Escape from the Underground: Lessons to the cannabis industry from craft beer

Left: Field of hemp at the the 2016 University of Kentucky Industrial Hemp Field Day // Photo via UK College of Agriculture, Food, & Environment; Right: Hops growing in a hopyard

Left: Field of hemp at the the 2016 University of Kentucky Industrial Hemp Field Day. Right: Hops growing in a hopyard // Photo via UK College of Agriculture, Food, & Environment; Photo by Ben Boo, courtesy Mighty Axe Hops

I don’t know anyone in the craft brewing business—and I say that I truly do not know anybody—that doesn’t smoke some weed,” observed Tony Magee, founder and CEO of Lagunitas Brewing Company, a longtime proponent of cannabis.

He was standing behind a podium on stage in a Denver auditorium, building a rapport with the crowd before him. But the seats weren’t filled with his beer industry colleagues. Magee was delivering the keynote address at the 2018 Seed to Sale Show, hosted by the National Cannabis Industry Association (NCIA) in February.

Beyond having a strong base of users in brewers, the link between beer and cannabis runs deep. Hops and cannabis are botanically related and contain many of the same terpenes—chemical compounds that give hops and cannabis their citrusy, skunky, or earthy qualities. But beyond these similarities, Magee’s address intended to draw parallels between craft beer and cannabis at an industry level.

“[T]he organizers of the group feel that the experience of the craft brewing industry has some relevance to what you are about to be experiencing, or are experiencing right now,” he explained.

Drawing upon his background of creating one of America’s largest brewing companies in California’s Mendocino County—one of the premier growing regions in the world for cannabis—he described what he believed to be the similarities between their origins and how the cannabis industry can learn from craft beer as it moves into the future.

Tony Magee, founder and CEO of Lagunitas Brewing Company, gives the keynote address at the National Cannabis Industry Association's 2018 Seed to Sale Show // Photo courtesy NCIA

Tony Magee, founder and CEO of Lagunitas Brewing Company, gives the keynote address at the National Cannabis Industry Association’s 2018 Seed to Sale Show // Photo courtesy NCIA

In an interview with The Growler, conducted shortly after his keynote speech at the NCIA Seed to Sale Show, Magee explained, “Cannabis and craft beer have different need-states, but they both began in the counterculture.”

Cannabis’ road to legalization has been slow and fraught with uncertainty, and has taken the reverse path of craft beer. The current craft beer industry rose out of the passage of federal legislation that reduced excise taxes for small brewers in 1976 and lifted Prohibition-era regulations on homebrewing in 1978. From there, craft brewers had to fight, state by state, to change local regulations to allow them to operate. Cannabis, on the other hand, has been taken up at the state level first, as nine states plus Washington, D.C. have made recreational cannabis legal, and 29 states have legalized medical marijuana. Though the cannabis market has taken steps toward legitimacy and away from black market status in recent years, the federal government remains opposed to the issue.

This is the key factor that Aaron Smith, executive director of the National Cannabis Association, sees as holding back cannabis from enjoying the same success as craft beer. The lack of federal legislation forces the cannabis market into uncompetitive enterprises, since businesses cannot hold their money in banks, nor can they deduct their business expenses for federal taxes—as any other business would be able to do.

But as more state governments move toward legalization, the innovative potential of the market is shifting into the hands of consumers. In Magee’s view, the coming years are a crucial time for cannabis artisans and entrepreneurs to establish themselves as ground floor participants in the industry’s next dramatic shift. By following closely the lessons learned by the country’s craft beer scene, they will be the best prepared to do so.

As the cannabis industry emerges from its black market status into the daylight, and as producers gain access to capital, Magee sees a need to create refined products and establish industry-wide standards—an example in the craft beer industry being the inclusion of IBU and ABV metrics on the labels of most craft beers. While not a legal obligation, this established a best practice that is in the consumer’s best interest, a gesture of good faith on behalf of the industry.

Another lesson craft brewers can offer those in the cannabis industry, which Magee highlights, is the ongoing insight producers gain from greater choice in their products.

“When craft brewing was brand new, people made beers that were representations of traditional styles from Europe,” says Magee, which was a departure from the U.S. market filled with homogenous macro lager. “[W]hen people got excited about craft beer there was a race up the flagpole. Everyone started making stronger and stronger beers.” But since then, companies are seeing success with sub-five percent session beers, like Founders Brewing, one of the fastest growing breweries in the country, is with its All Day IPA.

“[Consumers] are deciding what they want—they don’t know what they want,” Magee says. “They get offered things and they make choices. Companies learn from watching how consumers interact with it.”

According to Magee, the bulk of the craft beer and cannabis industries’ innovative potential lies in the ability to offer new products that give consumers choices that didn’t exist before, and which unveil preferences they didn’t even know they had.

In the case of cannabis, “It seems the growth in the market is in oil, refined cannabis oil, in edibles,” says Smith. The mid-grade flower smoker of just a few decades ago could hardly have dreamed of a battery-powered device that vaporizes a precise quantity of a specially bred strain from an industrially manufactured capsule of oil. But since they’ve hit the market, they’ve taken off. According to a 2015–2016 study from BDS Analytics, a cannabis market research company, concentrates and edibles increased in popularity by 125 and 53 percent, respectively, whereas flower sales grew by a meager 11 percent. For an industry just getting on its feet, just imagine how much it still doesn’t know about how cannabis can be consumed.

“[Consumers] are deciding what they want—they don’t know what they want. They get offered things and they make choices. Companies learn from watching how consumers interact with it.”

Tony Magee, founder and CEO of Lagunitas Brewing Company

 

But as the cannabis industry sees more economic growth, it will inevitably draw the attention of larger corporations. In his address at the Seed to Sale Show, Magee issued a warning to cannabis entrepreneurs, informed by his experience in the craft beer industry: “You guys are the pioneers, and there are big companies that want to take it from you.”

Currently, cannabis producers are adopting the same language as craft beer to separate themselves through the quality  and care with which they grow their products. Businesses like Gold Leaf Gardens or True Humboldt use terms such as “hand-crafted,” “artistry,” and “sustainably cultivated” to appeal to consumers who value hands-on, organic growing methods. But likewise, as we’ve seen in craft beer, large conglomerates could adopt the same language. Perhaps now is a good opportunity for the cannabis industry to consider how and when producers can market with these terms, in an effort to promote transparency and standards that consumers can trust.

The innovation of new cannabis products was largely made possible by the “Cole Memo,” produced by Attorney General James M. Cole in 2013. It laid out the Obama administration’s position that it would only pursue enforcement of federal law in states that had legalized recreational marijuana if certain commitments were not kept, such as preventing sales to minors. But cannabis suffered a further setback earlier this year after the Cole Memo was rescinded under current Attorney General Jeff Sessions.

One could see a silver lining in the eight states that passed medical and recreational cannabis laws in the 2016 elections. As the web of states legalizing cannabis grows, the industry is further aligning itself with the wider “craft” lifestyle that craft beer drinkers are living. By expanding variety, increasing quality, and explaining the craft behind their products, cannabis producers and retailers can draw in new customers and create deep, lasting connections with them. In doing so, the cannabis industry, backed by a community of enthusiastic consumers, will strengthen its place at the bargaining table in the years ahead, as they fight for legalization at the federal level. As Magee phrased it, “It’s one thing to win a revolution, it’s another to win the peace—it’s not so easy.”

 
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