Cannabis Concerns for the Beverage Alcohol Industry

Alex Koral
July 12, 2023

A Q&A with Arun Kurichety, COO & General Counsel, Petalfast 

In an effort to better understand potential cannabis concerns in the beverage alcohol industry, I sat down with Petalfast’s Arun Kurichety. Further expanding on Arun’s keynote address at the 2023 Sovos ShipCompliant Wine Summit, we discussed trends in the cannabis industry and what alcohol producers should know.

What consumer trends are we seeing with respect to alcohol and cannabis?

As the legal cannabis market has grown over the past decade, there has been a great deal of interest in predicting how consumption patterns will change and how much—not whether—displacement there will be among consumers moving to cannabis away from beverage alcohol. And we certainly have seen this play out with as many as a third of consumers reporting drinking less with the arrival of legal cannabis options. However, this needs to be taken in the context of longer-term patterns, as alcohol consumption has been in decline overall since the 1980s with younger generations in particular choosing to drink less, if they drink at all. And similarly, the cannabis-curious consumer, who might once have shied away, is now freer to test out the market across a wider range of products, driving what could turn out to be a transitory surge that evens out as the novelty of cannabis recedes.

What is the market for cannabis beverages and what should alcohol producers know about these products?

One of the strengths of the cannabis market is the wide variety of ways that consumers can enjoy it, and the beverage format is one of the areas that we see some of the greatest future potential. Currently, beverages only make up 1% to 3% of the total cannabis market. However, there has been nearly 40% growth in cannabis beverage sales since 2021 and that is only expected to keep growing. As the alcohol industry knows very well, beverages are an extremely inviting way to consume a product that can lend themselves to social events and a more convivial atmosphere all around. With more cannabis beverages coming into the market, there comes the potential for more competition with alcohol consumption but also a lot of opportunities for cooperation as social lubricants. Indeed, alcohol companies, with their experience in producing, marketing and selling beverages may themselves look to produce cannabis beverages—however, they should be very careful about keeping their product lines strictly separated.

Are there areas of potential collaboration between the cannabis and beverage alcohol industries?

There is certainly much more to the cannabis and alcohol story than competition and worries about lost consumers. Indeed, as highly regulated products that are both consumed recreationally for pleasure but come with potential health risks, there is much the two industries can collaborate on in spreading the message around effective laws and safe consumption habits. And we have happily seen this happening already, with Wine & Spirits of Wholesalers of America giving broad support for federal cannabis legalization. As legal cannabis spreads into more states, the alcohol industry can—and should—lend its voice to how to best monitor and control the production, distribution and sale of cannabis. Similarly, the cannabis industry can then teach alcohol businesses about new technologies and systems they use to track cannabis products through the supply chain. With greater collaboration, then, the two industries can also work to relieve potential areas of conflict, such as cannabis farms operating next to vineyards.

What should beverage alcohol producers be aware of when engaging in the cannabis industry?

While there are a lot of ways for members of the beverage alcohol industry to get into cannabis, it is very important for them to keep in mind that, currently, cannabis and alcohol cannot mix. This is absolutely true in terms of the products themselves—federally and in every state with a legal cannabis market, active THC or other cannabinoids may not be present in any product that has any alcoholic content—and where they can be consumed. For instance, California prohibits the use of cannabis products on any premises that has an alcohol license, with severe penalties for violations. Beverage alcohol companies should also be aware that there are still many barriers for cannabis businesses to operate like other businesses, such as not having access to the federal banking market. So some more established or alcohol producers may decide the potential benefits of engaging with the cannabis market are not at this juncture worth the risks to their alcohol licenses or overall business.

What lessons can alcohol producers learn from cannabis in how to engage with new consumers?

There is a perception that alcohol is failing and doomed for irrelevance, as consumers choose to either abstain from all intoxicants or to switch to new products like cannabis. As such, it is said that alcohol must revamp its image, especially by co-opting whatever it is that cannabis is doing to attract new consumers. While there are clear data showing a decline in overall alcohol consumption and increases in cannabis users, this effort to “become cool again” largely misses the point of what consumers are looking for and underrates the players in the alcohol industry that are succeeding in keeping up demand. When you ask contemporary consumers what they want, words like “authenticity” and “experiential” come up over and over again, regardless of what the product is. Cannabis certainly benefits from its novelty and newness for many consumers looking for new experiences, which is not something that most alcohol producers can imitate. But alcohol producers can remain relevant for consumers by highlighting where they are innovating and by showcasing how what they produce reflects the values and interests shared with their consumers. Alcohol can best succeed if it stays genuine in its messaging, and that means avoiding anything that smacks of pandering or gimmickry that a consumer would find inauthentic.

Arun Kurichety is a seasoned corporate executive and attorney with 15+ years of corporate transactional/restructuring experience with a focus on the cannabis/CBD industry. As a cannabis industry “veteran,” he has advised numerous cannabis companies, from start-ups to publicly traded companies, in an ever-shifting regulatory landscape. He is highly regarded for his capital markets and debt restructuring knowledge while regularly advising on corporate governance and compliance/regulatory matters. 

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Author

Alex Koral

Alex Koral is Senior Regulatory Counsel for Sovos ShipCompliant in the company’s Boulder, Colorado office. He actively researches beverage alcohol regulations and market developments to inform development of Sovos’ ShipCompliant product and help educate the industry on compliance issues. Alex has been in the beverage alcohol arena since 2015, after receiving his J.D. from the University of Colorado Law School.
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