The use of the three-tier system is deeply embedded in the American drinks, regulatory and sales culture. Implemented at the Repeal of Prohibition, in 1933, the three-tier system has long given each state the right to enforce the sale of controlled substances – including wine – as they deem appropriate. The system was engineered and still functions with an eye to no one sector having undue control over the sale of alcoholic beverages.
Its fairness, functionality and cost for its citizens have been at the heart of almost every legal battle relative to wine sales over the past 85 years. Almost a century after wine was legalized, as the American market moves towards allowing the use of recreational marijuana – and with 21 states currently on board according to the Los Angeles-based ProCon.org, an educational non-profit – distributors of alcoholic beverages see themselves in an ideal position to jump on the weed distribution wagon.
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The trucks and delivery routes are already in place. And the executives have been cross pollinating between the two businesses for quite some time in both the US and Canada. Major wholesalers have gone in the medical marijuana business in the current nine states where it is recreationally legal and Southern Glazer's, the country's largest wholesaler, just acquired distribution rights to the cannabis producer, Aphria in Canada.
So it should come as no surprise that the influential, Washington DC-based lobbying group the Wine & Spirits Wholesalers of America (WSWA) has shown its support of states' rights in regulating its sale with an eye that many of its members might profit from opening up new markets. The organization shared its perspective in a July 12 press release.
Wholesalers hope that recreational cannabis will be regulated exactly like wine and spirits. "By getting in now, WSWA can turn their lobbying forces to assuring that cannabis is 'regulated like alcohol,' which to them means a mandatory three-tier system with the wholesalers in the middle," shares John Hinman, a partner at the San Francisco-based law firm of Hinman & Carmichael.
"Cannabis is already a big industry and it has huge potential for growth. Some estimate that the worldwide cannabis market will reach $57 billion by 2027. It's understandable to see why wholesalers would want to get involved in such a lucrative space. There are different areas they can get involved in too, from wholesaling cannabis goods to wholesaling ancillary products [i.e. gardening equipment, packaging materials, smoking equipment,]" said Lauren A. Mendelsohn, an associate attorney in the law offices of Omar Figueroa in Sebastopol, California.
In reaction to questions posed after WSWA declared its early July support of states' rights in choosing how cannabis is distributed in the US, Dawson Hobbs, WSWA's senior vice president of government affairs, shared that, "Our position is about states' rights and appropriate, state-based regulation."
Who Benefits
If wholesalers nationally distributed cannabis, the sales system's structure would certainly look familiar to the one in use with wine. The bottom-line product would also be, as it is in states where cannabis is already legal recreationally, more expensive because it goes through so many sales channels. Legal medical marijuana, which was often grown by small local farmers and sold through dispensaries, costs much less than what recreational cannabis costs in markets where it is currently legal. It is also likely to cost more than medical marijuana in new markets that are opened.
Those who work in both the wine and the weed business accept that cannabis will eventually be legal in the United States, according to Josh Prigge, CEO of the Las Vegas-based Sustridge, a sustainability consulting firm. As a result the WSWA, "has decided to embrace this cultural shift and identify opportunities for the industry to benefit."
Distributors think the weed market will prosper with the aid of three-tier standardization. "The cannabis market will benefit from appropriate regulation just as the alcohol market has. Part of a well-regulated, cannabis market would include a prohibition against vertical monopoly as with alcohol. Strict oversight and licensing would ensure traceability, tax collection, product integrity and market competition at all level," shares WSWA's Dawson.
Prigge adds that the two businesses also have obvious numerous synergies. "We have already seen some very large wine companies explore cannabis-infused products so there is definitely interest from the wine industry to take advantage of the cannabis movement. It's also important to understand that some of the best, wine-grape growing areas in the country also have a great climate for growing cannabis, so many grape growers may want to diversify their farms to incorporate cannabis as well."
Given that the bulk of current research shows that cannabis sales are not currently cannibalizing wine, perhaps the long-term overlap won't pose a problem. According to a July study of 1900 respondents by the Connecticut-based TABS Analytics, a consumer analytics firm in the consumer products agency, the legalization of cannabis is not likely to decrease wine sales.
The Concerns
While some believe that US consumers will benefit from a three-tier distribution system with weed, not everyone agrees. However few analysts doubt that wholesalers getting on board will financially benefit them.
"Alcohol trade associations are wise to get on board with regulated cannabis marketplaces. A significant majority of Americans support cannabis overall and the tide has already turned toward full legalization across much of the country. Forward-looking complimentary groups like those in alcohol, wine and beer will benefit from early adoption of a country where safe and regulated cannabis use is the norm," shares Alex Howe, the co-founder and COO of the Los Angeles-based Habitual Line Stepper, which makes an alcohol-free, cannabis-infused Sauvignon Blanc.
"WSWA supports what's best for their members – not the marketplace or the consumer or producers or retailers," shares Tom Wark, the executive director of the Sacramento-based National Association of Wine Retailers (NAWR) about the wholesalers' sales move.
"At this point they believe it is best for their members if they can convince the federal government to adopt a form of Cannabis regulation that mirrors the three tier system [so they can] … play the same role in the cannabis market as they play in the alcohol market: gatekeepers. In the end, it's about support for the wholesaler tier and money for wholesalers."
Despite recent concerns that many retailers have had about major wine-access issues, such as out-of-state shipping, Dawson maintains that the current wine market is a dynamic one from a sales perspective. "The US alcohol market and its wholesale tier is as vibrant and competitive as ever there is innovation and entrepreneurialism throughout the market," he shares. He concludes that it is ultimately the regulatory system that "creates this environment."
Looking towards the future, Prigge comments that since WSWA has "experience with the distribution and sale of a controlled substance," wine distributors will likely play a role in the cannabis distribution market.
