California Beer Industry Reacts to Start of Recreational Cannabis Sales

Three days after sales of recreational cannabis began in California, U.S. Attorney General Jeff Sessions issued a memo calling for a stricter enforcement of federal marijuana laws and, in the process, rescinded Obama-era Department of Justice protections for legal cannabis that was included in the 2013 Cole Memorandum.

In the memo, Sessions “directs all U.S. Attorneys to use previously established prosecutorial principles that provide them all the necessary tools to disrupt criminal organizations, tackle the growing drug crisis, and thwart violent crime across our country.”

However, according to a report from Cowen and Company analyst Vivien Azer, Sessions’ memo isn’t likely to be “terribly disruptive” to legal cannabis sales since enforcement decisions will remain with state-level attorney generals. In fact, she wrote, “we believe local governments and AG’s are largely onboard with legalization” due to the hundreds of millions of dollars being generated in taxes.

Even as enforcement confusion grows, the legal sale of recreational cannabis in California and five other states — Washington, Colorado, Oregon, Nevada and Alaska — are likely to continue without immediate interruption.

But what impact could the expanded availability of marijuana have on the California beer market?

Brewbound polled beer industry professionals from all three tiers, and most suggested that legalized recreational marijuana would have little impact on beer sales.

“I am not concerned whatsoever,” said Jacob McKean, the founder and CEO of Modern Times Beer.The macro brewers are always freaking about ‘threats’ from wine and cocktails and whatever else, but all the craft brewers I know love the diversity of the drinks world and are just as accepting of cannabis.”

In California, sales of recreational cannabis started last week, 14 months after the state’s voters passed Prop 64 — the Adult Use of Marijuana Act — and 22 years after medical cannabis use was legalized. The new law allows adults over the age of 21 to possess up to 1 oz. of marijuana in public and grow as many as six plants at home.

Matt Lucero, who owns San Jose-based medical marijuana dispensary Buddy’s, which is now one of about a hundred officially permitted dispensaries in the state, told CNN that January 1 was the store’s busiest day in its seven-year history.

The California cannabis industry is forecasted to reach as much as $7 billion in the coming years, exceeding the “more than $6.6 billion of the entire legal cannabis market in the United States in 2016,” according to forecasts from New Frontier Data, a financial consultancy firm that tracks the cannabis industry.

The federal government currently estimates that more than 30 million U.S. consumers use cannabis, and demand is growing. In a recent report, Azer highlighted government data showing more than 4.9 million consumers in California in the past year. Of those 4.9 million consumers, 3.2 million used cannabis in the past month, she wrote.

Support for legalized cannabis is also growing. According to an October Gallup Poll, 65 percent of adults said marijuana should be legal. Meanwhile, 79 percent of Americans — and 59 percent of Republicans — polled by Quinnipiac in July said they oppose the enforcement of federal cannabis laws in states where the substance has already been legalized.

Also, according to the Anderson Economic Group (AEG), a Michigan-based consulting firm that tracks cannabis demand through its AndCan Index, demand for legal cannabis products has grown by 23.1 percent nationwide since 2015.

For the beer industry, that could mean increased competition. In a phone conversation with Brewbound, Azer noted that she’s tracking “steady increases in the number of reported cannabis incidences among young adult consumers 18 to 25.”

“We’ve also seen steady declines in alcohol incidence both among 18 to 25-year-olds for California and the western United States across the board,” she said. “We do believe that beer is most exposed to cannabis given the consumer overlap.”

Azer also pointed out that while cannabis has been consumed in the U.S. for many years via black market channels, the increased access to legalized recreational marijuana “facilitates substitution,” she said. She added that Molson Coors and Pabst Brewing are two companies “most exposed to risk of substitution,” due to a portfolio that is dominated by economy brands. However, Constellation Brands’ diversified portfolio of premium beer, wine and spirits offerings, as well as a consumer base that skews female, puts the company in a better position to manage potential challenges, she added.

Responses from various California brewers, retailers and wholesalers, who shared their thoughts on how legal cannabis could affect the state’s beer industry, are below.

Editor’s note: Their answers have been lightly edited and condensed for clarity.

Tom McCormick, Executive Director, California Craft Brewers Association: “It hasn’t been hard to get cannabis in California, and pretty much anybody who wants to smoke cannabis has been able to get cannabis and been able to get it very easily on the black market. I think maybe over time there will be a gradual increase in the number of people who become regular or semi-regular users of cannabis, now that it’s no longer on the black market. But for the demographics who are the primary beer drinkers and especially for the demographics who are the primary craft beer drinkers, I think they’ve already had access to cannabis, so there won’t be a dramatic increase in the number of craft beer drinkers who are now using cannabis or using cannabis more.”

Jacob McKean, Founder and CEO, Modern Times Beer: “If anyone can speak to the foolishness of prohibition, it’s brewers, so I welcome the end of cannabis prohibition for a whole host of reasons. I just hope the federal government follows suit sooner rather than later, so that craft beverage companies can capitalize on new opportunities created by legalization.”

Gregory Howard, director of beverage strategy, Yard House Restaurants: “I don’t expect that the immediate impact is going to be extraordinarily drastic for on-premise retail. I would expect that you will probably see more people who maybe buy less beer in an off-premise setting and buy marijuana as a social lubricant. I don’t expect the cannabis sector and the on-premise restaurant sectors are really going to collide that much.”

Lauren Young, Founder, California Beverage Co.: “In Sonoma County, weed and beer have always kind of gone hand in hand. I don’t know if one pulls from another, but I have a few friends doing the dry January thing, and they’re smoking weed instead of drinking. They’ve got to take the edge off somehow, right? Instantly, I’m like, this will absolutely affect the beer business in California because people have such an easy alternative now to take the edge off.”

Lynne Weaver, Founder, Three Weavers Brewing: “I just really don’t think it’s going to be that huge of an impact. I think those who are users are already users and will continue to use, and those who are not most likely aren’t going to be interested anyway, whether it is legalized or not. I just don’t see it being a massive, massive impact. If you look at Colorado or even Washington, a lot of our friends were like there were some [effects], but nothing drastic. And the tax associated with marijuana is so high that it’s almost cost prohibitive.”

Silva Brewing co-founder Chuck Silva: “My impression is that legalization of marijuana won’t change beer drinkers appetite for delicious micro-brewed beer. I’m more concerned with drivers safety regarding impairment from both smoking and drinking. Also, I don’t hear anyone pointing out that the combination of smoking and drinking has an amplifying effect on impairment. I’m not against legalization, but I’d like to see more information addressing benefits versus detriment of cannabis use including dose rate and frequency of use.”

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