In focus: The rise of cannabis drinks

As Canada prepars to legalise cannabis next month, weed is coming into the mainstream, and the drinks industry must decide whether this is a threat to its livelihood or a budding opportunity. Tom Bruce-Gardyne investigates.

“There’s no way to stop this now,” says Spiros Malandrakis, Euromonitor’s senior analyst, about the tidal wave of legalised cannabis sweeping across North America. Next month Canada will become the first G7 country to follow Uruguay’s lead and allow recreational use of the drug. It will join nine US states, including California, with the numbers expected to grow after November’s mid-term elections. Many states have already legalised medicinal cannabis, and according to Andrew Faulkner, vice-president at the American Distilling Institute, there are now “only six states where it is outright, absolutely illegal”.

US Attorney General Jeff Sessions is doing his best to hold back the tide by denying federal approval and thus the cannabis industry’s access to banks. In this quasi-legal state, anomalies abound, like the tinctures sold in some Californian bars. “Lawyers are tearing their hair out because there’s no legal definition of ‘tinctures’, though bartenders know what they’re talking about,” says Faulkner.

But with polls showing 64% of Americans now in favour of legalisation, compared with just 12% during 1969 and ‘the summer of love’, federal approval is expected. If that happens, the US cannabis industry could be worth a staggering US$75 billion (£57bn) by 2030. That’s the conclusion of investment bank Cohen & Co in its latest cannabis report, compiled by senior analyst Vivien Azer.

Of course, the big question concerns the impact on the drinks industry, and whether a market worth US$231bn last year will, at least partially, go up in smoke. In Canada, the country’s Imperial Bank of Commerce predicts the value of cannabis will reach C$6.5bn (£3.77bn) by 2020, overtaking a spirits industry that was worth C$5.1bn last year.

Asked how industry bosses should respond, Azer says: “They should embrace it and recognise that alcohol and cannabis are substitute social lubricants.” Malandrakis agrees, and says: “They can complain, but this is going to happen.

They can either sit in their office and say ‘Oh my God, our industry’s going to die’, or they can do something and evolve alongside it.” Constellation Brands became the first to jump, buying a 9.9% share in Canopy Growth, Canada’s biggest traded cannabis firm, for US$191m last October.

With a portfolio that includes Robert Mondavi and Svedka vodka, Constellation set up GreenStar brands in Toronto to develop cannabis-infused drinks. Julian Cohen, GreenStar’s senior vice-president, explains that ‘edibles’, which include drinks, are “expected to become legal some time later next year” in Canada. “We’re not ready to provide specifics, as we’re still in the developmental phase,” he says, “but, what I can tell you is that these beverages will be non-alcoholic.”

Malandrakis believes such drinks have a massive opportunity as much for their lack of alcohol as for their psychoactive buzz from the Tetrahydrocannabinol (THC) in the cannabis. “There are two trends coming together with the fact that millennials perceive cannabis to be safer and healthier,” he says. “People want to cut down on alcohol and if given an alternative that has an intoxicating effect, I can see this becoming huge.”

Clearly, he is not thinking of soft, fizzy drinks with THC, but something more adult such as Seedlip – a self-styled ‘non-alcoholic spirit’ that is 20% owned by Diageo’s Distil Ventures. Seedlip’s founder, Ben Branson, says: “The legalisation of cannabis is a threat to the alcohol industry and a huge opportunity for the non-alcoholic category as the paradigm shifts in the way people drink continue to disrupt how and where we socialise. Cannabis cocktail bars anyone?”

Maybe not in the UK, but it makes you wonder if he and Diageo are secretly cooking up Weedlip for Canadians to enjoy. “I know I would,” says Malandrakis. Meanwhile, Constellation’s GreenStar offshoot is not the only venture actively engaged and happy to talk. At Ebbu, a Colorado-based cannabis-research company, general manager Damon Michaels says: “The drinks industry should definitely embrace this, and they are.

Some have tried to fight it, and now have a ‘can’t beat ‘em, join ‘em’ philosophy”. Ebbu is developing a range of beers under the Ceria label with Keith Villa, the ex-Molson Coors brewer who created Blue Moon, which claims to be America’s favourite craft beer.

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“Alcohol is one dimensional,” he told Denver’s Mile High magazine in June. “Drink a little get a little buzzed; drink a lot get drunk. But with cannabis there are so many other sensations you can get, depending on the strains – relaxed, energetic, blissful, happy.” “It’s the closest alternative in terms of effects,” adds Alex Howe, co-founder of California’s Rebel Coast winery, which began developing a marijuana-infused Sauvignon in 2016.

“A lot of people probably don’t like the effects of alcohol and are probably looking to take the edge off it, to be more relaxed, sleep better, be more social or experience art, music or film differently.” He is convinced that Canada’s pioneering move will be copied by other governments given “the huge tax breaks in taking money away from illegal cartels”, plus the social benefits.

“There aren’t reports of people beating up their wives when they get too high,” he says. This enthusiastic talk of intoxication is a real eye-opener when you think of the booze industry, where such comments are totally taboo. One reason may be that pot is reputedly less addictive than alcohol, reckons Andrew Faulkner, who says: “Somebody who talks about how they love the effects of alcohol could be seen as being a lush.”

But he believes legal cannabis will soon face social pressure to act with sobriety, certainly when it comes to driving. The Canadian drinks industry has been vocal in insisting that cannabis faces similar restrictions and taxes as alcohol. Initially, Canadians will be allowed to smoke pot, though not in public. The threat to alcohol comes with the advent of edible cannabis in 2019, and even then you might wonder why, given the delayed effects of ingesting weed

A brownie packed with THC is not much of a social lubricant if party guests only feel blissed out and uninhibited in the taxi heading home. Resolving this has become the Holy Grail for cannabis drinks, and some believe they’ve just about cracked it. “We spent a lot of time trying to mimic the experience of drinking wine,” says Howe about his de-alcoholised marijuana Sauvignon.

“We also know that everyone’s had a pretty horrible edible experience. To avoid that, we focused on a low-dose product, with only five grams of THC per serving. Most people feel the effects in 10-20 minutes.”

For a swifter hit you can try Keith Villa’s new brews, developed with Ebbu’s HydroPS system. “We’re talking five to eight minutes, so similar to beer,” says Michaels. When cannabis goes mainstream, beer is set to be first in the frontline, ahead of wine and spirits.

“It has the potential to be a much bigger disruptor than ‘craft’ ever was,” says Malandrakis, who believes “experimentation will begin with small-scale craft brewers because they tend to share the same demographic as cannabis consumers.”

American craft distillers feel unthreatened, says Andrew Faulkner, while the biggest issue for Californian wine concerns labour, according to Tom Rodrigues of Maple Creek Winery.

“You want people to come out and pick your grapes at 6.30am when it’s freezing cold and pay them US$180 per tonne,” he told Spirited magazine in 2017. “Or, they can sit indoors and drink a beer, watch TV, and trim weed for US$150 per pound. Which would you choose?” As for including THC in an alcoholic drink, Howe, says: “The body has a really tough time processing alcohol and cannabis simultaneously,” which implies it won’t be legal any time soon.

That leaves using the drug’s other cannabinoids (CBDs) without THC, and its organic compounds or terpenes to add aroma. This is the only option for UK-based CBD Ultra and Cloud 9 Brewing with their High Flyer pale ale. Despite the name it will leave your feet firmly on the ground, with less than 0.2% THC, but that may change if cannabis is legalised in Britain. “It’s inevitable,” says CBD Ultra’s founder, Carl Boon. “It’s almost become a human rights issue that it is not available, at least medically.” He is confident that political opposition to cannabis will start to crack within five years.

There is one black cloud in this utopian vision, however, as Spiros Malandrakis explains: “At the moment discussions are moving in the direction of tobacco branding, which is extremely strict. It will not allow any proper branding exercises or advertising of any form.” Damon Michaels agrees: “That will be the biggest challenge of all, with alcoholic drinks used to big billboards and TV. So we’ll have to work our way round that with events marketing, viral campaigns and word of mouth.” For now, all eyes are on Canada.

For brand owners it represents a perfect test-bed for cannabis drinks and to see which parts of the booze trade suffer most from substitution. Beyond lies the tantalising prospect of US federal approval and a slice of that US$75bn pie. If Canada can wrestle a C$9bn industry from criminal hands, raise tax revenue from it and remove high-strength skunk cannabis, other governments will surely be tempted. “It’s a no-brainer that is going to help change the world for the better,” says Michaels. “And once it has spread from Canada, the US and Mexico it’s going to snowball.”