High Spirits: The Cannabis Business Podcast

#081 - How Will Alcohol Regulations Impact the Future of THC Drinks? w/ Neil Willner, Counsel at Vicente.

AnnaRae Grabstein, Ben Larson, and Neil Willner Episode 81

Send us a text

🌿🎙️ Join us on High Spirits as Ben & AnnaRae dive into a hot topic that's reshaping the landscape of the cannabis beverage industry. As states begin to align hemp beverage regulations with those governing alcohol, the implications for brands, manufacturers, distributors, and consumers are significant. This episode explores the legislative shift that is integrating hemp beverages into the alcohol regulatory framework, spotlighting new challenges and opportunities within the industry, and breaking down some of the common contract language found in this environment.

🚀 𝗔𝗯𝗼𝘂𝘁 𝗧𝗵𝗶𝘀 𝗘𝗽𝗶𝘀𝗼𝗱𝗲: In this discussion, we're joined by Neil M. Willner, Counsel at Vicente LLP. Neil brings his extensive expertise in cannabis regulatory and compliance matters, focusing particularly on the evolving intersection of hemp and regulated marijuana industries. With states like Arkansas, Arizona, Illinois, and several others proposing legislation that would treat hemp beverages similarly to alcohol, Neil will unpack what these changes mean for the future of the industry.

💡 𝗪𝗵𝗮𝘁 𝗬𝗼𝘂'𝗹𝗹 𝗟𝗲𝗮𝗿𝗻:

𝑳𝒆𝒈𝒊𝒔𝒍𝒂𝒕𝒊𝒗𝒆 𝑳𝒂𝒏𝒅𝒔𝒄𝒂𝒑𝒆: An overview of recent state proposals that could redefine hemp beverage regulations.

𝑰𝒎𝒑𝒂𝒄𝒕 𝒐𝒏 𝑰𝒏𝒅𝒖𝒔𝒕𝒓𝒚 𝑺𝒕𝒂𝒌𝒆𝒉𝒐𝒍𝒅𝒆𝒓𝒔: How the new regulatory environment might affect everyone from small producers to large distributors.

𝑺𝒕𝒓𝒂𝒕𝒆𝒈𝒊𝒄 𝑨𝒅𝒂𝒑𝒕𝒂𝒕𝒊𝒐𝒏𝒔: Insight into how companies can navigate and thrive under the new regulations.

𝑭𝒖𝒕𝒖𝒓𝒆 𝑷𝒓𝒐𝒋𝒆𝒄𝒕𝒊𝒐𝒏𝒔: Expert debate on the long-term effects of these legislative changes on the hemp and broader cannabis markets.

🌟 𝗠𝗲𝗲𝘁 𝗡𝗲𝗶𝗹 𝗪𝗶𝗹𝗹𝗻𝗲𝗿: A prominent figure in cannabis law, Neil's work spans regulatory challenges, policy advocacy, and industry compliance. His insights have informed policymakers and industry leaders alike, making him a pivotal voice in discussions about cannabis legislation.

📣 Use code HIGHSPIRITS at kitprint.co to get 10% off.

#HighSpirits #CannabisRegulation #HempBeverages #drinkcannabis

--
High Spirits is brought to you by Vertosa and Wolf Meyer.

Your hosts are Ben Larson and AnnaRae Grabstein.

Follow High Spirits on LinkedIn.

We'd love to hear your thoughts. Who would you like to see on the show? What topics would you like to have us cover?

Visit our website www.highspirits.media and listen to all of our past shows.

THANK YOU to our audience. Your engagement encourages us to keep bringing you these thought-provoking conversations.

Remember to always stay curious, stay informed, and most importantly, keep your spirits high.



AnnaRae Grabstein:

We want to give a quick shout out to our friends and sponsor over at KitPrint, the cannabis operators production design partner. Is your team getting bogged down with static and variable packaging layouts and product renders? Are you looking to support your retail and wholesale teams with better and more frequent state-specific sales and marketing assets? With KitPrint's production design team, you get files turned around in three business days or less at roughly 50% of the cost of the average full-time employee. New customers use code high spirits all one word when you sign up at kitprintco and you'll get 10% off your first two months. To learn more, go to kitprintco to book a call with their team.

Ben Larson:

Hey everybody, welcome to episode 81 of High Spirits. I'm Ben Larson and, as always, I'm joined by my co-host, anna Rae Grabstein. We're recording Thursday, march 27th 2025. We have a great show for you. Today We'll be digging into a hot topic that could reshape the hemp beverage industry state legislation that's treating hemp drinks like alcohol Think Tidehouse laws, franchise rules and direct shipping bans. To help us make sense of it all, we're joined by Neil Wilner from Vicente LLP, who's at the forefront of advising both brands and regulators on this issue. But before we get there, allow me to check in with my co-host, anna Rae. How are you doing? How's the week?

AnnaRae Grabstein:

The week is great. I started off the week feeling super inspired because over the weekend I had the opportunity to go and accompany my second grader, who's seven, to our neighbor's house for a homework assignment and the homework assignment was Women's History Month and he was supposed to interview a woman about her life and her career for a presentation and he didn't choose you. I know I gave him a hard time for not choosing me.

AnnaRae Grabstein:

But also inspired him to try to think about other people, and I wanted to share a little bit of what I learned, because sometimes seeing something through the eyes of a kid can be a great unlock for the things that are all around us and the magic. And so we went. We went next door and my neighbor, as a 15 year old, decided she wanted to be an astronaut, and so, in order to be an astronaut, she realized that she needed to learn how to fly a plane. So she went and learned how to fly a plane as a 15 year old and then set out on a mission to become an astronaut and found out along the way that she really wasn't very good at math, and not being good enough at math meant she couldn't be an astronaut. But she still wanted to fly and so I don't have calculators for that.

Ben Larson:

That's one of those things in school where you're like, oh, you're going to use this in the future. Am I going to use this in the future?

AnnaRae Grabstein:

Apparently you do. Yeah, no, you have to have the calculator in your head if you're going to be the astronaut, I guess. And so she joined the Air Force, ended up as even though in the air force, uh, on a submarine one of only two women out of 250 people that were living under the sea for three months um, which is wild. And then, after the air force, became the first helicopter pilot in the los angeles police department and then started a long career in law enforcement, flying planes, and ultimately came to the San Francisco Police Department, where she served for over 25 years doing all kinds of incredible work and retired about six years ago and became a therapist serving first responders and has been doing intervention work, and she has, just throughout the course of her life, stuck to her passion and helped people.

AnnaRae Grabstein:

And the last question that the second grade teachers asked my second grader to ask as part of the interview is what advice would you give a kid my age and that's really what I'm telling the story to get to is that this incredible woman who really is like a real life superhero. Her advice was to figure out what makes you happy, what brings you joy, but, most importantly, to practice that and become an expert in it, and that knowing what makes you happy isn't good enough. It's the discipline and the practice and being good. And that knowing what makes you happy isn't good enough. It's the discipline and the practice and being good at the things that make you happy. That will take you far in life, and it was such an important lesson that I've been sitting on throughout the week is this concept of discipline, practice and expertise being the real superpower that that can take it to the next level for us in our lives.

Ben Larson:

I love that. It's like she's the actual physical embodiment of one of my favorite quotes, which is shoot for the moon. Even if you miss, you'll land amongst the stars.

AnnaRae Grabstein:

I love that too. So good, so good. I love it man.

Ben Larson:

I'm feeling all the feels this morning. This is so good I know.

AnnaRae Grabstein:

It's really good stuff, and the thing is is that we hadn't really talked about Women's History Month and I didn't think that we were going to make any content around it. But then it just sort of landed in my lap and I wanted to tell this story. But then at the same time, I think that you also have some big news about a superhero woman that you just brought onto your team.

Ben Larson:

I heard that you- yeah, yeah, the cat's out of the bag, so to speak.

Ben Larson:

So, yeah, we made an announcement this morning that we brought on Diana Eberlein, who's the chair of the Coalition of Adult Beverage Alternatives and just been a huge shepherd of the cannabis beverage movement, and we're in such a critical moment and all the close work that we've been doing together just culminated into us bringing her on as our chief external affairs officer.

Ben Larson:

And, yeah, I couldn't be more excited. You know we as business owners, especially our attention, is often divided and pulled into many directions, and there's been many times where I'm like I can't raise my hand here. I have to. I have to be there for my business and for my employees first, and then I need to also do this lobbying, because it's going to create the opportunity for my business but also progress the industry in the direction that we see it. And to be able to now work arm in arm with Diana and to share that load and not have that anxiety about being torn away from my business and knowing it's in good hands is just a huge breath of fresh air, but also a highlight to the leadership that Diana has been for this category and will continue to be.

AnnaRae Grabstein:

Diana is a total badass. I am so excited for her and for you and for the industry. Federal reform is not going to be possible without the work of people like Diana really putting in the effort to have a voice and to explain what needs to happen for this next phase of progress. So I think that the whole industry is lucky to have her and, yeah, federal reform brought to you by Virtosa, yeah.

Neil Willner:

Very cool.

AnnaRae Grabstein:

Well, let's dive in to our topic today, because I think that there's just so much to talk about and we've got an incredible guest. So we have with us Neil Wilner, who is counsel at Vicente, and he is just an incredible resource for us as we're wrapping our heads around what's happening at the state level legislation. He's also been a key person that has been advising policymakers, attorneys general and stakeholders around intoxicating hemp products for a while now, so really excited to bring on this nationally recognized expert and talk to us today. Welcome, neil. Thanks for being here, hey.

Neil Willner:

thanks so much for having me guys. I'm so thrilled to be here. I love listening to the podcast and it's just it's excellent to participate.

Ben Larson:

Awesome. Well, neil, we've had our paths crossed a number of different times. We ever chose to rely on Neil and his work and now his home at Vicente. But I think the first time we met it was when we were launching the beverage council with Attach, and there's a lot of interesting pathways that have happened since then and the industry has evolved in people's positions. But, yeah, super excited to see you land at Vicente, along Sean Hauser and Michelle Bodian and, yeah, just a great team that you've got going on over there.

Neil Willner:

Yeah, it's been an excellent transition. I've been at Vicente for a couple of months now, and it was you know. I was able to fit right in and be part of the larger team, working with some exceptionally brilliant folks that have a lot to offer, and I'm learning new things every day, which is my favorite part about being a lawyer.

AnnaRae Grabstein:

Nice Well, Neil. There's been legislation in around 10 states that have been seeking to shift oversight of hemp beverages to alcohol regulatory agencies, that have been seeking to shift oversight of hemp beverages to alcohol regulatory agencies. Some of these states include Arkansas, Arizona, Illinois, Kentucky, Massachusetts. They go on and on.

Neil Willner:

A busy legislative session.

AnnaRae Grabstein:

Can you give us an overview of what's happening here? What's pushing this type of legislation?

Neil Willner:

and what's the motivation behind these bills?

Neil Willner:

Sure yeah, it's always a busy time of year when the legislature is in session in hemp land, but this year, more so than any years past that I can remember, and like you mentioned, anna Rae, there's been about 10, maybe a couple more states that have started to introduce legislation shifting regulatory oversight of hemp beverages specifically to the alcohol beverage regulatory scheme. The first state that actually passed one of these bills was Kentucky, and it was just signed into law two days ago by the governor. What's motivating this shift is anybody's guess about what's happening behind the scenes, but I think you ask a really important question that allows us to kind of think about why alcohol beverage policy in the regulatory scheme is the way it is and that could shed some light onto why hemp beverage may be shifting into that direction. So when the 21st Amendment was ratified in 1933, it came at a time where you know alcohol was prohibited nationally, that there was a ton of overconsumption, the women's temperance movements, and it was prohibited nationally, which is crazy to think about. Alcohol was illegal at the federal level for quite some time.

Neil Willner:

So when it became legal again, one of the policy directives was consumer protection and that was the real genesis behind this kind of three-tier model that a lot of folks talk about when they think about alcohol beverage regulation where you have three separate tiers of the distribution channels. You have the supplier tier, which is the folks that actually manufacture the alcohol you think your Bacardi's, your Biagio's, your Budweiser's. Then you have the distribution tier, which distributes the alcohol, meaning they purchase it from the supplier and then sell it to the retailer. And then you have the retail tier, which is the consumer facing tier, that sells alcohol beverage directly to the retailer, to the consumers. That sells alcohol beverage directly to the retailer, to the consumers.

Neil Willner:

And the thought of separating the industry into these three tiers is that it would prohibit overconsumption and put the onus on the retailer, which is essentially a member of the community, to know when folks are drinking too much, when folks are intoxicated, and to kind of foster that personal relationship with your community to prohibit that overconsumption. So instead of the brand selling directly to consumers, you now have an individual in your neighborhood where they could help with the overconsumption issue. And that is, I think, relevant to how hemp beverages are starting to be looked at, where you you again have this consumer protection policy at the forefront of any regulation of intoxicating substance, exploding growth, um, you, one way to to protect consumers is to regulate it similarly to another intoxicating?

Ben Larson:

you know another intoxicating consumer product, before we like alcohol neil, before we get too deep into that, I want to get your thoughts and and I I don't expect you to have all the answers on this particular topic, but do I? I understand how, like on-premise consumption at restaurants and bars, how the retailer has like a very obvious um impact on, on how much a a consumer is consuming, but that doesn't really translate to me at the the point of retail. Like, how do you control over consumption at the point of retail and how is the drivers any different to that of the brands? And I know this is a big discussion in alcohol in general is like, why the three tier system? But it just seems like it's the exact same incentives. Like you know, from a capitalistic perspective, the retailer is going to want to sell as many units as possible, same as the brands, and so how is that providing any sort of protection?

Neil Willner:

Sure. So it's not only protecting against overconsumption, it's also, you know, the three-tier system helps ensure that only goods that are marketable and safe for consumption will be available to the consumer through rules like primary source rules or price posting rules. So by having this three-tier system you're making it expensive to operate in. It's a heavy regulatory burden, and businesses that can afford to excel in this regulated environment are generally thought of as good or responsible actors and the ones that will exceed in this environment. So by primary source laws I mean that states have laws designating a manufacturer or importer as the only source that a wholesaler or retailer can purchase that specific brand from. So it's a. It's almost like track and trace right.

Neil Willner:

By having these primary source rules, you know that the absolute vodka you're purchasing at the point of sale is real, absolute vodka. Um, that that Jack Daniels that you're purchasing is real Jack Daniels because it's the, the, the, the, the, because the retailer purchased it from the wholesaler, who was the only person allowed to sell it in some states to the retailer, and then the wholesaler purchased it from either Jack Daniels or his designated agent, who's the only person that's able to sell it to the wholesaler. So it ensures that the products are safe and marketable and the consumer is ingesting real product. And again, I think that's really relevant in the broader marijuana space as the industry battles with the illicit market, as we start to see more and more fake packaging that has popular brands of cannabis products being sold with who knows what in illicit markets or through the internet or what have you.

AnnaRae Grabstein:

And Neil, as we're talking about this state-by-state alcohol system. Part of that is because when the 21st Amendment ended prohibition of alcohol at the federal level, it didn't actually fully regulate alcohol at the federal level. What it did is it empowered the states to put their own programs in place, and now that's what we have, and now we're talking about looking at certain hemp products as being regulated under these alcohol agencies at state levels. How similar are the different alcohol programs from state to state?

AnnaRae Grabstein:

And we're familiar with how different ways from state to state is. Is the alcohol, is the alcohol regulatory environment, as as different and disparate?

Neil Willner:

Yeah. So the cannabis industry and the hemp industry like to complain about how overregulated the industry is and how different regulations are from state to state, how different testing regulations are milligram limits, advertising restrictions, limits, advertising restrictions. Alcohol is very similar to cannabis, but I would say times 10. There are a lot of regulation, a lot of varying degrees of regulation over alcohol that are different from state to state. I think franchise rights would be a good example of that. Some states have a concept called franchise rights, which give additional protections to the wholesale tier, the distributor tier. Some states don't. In the states that do have franchise rights, those franchise rights are applicable for just beer. In other states they're applicable for just wine and spirits, and in some states they're applicable for just wine and spirits. And in some states they're applicable to both beer and wine and spirits. And in those states where they're applicable to beer, wine and spirits, the franchise rates are different for all three of those commodities. So that's just one example of how states vary in their approaches to regulating alcohol. States also will categorize different products differently. For example, some states will look at an RTD like a White Claw and whether it's spirit-based or malt-based, we'll qualify it as a wine or a spirit or a beer from the alcohol regulatory perspective. But the taxing agency in the state may categorize it as something else, so it's taxed differently than how it's actually regulated by the alcohol agency. And this is on a national scale, which we're starting to see in the hemp beverage world and the hemp products world too.

Neil Willner:

One of the biggest challenges of advising clients in the hemp space is that it is a national market, so we're considering all 50 state rules at the same exact time. Whereas cannabis, when new markets launched, it was your sole focus to understand the market, the rules for that market, the sale and regulation was completely intrastate. There was no intrastate commerce. There is no intrastate commerce at all. So you are singularly focused on one state and master the rules of that one specific state. But again, on the hemp side and the alcohol side too, it's critical to understand the rules of all 50 states, because you can sell your product into interstate commerce. You can manufacture a product in New York and sell it into every state across the country. So it's critical to be cognizant of all those rules.

Ben Larson:

It's interesting because we have what I'll call like a three-tier problem set going on right now. So there's this conversation about should it be incorporated into the alcohol regulatory framework? Right, and depending on who you ask in the industry, whether it's the beverage category or the broader cannabis category, people have their opinions about the alcohol regulatory structure. We also have the complexity of the category. So, from the new alcohol you know distributors and retailers. They're just trying to create this thc category. But you have every type of form factor, every type of potency, minor cannabinoids, you name it. And Patrick Ray in the audience hey, patrick mentioned even the derivation of a lot of those ingredients.

Ben Larson:

And I think there's such an education gap between where these products are landing and kind of where the sophistication of the industry is at or not at, and I don't know if people are ready. Like it's really hard to kind of bridge that gap. Like just teaching people about THC is like a huge hurdle. And yet alcohol benefits from this idea of like. Oh, if you put it in a 750 milliliter bottle or 375 milliliter bottle, clearly that's a spirit. And if it goes into a 12 ounce can or an 8 ounce can, you know one's a beer, one's maybe like a canned cocktail or a wine and it's like like we know that from decades of evolution in the alcohol industry. But trying to get that all into place as quickly as possible has been a really big, big challenge get that all into place as quickly as possible has been a really big, big challenge.

Neil Willner:

Yeah, you know, consumer education is, I think, that the biggest uphill battle that that that the industry has, especially as we're starting to see, um, intoxicating hemp products uh permeate through through the country. Um, and understanding what five milligrams of THC does to you versus five milligrams of THC plus 10 milligrams of THCP, plus 10 milligrams of THCJD plus HHC, is something that consumers just don't understand, nor should they have to understand. Should they have to understand Because I think, at the end of the day, consumer wants a safe product and regulation unfortunately always lags behind the speed at which industry moves. But I think industry will, regulation will catch up to that.

Neil Willner:

But there is no standardized dosing metric. That there is in alcohol. Like you said, ben, when you take a shot of whiskey, you know exactly how you're going to feel. When you drink a beer, that's 3.2% versus a triple IPA that's 11.5%, you know the difference it's going to make in your body. But does the average consumer know the difference between 5 milligrams of THC and 10 milligrams of THC? That could be a world of a difference for some people.

Ben Larson:

Or something that we focus a lot on is are they actually consuming five or 10 milligrams of THC, which is a big challenge?

Neil Willner:

Yeah, absolutely. How do you know? How can you be confident you're consuming what the package says you're consuming? Absolutely A very big challenge. But I think again, with alcohol there's three different tiers that share responsibility in ensuring the product is safe. In that when I say safe, I mean the product is what the label says. It is that it's vodka that you know. The product is what the label says. It is that you, it's vodka that had, that is. You know 40 alcohol, you know 80 proof uh, and you know what you're, what you're, what you're getting. You have a supplier who you know has to manufacture it properly. You have the distributors held to you the standard of distributing only the products that are legally produced, and then you have the retailer of only being able to sell products that have been legally produced and moved through the three-tier structure. So it's three different checkpoints to ensure that the product is what the package or labeling says it is.

AnnaRae Grabstein:

It's interesting to be having this conversation because over the course of the past 15 years in cannabis policy, there's been lots of different moments in time where people have used alcohol as a point of reference of regulate cannabis like alcohol, or cannabis is safer or less harmful than alcohol as a reason behind forward progress for policy, as now it's starting to come to fruition for the hemp category, of potentially regulating cannabinoid product like alcohol, like a hemp beverage.

AnnaRae Grabstein:

Aside from different compliance checkpoints, of maybe having to get a license or a registration through a new agency in a state that you didn't need to work with before, what are some of the ways that the business environment and supply chain might shift and the business models might shift as a result of this, and or consumer access as well? And I'm thinking first of things like direct to consumer, but also the other aspects of a very specific behaviors that are regulated in alcohol, like in certain states there's only certain days that you're allowed to buy alcohol. Things like that I'd love to hear from your perspective, like what this actually means to businesses and consumers.

Neil Willner:

I think this is the most important point that the hemp beverage industry must understand as we enter this new phase in industry growth, there are going to be a lot of practical changes because of how it's going to be regulated. So I think start talking about direct shipping and your direct to consumer access is is a great kind of starting point. Um, so, generally in alcohol it's again I'm speaking generally and and I have to caveat that, like hemp and like marijuana, each state has vastly different rules and regulations but in alcohol, direct shipping, meaning the supplier shipping directly to the consumer is generally prohibited. Up until 2004,. 2005, it had been prohibited almost exclusively across the board until a Supreme Court case called Granholm came down the pike.

Neil Willner:

And in the 2000s the wine industry had been wanting to sell wine directly to consumers. Some states, like New York and Michigan, allowed in-state wineries to sell their wine directly to consumers but prohibited out-of-state wineries to sell their wine directly to consumers. So why manufacturers file the lawsuit saying, hey, even though there's this 21st Amendment that allows states to regulate alcohol a little bit more stringently than other commodities, this is still a violation of the Dormant Commerce Clause because you are protecting the in-state actors to the exclusion of out-of-state actors and that went all the way up to the Supreme Court. And in a five to four decision the Supreme Court agreed with the wine manufacturers that the 21st Amendment the 21st Amendment, while granting states certain protections over regulating alcohol, does not go so far as to favor in-state actors to the detriment of out-of-state actors in this particular circumstance. So that opened up direct shipping just for wine, nothing else. So wine manufacturers were able to ship, began shipping directly.

Neil Willner:

In the past rules regulating this um, ship directly to consumers, um, and that's still generally true today. I think there there may be a small handful of States that allow direct shipping for spirits, but generally direct shipping is only allowed for wine. So what does that mean for cannabis beverages, for hemp beverages as they start to be regulated like alcohol? Well, in states that you have to first look at how the legislation classifies the hemp beverage. Is it lumped in in the wine? It is it lumped in in the wine category or is it lumped in in the spirits category or is it lumped in in the beer and malt beverage category, like we just saw, I think, in North Carolina or South Carolina that introduced new legislation, um, if it needs to get lumped into one, or can it have its own category?

Neil Willner:

or or is it is? It is it is its own category? If it's? If it's its own category, how can alcohol beverage distributors and retailers handle it? Is it treated like any other commodity, like a wine and juice that a distributor can sell or that, in some states, retailers can sell, or is it its own specific category, like you just said, that has its own special permissions? So those are big things to look out for for the industry as they're looking at these bills, deciding and deciding where to spend their lobbying dollars on what's best for their business, what's best for the industry at Kentucky's legislation that was just passed into law.

Neil Willner:

I forget how Kentucky classifies a cannabis beverage, but there is a direct shipping permit that manufacturers of cannabis beverages can get to ship directly to consumers.

Neil Willner:

So if we think about that for a moment, we need to also think about, well, how is the cannabis beverage made right? In the industry, it's a widely adopted practice that co-packers or co-manufacturers are the one manufacturing these beverages, whereas the brand is an asset-light entity that just licenses its IP to the co-packer to pack. The direct shipping laws in Kentucky only allow the co-manufacturer, the actual manufacturer of the product, to ship directly, not the brand. So can brands that use a co-packer have their website and ship directly to consumers, like they're currently doing now? Maybe not. That's something to look into further. And again, that's because of the way that the state direct shipping laws are structured and the way in which cannabis beverages are classified within the Kentucky regulatory scheme and each state has a different approach. So, as each state introduces legislation regulating hemp beverages, like alcohol, this is just one of the components that's going to be critical to look at and understand the true impact it has on the industry as a whole on the industry as a whole.

Ben Larson:

It's so.

Ben Larson:

This topic of direct-to-consumer shipping is a really hot-button topic in the hemp beverage space because there's a number of brands that are doing 50, 60, 70, 80% of their revenue in direct-to-consumer shipping and there's, as you mentioned, with the federal implement, the federal laws implemented around alcohol.

Ben Larson:

It was around consumer protection and the three-tier system and and having these, these, these checkpoints. And I think there's a lot of pushback to that, because you know capitalism and and creating access and and where we want to go. And I'm wrestling with this a lot because, you know, I think oftentimes with a long lens, and I see this argument and I see this conversation happening with alcohol and I'm like, do we really want to have this argument on the front end of trying to get onto shelves and really like, just kind of getting our foot in the door, you know, do we want to hold back that timeline to fight for this, or do we kind of set it aside and like let's just try to procure the opportunity for states to have, you know, to implement states' rights, get it onto the shelves, and this argument's going to persist anyway. So why don't we just join the argument that's already going on?

Neil Willner:

Yeah, no. I think that that's the exact kind of tension and push and pull that operators in the industry as a whole need to grapple with right. Is it better to have wide and broad adoption and access, or do you want to push for the perfect piece of legislation, legislation, the saying don't let perfection get in the way of progress? I don't know. I'm just a lawyer. I advise on what the policies say, I don't make those decisions.

Ben Larson:

You could be a human too, neil. You could just, you know, give it a position. I don't envy your position at all. We'll take Vicente off of your title here, and it's not always perfection getting in the way of progress.

AnnaRae Grabstein:

For some groups it is actual business opportunity form factors, products that are popular. It's like if they say yes, that means if they agree with the legislative path, it might mean that huge parts of their business can no longer be and grappling. That can just be very existential for a business, as they're thinking about how to support something like this Within that context, as these different states are looking at putting hemp-derived intoxicating products into an alcohol system, is it only beverages or are they talking about other hemp derived form factors like gummies or even inhalable form factors like vapes or pre-rolls? What are you seeing?

Neil Willner:

Yeah. So I think Kentucky, again, is a perfect example of that. In Kentucky it's just beverages that are shifting over to the ABC, where other form factors are staying with the Department of Health or I forget what the name of the exact agency is. So there is a split between beverages and other form factors, which I think is which certainly recognizes the difference in the form factors, the practical differences of them, and analogizes beverage more, more like alcohol, where it's going to be taxed, just like a spirit where there's a you know excise tax on per gallon of of of cannabis.

Neil Willner:

Beverage produced, again just like alcohol, is in Kentucky, and I think that's the trend we're starting to see. There is also a trend of prohibiting all other foreign factors and having a carve out for hemp beverages and only allowing hemp beverages which are going to be regulated to you by the alcohol beverage regulators in a given state. And is that the best policy? I don't know, but it certainly is a policy that will have a severe effect and impact on many businesses across the country and as hemp becomes more and more widely accessible, what's the impact of that going to be on the broader marijuana category? How will marijuana be regulated once it becomes federally legal? Will it only be beverage and everything else kind of goes by the wayside? Or will beverages be regulated by the TTB and other form factors regulated by the FDA? I think this is the perfect example of why states are the laboratory of democracy, and this is the experiment playing out in real time.

Ben Larson:

It's so interesting. I was just on LinkedIn this morning and John Halper had a post. John Halper is the CEO of Top 10 Liquors up in Minnesota. Minnesota has a very liberal you know hemp THC laws and so you'll find other form factors in liquor stores and grocery. And he says here the evolution in THC products over the past year has been incredible, but the pace of change is just getting started.

Ben Larson:

Our latest sales data shows a clear shift. Flavored shots, edibles are surging, liquid THC is climbing fast, and so there's been this big conversation as we talk to, to legislators and in different states about you know what happens after we get beverage onto the shelves. And some of the conversations are like well, it'll drive normalization of THC and drive people to dispensaries because they'll be in search of other form factors. And this is the first time I'm actually seeing it posted online where it's like oh, we actually have a little bit of proof here. It's not direct proof, we don't have like, oh, this customer converted to a dispensary customer, but they indeed are expanding beyond beverage, uh, in this particular case. And so, um, it is. I found myself sitting with it this morning and thinking about oh, what does the future look like with these different pathways and what do people consume and the regulatory aspect and how those decisions are made are um will be really really telling you like where do, where do the states want to see these products end up?

Neil Willner:

Yeah, absolutely, I think I. You know, I've heard a lot of folks float the alcohol model in that lower dose products could be accessible, like beer in wine, in grocery in states that allow grocery stores or convenience stores to sell beer or alcohol, Whereas higher dose products, regardless of the form factor, are reserved for the dispensary, for the cannabis only environment that has a little bit more heightened age gating. A little bit more heightened age gating that has a little bit more restrictive access, just like spirits in a number of states. In New York you have to go to a liquor store to get any alcohol or wine. I could buy beer in a supermarket or a convenience store, but not wine or spirits. A lot of states are similar. So that model for low dose versus high dose products, regardless of hemp or marijuana, at the end of the day I know you've talked about this a bunch Once there is kind of a merging of the two which eventually will come, but who knows?

Ben Larson:

NRA's favorite the humbug.

Neil Willner:

Yes, we could spend, I'm sure, a full year getting into the ins and outs of that, but I think the low-dose versus high-dose model is a good model. It's a practical model, but not only that. It's one that's familiar to regulators. Right, there is a sense of familiarity and that says something. I think one of the reasons why beverage has seen explosive growth is because it's a familiar form factor. It's not a vape pen, it's not a 90% live rosin hash extract that you need a blowtorch to smoke, not knocking any of that at all. I think they're exceptional products with incredible taste. Like Scotch, we'll give you a client, okay.

Ben Larson:

We'll dab everyone, if anyone was wondering.

AnnaRae Grabstein:

Okay, no-transcript and have been doing some of their own direct distribution in order to get started, because alcohol laws end up having complicated rules in distribution contracts that might bind brands to long-term relationships. There's these tied house rules that might bind retailers to certain distributors. For folks that maybe started a hemp beverage but have never worked in alcohol distribution, worked in alcohol distribution Can you give us a little bit of an overview of what some of these alcohol-related agreements that distributors hold and that end up dictating kind of the relationship and the way that the products move?

Neil Willner:

Sure, yeah, so distribution agreements are. It's a really interesting topic in the alcohol beverage space and I think the initial question you have to ask, depending on whether you're a distributor or a supplier, is is it necessary to have a distribution agreement? As crazy as that sounds, a lot of the answer depends on the market you're in and what tier you're on. If you do have a distribution agreement, what should it cover? Does it cover marketing? And a lot of distribution agreements that we've been working on covers marketing expenses. It requires the distributor to put a certain dollar amount of marketing dollars behind the supplier's brand or split the marketing costs with the supplier. I think the logic is that the distributor knows the market its local market, its state market really well and knows how to market products really well. So the distributor is really the boots on the ground for the supplier in that market and the distributor in a lot of spaces certainly the alcohol side is responsible for building that alcohol brand, for helping launch an alcohol brand, helping launch a small batch distillery or a microbrewery and getting their products much more visibility. Especially for an out-of-state manufacturer getting its product into a new market, it's the distributor that's the one that is heavily marketing that product. So the distributor can be looked at as a way to advocate for the supplier in new markets.

Neil Willner:

On the flip side, like you said, anna Rae, there are a lot of protections for the distributor baked into state law in the context of franchise rights. And, again, franchise rights vary greatly from state to state, like we discussed at the top, at the top of the show, um. But there are some, some states where franchise protections are so strong and the, you know, exclusivity provisions in franchise protections are so strong that for for distributors, it may not be beneficial to have a a uh a distribution agreement with the supplier, because nothing in that agreement could trump the protections they get under the franchise laws. So whether to have a distribution agreement in the first place is certainly a consideration that depends on, again, the state you're in and the laws of that specific state, but what else you want to cover in it. But there's other states that expressly require distribution agreements and to disclose those agreements to the state regulators. A lot of the agreements not only cover marketing costs but they'll also cover, again, exclusivity, whether the distributor is the exclusive distributor of the product in a specific territory, and when we're talking about territory do we mean the entire state. A state like Texas or California. That's a really, really big state.

Neil Willner:

Small distributors that are just getting into hemp beverages may not have the footprint to distribute across the state. So it's important for these brands to find distributors that either have that large footprint for a single state or they want to limit that territory to regional distribution, and having an agreement in that instance that dictates the territory is critical. Having an agreement in that instance that dictates the territory is critical both for the brand and the distributor there. Also, the distributor is in a lot of states primarily responsible for registering the labels of the suppliers or the products that they carry. Whether that's by regulation or by agreement is something to consider too.

Neil Willner:

So if a national brand again I keep going back to Absolute, for some reason that's on the top of my head for Absolute to register their brand in every single state that they're in. That's a lot. So they work again, this is a broad assumption and may not be the case, but in a lot of businesses they'll work with the wholesaler, the distributor, to be the agent to register their brand in the state Because, again, the distributor is in a single state. They know the laws of the state. They know the system of the state really really well. They know the market really really well. So those are a lot of just the different considerations to think about as hemp beverages begin shifting over to regulation. It'll be regulated like alcohol.

Ben Larson:

Yeah, we're in an interesting phase of hemp beverage.

Ben Larson:

It's still very early and I try to remind people that constantly, but I'm hearing you kind of talk about the frameworks of these distributors and how laws are established to protect the distributor.

Ben Larson:

But it's not a completely open market right now and we have, you know, the typical buildup of basically risk aversion or metered by risk aversion in the space, and so you have small distributors leading to mid-sized distributors like regional distributors, and it's kind of been building up. But who's not in the space yet is like RNDC Southern Glacier, you know Reyes, and so I'm curious about your perception, like in understanding how these laws work and what does it mean for brands that have entered the space thus far, have signed a lot of like these distribution deals across the us, and then, when these larger distribution companies do come in, what is going to be the mechanism for some of these brands to kind of like level up and and get into these bigger distribution houses, versus that being the opportunity in time for the big brands that we know are sitting on the sidelines to just kind of leverage those relationships that get broader distribution than what everyone else has been fighting tooth and nail for thus far in the battle.

Neil Willner:

No, that's a lot to unpack there, sorry. That's what you get.

Ben Larson:

I've been living this every day and. I just you know.

Neil Willner:

Leveling up and a brand's desire to level up is exactly why the franchise rights are in place to protect distributors. Right, as a supplier brand gets bigger and bigger and they want to move on to bigger distributors, right, as a supplier brand gets bigger and bigger and they want to move on to bigger distributors with larger footprints, that kind of small or mid-tier distributor would be at a loss. They spent a ton of money and time and expense helping that supplier to build its brand in the specific state and then for what? For it to just go go away because the supplier wants to level up and go with a a larger distributor. I think that was the genesis of why franchise laws came into existence in I don't know the 1950s or 1960s.

Neil Willner:

As big beer companies started essentially wanting to level up, the mid-tier and smaller-tier distributors were getting left in the dust with really no rights at all. So that is the exact genesis of the franchise protections. Is that issue. The distributors are certainly used to that. I think it's going to be an uphill battle for the brands to understand that dynamic and that framework in the laws surrounding distribution agreements in order to have that flexibility as the space gets more national recognition and larger players start entering the playing field. There's a lot of catch up to do, for sure. But that's a very broad question that depends a whole lot on state specific laws. That's my lawyerly cop-out to answer the question for sure.

AnnaRae Grabstein:

And so, as we're seeing more state laws, be them alcohol-like or otherwise, is this complicating or accelerating federal reform and, potentially, like I, have this kind of impending doom feeling that hemp is going by the way of cannabis and that there is a potential for the farm bill to shift legal access to hemp from a federal perspective. But now there's going to be all of these state laws on the books that are creating regulatory environments for hemp products and then does it turn into a situation where there are states that are regulating something that's federally illegal, or does it push the feds to actually figure this out? What do you think?

Neil Willner:

No idea, who knows, it could go either way, but it's certainly something that's been putting a little bit more gray into my beard. Thinking about that and thinking about any sort of farm bill permissions going away seemingly overnight. I would like to think that again, the federal government is listening to the states and observing the trends of states and seeing that states are fully adopting hemp laws laws, although I would have liked to think they would have listened to states as states started to begin to adopt marijuana laws as well, but hemp seems to be less of a dirty word. It doesn't have the same connotations that a lot of lawmakers think marijuana have. So I would like to think the legislators are going to listen to states and have some sort of broad adoption and insert themselves in oversight over the industry to have more oversight now. I think the lack of federal oversight is a huge issue and, at the end of the day, it just harms the consumer, because the consumer is the one that has access to these products.

AnnaRae Grabstein:

They're the ones actually using these products and without a fully regulated, safe environment, it is the consumer that gets hurt the feds were going to listen to you and take the sensible action of of pushing forward some type of federal policy change. Do you think that alcohol laws at the state level that are incorporating cannabinoid products will inform the eventual federal path? Like that, it will look something more like the way the 21st Amendment did as a result of this, which is sort of like what Nancy Mace was introducing with some of her legislation.

Neil Willner:

It's a state rights bill, right, it's a state rights bill. Let states do what the states want to do and remove the federal prohibitions. I think that that is the sensible approach. And, going back to something we discussed earlier, that alcohol regulation is what's familiar, it's what gives regulators and policymakers a lot of comfort. So if that is the mechanism by which hemp and marijuana are again just going back to cannabinoids in general are legal at the federal level, then I think that's something that the federal government and the industry really needs to think hard about. Is that the best way to do it or do we forego a better way for more widespread adoption? But I think, again, leaving the decision primarily to the states, while having some federal oversight, like we do in alcohol, there is a federal overlay. The TTB regulates alcohol and, but primarily, the states are the regulatory bodies overseeing a lot of the trade practice issues and all the other day-to-day issues. So having that in place for cannabinoid regulation, I think would be a very beneficial system for the industry and for the consumer.

Ben Larson:

Amen man, we can just keep jamming on this for hours. Unfortunately we can't. But, neil, I want to just take in a little bit of a personal direction real quick, and I by no means want to get you in trouble with any of your clients. But from a personal perspective, do you have a favorite beverage that you've adopted?

Neil Willner:

Yes, I do. I have a beverage that's very near and dear to my heart. I've tried a lot of beverages. I love trying beverages, but one of the beverages that kind of has stuck out and which I, whenever I have at home, offer to my friends that come over, is Senorita Really, really delicious beverage. It's yes, it's fresh, it's great. Great on a summer day I really enjoy that a lot. But I love, I love trying new beverages, seeing what else is out there. Um, every time I, when I was I was in Florida for winter break went into a total wine and go. A third of the aisle is dedicated to hemp beverages. And that was the first time I went to a actual store that wasn't a dispensary and saw TC products Um, that wasn't a dispensary and saw THC products and it was right next to the vermouth and gin and it was just like any other adult commodity who would have thought that's amazing.

AnnaRae Grabstein:

Well, neil, it's time to move to our last call, so we would love to give you the mic for one last time and if you can share any advice or call to action with our audience, what would you like to leave them with?

Neil Willner:

If you can share any, advice or call to action with our audience. What would you like to leave them with? I think at the end of the day, it's mission critical for the industry to understand that it is a cannabinoid industry. It is not a hemp industry or a marijuana industry. It is a cannabinoid industry. The more support we have behind that position, I think, the more effect we'll have on our lobbying and influencing the government officials about regulation. It's cannabinoids cannabinoids. Cannabinoids, it's not, hemp, it's not marijuana Preach?

Ben Larson:

Yes, absolutely Well, neil, thank you so much for taking the time. I'll expect the bill later go back to your lawyerly duties. Um and yeah, and thank you for just sharing so much wisdom. We got a bunch of comments and uh would love it if you could jump in there and help answer some questions for us.

Neil Willner:

uh, otherwise, until next time, thank you Thanks so much for having me. Guys Really appreciate it.

AnnaRae Grabstein:

Thanks, Neil.

Ben Larson:

All right, everyone. Like I said, we did get a lot of comments coming in during our live recording here on LinkedIn, live man. Each one of these actually could have took us in a completely different direction, so that would have been hours of content. We'll come in. We'll answer your questions in the comments, thank you. Thank you for engaging. Please keep doing so. It keeps us energized, it keeps the show going. It lets us know where to take the next episode. Thank you to our teams of Vertosa and Wolfmeyer we love you guys. Thank you for supporting us in this constant weekly boondoggle that we get to do and, of course, our producer, eric rosetti uh, you're amazing. And thank you for populating the socials with our beautiful faces. Thank you, please like, subscribe, do all the things. If you're listening to us on apple podcast or spot, give us a review and a five-star rating. That'd be great. But, most importantly, as always, folks stay curious, stay informed and keep your spirits high Until next time. That's the show.

People on this episode