said.

Even the brewpub model employed by Hembree, as well as many craft brewers aiming to bring their product direct to the consumer, is mirrored in cannabis regulation. As of January 1, when the State of California began issuing commercial cannabis licenses, businesses could apply for a Type 12 Microbusiness permit. This allows small-scale operators (on an area of less than 10,000 square feet) to grow cannabis while also selling, distributing and manufacturing it.

This business model, which expresses a “nose-to-tail commitment to excellent cannabis products,” is the cousin of the brewpub, says Forest Gray, founder of Speakeasy Ales & Lagers: “It is all about creating an experience from the ground up, educating the consumer, and delivering the experience on site." He continues, “Certainly, if cannabis micro-businesses sprout up across California, it will look and feel very much like it did when brewpubs came on the scene in the 1990s.”

Gray led Speakeasy for 20 years, helping build the company from a a small-scale brewery, to one that employed 50 people, hit million in annual revenue and shipped beer to 13 states and multiple countries. Then, last year, Gray decided to leave the beer biz and join the green rush, which he did by founding Relativity Labs, a cannabis company that aims to create directed cannabis experiences around specific purposes—such as relaxation or healing. Gray is currently scouting locations in Northern California and plans to be up-and-running by later this year. He credits craft beer culture with ushering in a “consumer sensibility of exploration,” encouraging customers to seek out new flavors and experiences, and teaching them to maintain an open mind when it comes to new products. After all, the race to churn out double and triple IPA, sour beers and other experimental brews wasn’t born from legacy breweries.

This same seismic shift can be said of cannabis, Gray says, as not only the quality of cannabis has changed (it’s no longer your dad’s nuggets), but the way it’s consumed has. In fact, even newbies to the drug are trying out techniques like micro-dosing; ingesting low-dose amounts of marijuana—often in the form of breath mints or other mini edibles—that prioritize function over simply getting high. “Cannabis, and the ways by which we enjoy it and benefit from it, have changed dramatically over the past 40 [to] 50 years,” Gray explains. Cannabis presents added opportunities for experimentation, he said, as variables such as the amount of THC, type of strain, method of consumption, and more can influence the effect it has on the consumer. With booze, there’s a pretty reliable formula that determines how it will impact drinkers, based on the alcohol by volume (ABV), how fast the drink is consumed and the size of the person ingesting it, said Gray. “Alcohol is a pretty linear response and cannabis is not,” Gray says. “There’s so many different effects from simple anxiety relief, to pain management, to focus, sleep management, appetite suppression…” With steep start-up costs, heavy taxation and a long list of compliance requirements—including the most stringent pesticide testing in the country—small-scale cannabis operations will have to work efficiently in order to compete with big business, Gray measures.

Hopefully though, craft beer culture has helped paved the way for small cannabis companies to sell artisan products at higher price points in order stand up to corporate competition, he said. The weed market will likely split into “Big Cannabis” companies and boutique producers, much like the “Big Beer” of Coors and Budweiser is now up against small-scale, artisanal breweries, Gray says.

It also isn't out of the realm of possibility for the legal marijuana market to cut into the business of beer. In a financial report filed in February by the Molson Coors Brewing Company, the beer superpower referred to weed as a “risk factor” for its business, and stated the company would be keeping a close eye on how consumer preferences may change. “Although the ultimate impact is currently unknown, the emergence of legal cannabis in certain U.S. states and Canada may result in a shift of discretionary income away from our products or a change in consumer preferences away from beer,” according to the filing.

Ultimately, Lagunitas’ Magee sees the cannabis sphere as one of immeasurable opportunity. Tic Tacs with THC, women’s makeup containing cannabis and even weed floss aren’t outside the realm of possibility, he says, and it’s up to the industry to push for progress and challenge existing rules and regulations. “The truth is that what’s a fence today will get moved back tomorrow”, Magee says. “I think it’s incumbent on people who are pioneering the business to push on those fences.”

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