Should beer/alcohol/beverage distributors enter the legal marijuana world?
First the news from the elections… Oregon legalized. Alaska legalized. DC legalized. 4 states plus DC now have full legal adult marijuana. Guam approved medical marijuana. Various cities around the country voted to decriminalize. In 2016 we will have 10+ states looking to legalize. Whether one agrees or not, this is a tidal wave that is a’coming.
Now my post…
It seems many are kind of confused about this opportunity. After my last email I’ve been contacted by quite a few folks who have some interest in exploring the new wild and wooly world of legal marijuana. I personally am tired of providing free consulting… it really doesn’t pay well ;-) but I thought I’d toss one final freebie out there regarding my thoughts.
Alcohol distributors can safely and easily enter this industry will little fear if they understand a few things…
- I see few synergies between a beer/alcohol/beverage distributor and almost any aspect of the marijuana business. For those looking to jump into this business for this reason, you’re barking up the wrong tree. Other than perhaps some technology and backroom stuff, these are very different industries and will operate quite differently. And for those thinking that perhaps marijuana and alcohol will be available at the same locations… not going to happen in our relevant time frame… and I’m personally not certain it would be a good idea in the first place.
- Although this is a regulated market (as it should be), I see no need for an independent distribution tier. So again, for those thinking they will use their present operations to become the marijuana distributor, ain’t going to happen. Colorado law forced complete vertical integration for at least the first 10 months (you had to grow at least 70% of what you sold). And even now, completely integrated operations – from grow to retail – are the norm and I would guess they will likely remain so for at least the near- to mid-term. Washington outlawed vertical integration… you can either grow or retail, but not both. How other state’s regulatory structure will take place is anyone’s guess. They will probably follow one of these two general designs. But the development of a 3-tier system simply isn’t in the cards. If that is your hope, don’t waste your money in this industry.
- Therefore beer, wine, and spirits distributors should view this simply as an exciting, high-growth (and high risk) investment/business opportunity. That’s it. Nothing more. Nothing less. It has nothing to do with your present operations (nor should it). If you have the money and desire, it could very well be the start of something like the dot.com boon at its infancy. Go back and look at those election results if you need any convincing.
- This isn’t a “gray” legal area. It is black and white. From a federal perspective, any activity involved in marijuana… and that includes supporting services of ANY type are quite clearly illegal. As the head of Colorado’s Marijuana Enforcement Division noted at a recent seminar I attended, from the Colorado governor on down… they could all be arrested for violated federal law. Think of it as this analogy… based on federal law, the states of Colorado and Washington have set up a regulatory structure to regulate and tax the mafia’s activity. They are aiding and abetting the violation of numerous federal laws… and all who knowingly participate are also in violation of these laws. The accountant to the mob still goes to jail ;-) As does the advertising agency that knowingly takes their money to help them generate demand for their illegal activity… as does the bank… as does the attorneys… as does all of us. Now I clearly don’t see this happening (nor do thousands of businesses, some quite large) and I believe the next national election will kind of settle this with a “let the states decide” punt from both major political parties. But until (if?) federal law changes, this is the reality from the federal perspective. If this concerns you or if you truly believe a “perp walk” might be in your future, don’t enter this industry.
- Thus, any tying of your present federal permit with a marijuana business is freaking stupid! There are no synergies anyhow, don’t connect the two in any way. This is quite easily accomplished. But I hear from far too many who mistake the synergies (which don’t exist) and think about tying the two together. Don’t. On the plus side, if you do enter, don’t tie them together and still end up getting grief from the feds, the odds are great they would simply force you to divest yourself of one or the other. No perp walk in your future ;-)
- This also will temporarily break the hearts of those weed merchants who hope for the big cash-out from beer, wine, and spirits suppliers. Ain’t happening until at least the feds change their perspective on marijuana.
- That said, for those willing to jump into a high return/high risk/high growth industry, distributors have the opportunity to leverage their business expertise on distributing controlled consumer goods to build an incredibly profitable stand-alone operation. The overall level of business expertise in this industry is rather low… you start out way in the lead on this aspect.
I look at you all for potential partners with my edibles business since you have the cash to invest and understand how to build brands via DSD. And rather than having you attempting to learn all about this nascent industry, we provide turnkey for everything. That’s some significant value on our side of the equation.
This is a “never-before market” so I’m still not certain from our perspective it might not be better to go with established marijuana operations in various states and to teach them both the manufacturing and DSD aspects. That I’ve got down. But since I know you all, you get the first shot. That’s it for free consulting. If you want to learn more about the marijuana industry, either join our team or go talk to someone else… I’ve got a start-up to get going ;-)