How Craft Brewers Are Bellying Up to the Cannabis Bar

Oskar Blues Brewery in Colorado has embraced cannabis puns throughout its twenty-plus years of business, with words like “sticky,” “blunt,” and “Blue Dream” on its ale labels. Even its coffee roastery side venture is called Hotbox Roasters.

At a time when alcoholic beverage companies are circling the cannabis industry and an established alcohol trade association has backed state-legal cannabis regulations, Oskar Blues executives have spent recent months brainstorming how they could create legal and lucrative products at the intersection of cannabis and beer.

But those ideas will remain on the whiteboard indefinitely.

“It’s difficult, because we see a great deal of opportunity, and we see a market that is encouraging these products,” said Dale Katechis, founder of Oskar Blues, which anchors Fireman Capital’s Canarchy craft beer portfolio. But, “we just can’t take the risk,” Katechis told Cannabis Wire. “Not until it’s federally legal.”

There is a market brewing in Canada for cannabis-infused beverages and thus business opportunities for multinational players like Constellation Brands and Molson Coors; but stateside, it’s not an easy ask for American brewers. And for the ones who are willing to try, it’s taken some gymnastics to make products that are both legal and appealing to their customers.

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The federal Alcohol and Tobacco Tax and Trade Bureau won’t approve formulas or labels for alcohol beverages that contain scheduled substances, and has nixed beers that even hinted at such a relationship—Lagunitas Brewing Co.’s Censored Rich Copper Ale originally was named The Kronik. In late-May, the TTB issued clarifications to its hemp policy that had been in place since 2000. The Bureau addressed the U.S. Drug Enforcement Administration’s positions on cannabis extracts, notably cannabidiol, and defined which hemp ingredients it considers exempt from the Controlled Substances Act. New Belgium Brewing Co. received the Bureau’s blessing for the skunky-nosed Hemperor HPA because it waded within hemp’s legal waters. The beer contained hemp hearts and aromatic terpenes, compounds found in cannabis plants that can also found in, for example, pine trees and citrus fruits.

Legally blending alcohol and marijuana is a tall, if not impossible, order now—in addition to federal restrictions, states have addressed the potential interplay through policy statements and regulations. Colorado, for example, prohibits alcohol and nicotine from being sold by cannabis retailers and restricts the infusion of alcohol—pure or denatured—into marijuana edibles. California allows individuals to hold both alcohol and cannabis licenses, but disallows the combination and manufacturing of the two at the same facility. A Michigan lawmaker recently introduced a state bill to prohibit the blending of alcohol and cannabis.

However, those aiming to legally blend beer-related products and marijuana are in a space race-like effort to get to market.  

The first major move this year was made by Keith Villa, the brewmaster who created Blue Moon Belgian White. Villa’s new venture, Ceria Beverages, would brew a selection of beers, dealcoholize them, and then send them to a cannabis company that would infuse the ales with water-soluble cannabinoid extracts.

It’s a kind of contortionist’s act, but nonetheless, another company may ultimately bring this class of products to market first. Officials for Cannabiniers, a San Diego company that makes cannabis coffees and teas and a line of cannabidiol (CBD) creams, say they’re two weeks out from launching Two Roots, a dealcoholized beer infused with water-soluble cannabis oil tailored to have physiological effects that occur more rapidly and dissipate more quickly than with typical edibles.

Ceria officials in March announced an end-of-year release in Colorado. When reached by phone, Villa said the business remains operational and on target for the late-2018 launch.

Two Roots has been in the works for eighteen months, said Kevin Love, Cannabiniers’ director of product development. Love said he was inspired by the adoption and growth of dealcoholized beer in Europe, notably in Germany where Olympic athletes drink non-alcoholic beer after exercise as a sports drink, citing anti-inflammation and recovery properties of the sans-booze suds. “It’s one thing to be a novelty item,” Love said. “But it’s another thing to build a business that’s based upon a true alternative.”

Two Roots’ first go-to-market states will be California and Nevada, and the company has letters of intent for a half-dozen other legal cannabis states, Love said.

The multi-state launch required multiple facilities, licenses, and rounds of funding. Cannabiniers currently is following up a $19.3 million round raised in February with another round seeking to raise between $25 million and $50 million. The additional infusion will go toward operations in California and supporting a nationwide launch of the company’s other ready-to-drink beverages and personal care products, officials told Cannabis Wire.

Also in the works is a signed letter of intent for an acquisition of a “very large and established,” 125,000-barrel brewer, Cannabiniers officials said. It would be the second brewer under the Cannabiniers fold, officials said, declining to disclose the identities of either operation.

California state business records show that Cannabiniers’ president is the registered agent for Helm’s Brewing Co., a craft brewery in San Diego.

By the end of July, another California brewer could be bringing its cannabis-infused concoction to market, though not a beer.

In June, Lagunitas Brewing Co., owned by Heineken N.V., partnered with CannaCraft to launch Hi-Fi Hops, a hoppy sparkling water infused with cannabis. It’s a natural extension for Lagunitas, which has had embraced ties to cannabis culture and launched several marijuana-themed and integrated products throughout its twenty-five years of business, such as SuperCritical, an IPA made with cannabis terpenes, and its Undercover Investigation Shutdown Ale, which referenced a 2005 raid of the brewery for marijuana use on-site, said Karen Hamilton, brewery spokesperson.

“In the meantime, the world of cannabis has changed,” she said. “So it kind of paved the way for some other opportunities.”  But, she added, only within the legal states.

Alcohol manufacturers cannot have cannabis on premises, so Lagunitas is producing sparkling water and providing that to CannaCraft, which is infusing it and canning it and sending it through its distribution channel. Lagunitas would be unable to send Hi-Fi Hops through its distributor partners, Hamilton said.

Last week, the D.C.-based Wine & Spirits Wholesalers of America proclaimed its support for the establishment of state-legal cannabis regimes that resemble alcohol regulations. The organization did not take a stance on its members participating in the cannabis industry, officials said. It’s unclear whether other beer-centric trade associations will follow suit. Officials for the National Beer Wholesalers Association and the Beer Institute could not be immediately reached for comment.

Regardless, it’s full steam ahead for operators like Lagunitas.

“We’ll see how this goes. If it goes well … well, geez, we could ship water — the sparkling water — anywhere,” she said. “We sell beer in Canada. Of course that’s an opportunity,” Hamilton told Cannabis Wire.

These early adopters are hoping to capture a small, but growing share of the cannabis industry: beverages. For now, cannabis beverages like teas and sodas account for a 1 percent sliver of overall sales, according to BDS Analytics, a cannabis industry research and data firm. In 2017, sales of cannabis beverages exceeded $40 million in Arizona, California, Colorado, Oregon, and Washington, according to BDS. In the first quarter of 2018, cannabis beverage sales in those states reached a combined $9.2 million.

“Despite cannabis being much more tightly controlled than its hoppy cousin, the craft brewing industry has faced some of the same hurdles as the cannabis industry,” Morgan Fox, a National Cannabis Industry Association spokesman, said in an emailed statement to Cannabis Wire. “Hopefully collaborations between the two will yield not only innovation, but help ease some of the onerous regulatory restrictions facing the cannabis industry today.”

The craft beer industry is in a state of slower sales growth after years of rapid market expansion and brewery openings. More than 6,500 breweries operate across the United States, versus 1,574 breweries ten years ago, according to the Brewers Association, a trade and research organization representing the craft beer industry.

The breweries that are dipping their toes into the cannabis market are typically well-established operations with the means and, typically, an historical connection to marijuana, said Bart Watson, chief economist for the Brewers Association.

Cannabis beers or beer-like products could turn out to be another extension or product category for the craft beer industry, said Matt Simpson, operator of The Beer Sommelier, a craft beer and hospitality consultancy.

“One of the big tenants of the craft beer industry, by definition, is experimentation,” he said.

However, betting big on an emerging market segment might not always work in brewers’ favors, he added.

“If you suck at any of the areas that would make you flounder, becoming novel isn’t going to help you at all—not for very long,” he said.

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