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What brewers need to be aware of before stepping into cannabis - Comment

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With brewers eyeing the cannabis industry with both interest and enthusiasm, beer commentator Stephen Beaumont has some words of warning for them, before they take their first steps into unknown territory.

As a resident of Canada, I've found it impossible to avoid news of the imminent legalisation of cannabis in the country. National business publications are filled with stories about cannabis companies and weed-based entrepreneurialism, newspaper opinion pages regularly feature columns for and against this or that aspect of legalisation and, directly across the street from my Toronto home, a café called Cannabis & Coffee has not only started operations, it's also promoting franchising opportunities, despite the fact that there is no guarantee Amsterdam-style coffee houses will ever be legal in Ontario.

Canada will become the first country to legalise marijuana nation-wide on 17 October and, while the federal government has passed the legislation, its implementation is being left to the individual provinces.

As with other segments of beverage alcohol, brewers operating in Canada are concerned about how the move is going to affect beer sales that are stagnant (or shrinking overall) and have been so for some time. The expectation is that legal weed will further depress sales, but such views are broadly speculative rather than based upon any firm set of data.

US states where cannabis is legal present small statistical periods and less in the way of identifiable trends

Clearly, the biggest difficulty in predicting long-term sales trends in markets where marijuana is legal is the lack of case-based information. The US state of Colorado has the longest run for legalised cannabis of any mature beer market but, evenso, we are talking about only four years. Other states where cannabis has been available legally, such as California and Oregon, present even smaller statistical periods and correspondingly less in the way of identifiable trends.

Looking at what little we do know, however, shows no direct negative effect of cannabis legalisation on beer sales. In a tweet at the end of last month, Brewers Association economist Bart Watson noted that while beer sales overall are down in the US, they are down less in states with full legalisation (-1.1%) than they are in states with either legalisation for medical purposes (-1.8%) or states with no legalisation at all (-2.3%), after adjustments for population changes.

That same day, Watson agreed with another Twitter user's suggestion that as the price of pot has dropped due to its legal status, more money may have been freed up for beer sales. "One thing people often don't think about is how legalisation affects prices," he observed.

The other source of information on the effects of cannabis sales on the beer market comes from the Netherlands, where cannabis consumption is tolerated but not officially legal. Even here, however, a negative impact is anything but assured.

Data from Statista shows that the Dutch per capita beer consumption of 69 litres in 2016 is more-or-less in line with that of neighbouring northern European states where cannabis use is less common, such as Belgium (68 litres), Luxembourg (74) and Denmark (62). In fact, the only western European nations that consistently and significantly beat the Netherlands in beer consumption are those with strong beer cultures, such as Germany and the UK, along with Spain.

None of the above has stopped international brewers from nosing around Canada#scannabis companies. Constellation Brands has been the boldest investor, ploughing more than $4bn into Canada's leading cannabis business, Canopy Growth Corp. Then, there's Molson Coors, who agreed a joint-venture in August with The Hydropothecary Corp. We can add to this the rumours swirling about a similar move by Diageo.

These transactions make sense if the assumption that cannabis sales will negatively affect beer sales is correct. But, if the long-term market effects follow instead the short-term ones outlined above, the question arises as to what a beverage company is doing racing into what is effectively a non-beverage industry.

The answer, then, appears to be cannabis beer.

In theory, cannabis beer would be a mere line extension for a company such as Molson Coors. In practice, however, cannabis beer is likely to have about as much in common with regular beer as it does with energy drinks or sodas. After all. most if not all jurisdictions that have announced or implemented cannabis legalisation have specifically outlawed its use in alcoholic beverages.

The chief executive of cannabis grower Maricann Group has claimed that cannabidiol, or CBD, tastes awful

"So what?," I hear you say. "It's just like non-alcoholic beer with cannabinoids added" (cannabinoids being the class of chemicals that give the cannabis plant both its medical and recreational attributes). Which is fine, except for one thing, according to the chief executive of the Maricann Group, a Canadian cannabis grower that was approached for exploratory discussions by Coca-Cola: Cannabidiol, or CBD, one of the main cannabinoids, tastes awful.

Of course, bad flavours can easily be hidden by sugar and bold fruit flavours. But, with each step in the process, what might be billed as 'beer' becomes decidedly less so.

With a market for cannabis drinks not at all a sure thing, and the effect of cannabis legalisation on the beer market anything but certain, it would seem that caution might be the word of the day for brewers interested in diversifying into weed.


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