Consumer Reality Versus Congress Stereotypes

SPEAKER_03 0:00

One of the things that Congress has not heard yet, I think, they still don't understand who the consumer of these products is. And we've talked to them, we've talked to them with data that we've gotten from our retailers, with data that our wholesalers have. That show that the consumers of these products are all ages, all genders, a variety of educational levels, all economic demographics, top to bottom. It's not what many of members of Congress think is sort of the 25-year-old skateboard guy. It's a wide variety of consumers. And we're going to try and open a portal for consumers to let their voice be heard.

AnnaRae Grabstein 1:09

I'm Ben Larson. And I'm Anna Ray Grabstein. Every Tuesday we seek to have the kind of conversations that matter, the ones happening in boardrooms, back hallways, and not press releases.

SPEAKER_01 1:21

Today we have a great guest who operates in a world most of our cannabis audience probably doesn't fully understand yet. He's the EVP of government affairs for the Wine and Spirits Wholesalers of America, and he's been at the center of the fight over what's happening to hemp beverages and hemp more broadly and TAC products when November 12th rolls around. We're going to get into all of that in a bit.

AnnaRae Grabstein 1:46

But before we bring him on, Ben, how are we doing this week? Where are you? I see you're in a sport coat somewhere.

SPEAKER_01 1:51

Sport coat. Much different than my attire last week when I was on vacation in Palm Springs. Yeah, I'm sitting in Sacramento. We have some bills uh regarding cannabis that are actually in a hearing right now in business and means uh in the assembly. And so yeah, fighting to maintain. Uh I would I would like to say improve our our operating landscape here in California, but I think we're generally fighting to maintain uh where we currently stand, as far as I know.

AnnaRae Grabstein 2:21

Are you feeling optimistic about what's going on?

SPEAKER_01 2:25

Yes and no. Um, I think there will be some changes that might create some more restrictions, but what we're trying to do is find a middle ground that it doesn't uh create too many more hurdles, maybe a little bit more clarity for consumer safety. Um, you know, when it comes to beverages, there was has been or is this fear that they cap beverages at 10 milligrams in the dispensary channel. And what we know is that if you cap them at 10 milligrams, that's going to eliminate 90% of the beverages sold in in California. Um, and so if you eliminate 90% of the revenue for the beverage companies, that pretty much in essence eliminates the beverage companies because they can't operate off of 10 milligram drinks being sold in dispensaries. Um, so we're fighting against that. It feels like uh there is receptivity to the concept of like this is just untenable. Uh, so that means we have to fall back into well, what are the packaging and labeling requirements that will make them feel comfortable with the regulations? And so as we get into the packaging and labeling conversation, that's what broadens into the rest of the industry where gummies, vapes, flour are all undergoing changes about finding uh labeling that isn't attractive to children, that is more clear for the adult consumer, and in general, trying to put cannabis more into a safety box than it currently is.

AnnaRae Grabstein 3:54

Yeah. The the data that you referenced about 90% of the beverages at dispensaries in California being over 10 milligrams, I think really plays to the center of a lot of what the conversation we're going to have today about hemp beverages. It's it's the core, really, because we're talking about low-dose beverages that um that have a very different consumer base than what we see are the consumers that are going to adult use dispensaries in mature states like California. And so it really just emphasizes how much these two channels serve different consumers looking for different products, which I find really interesting and important. Um, another example of why consumer data is so helpful as we navigate this kind of regulatory moment of trying to find policy that fits um for businesses, for consumers, for for government overseers, all that stuff.

SPEAKER_01 4:51

Um Yeah. What what what it highlighted for me is is more like higher level, um, you know, I I kind of was uh maybe delusioned in in the fact that I'm like, I well, I think we're okay in California. It's not gonna get worse. Um, but now I'm finding it's like things can always get worse. And so while my personal efforts and focus has has been more at the federal level this year, now realizing it's like, oh, I have to have this persistent effort in in my home state, in other states as well. And that man, it's just it's hard work being in this industry having to constantly keep a beat on what's happening in any of the landscapes that that we operate.

AnnaRae Grabstein 5:32

So it sure is. Well, our first story we're gonna cover is um here out of our home state in California, a big retail consolidation deal announced yesterday. This is a deal between Glasshouse and Vireo. Uh, in a deal announced yesterday, Glasshouse and Vireo unveiled a 50-50 joint venture that will merge their California dispensary footprints into a 23-store network, one of the largest retail platforms in the state. Vireo bought the Ease assets and brought them to the table after closing a$47 million acquisition of Ease earlier this month, um, picking up its 12 California dispensaries and the EAS delivery platform. Um, Glasshouse is bringing their 11 dispensaries to the table, plus their cannabis supply chain as the state's largest cultivator. And the joint venture is structured with a preferential supply agreement from Glasshouse and includes a five-year buyout option for Vireo. Um, the logic seems very clear. Virio gets retail reach, um, and Glasshouse gets a larger captive vertical retail channel to move product in a really difficult pricing environment. Uh the question is, who is this good for, really? Uh maybe for consumers if they get preferential pricing um at these retail stores, but it certainly is not good for the business environment to have more consolidation um of the largest players at the top. So we'll see how this plays out. What do you think, Ben?

SPEAKER_01 7:10

I just think it's really interesting. This this is the first move or where an MSO is coming back into the state, right? There's this flood of them leaving the state. And I think at current, before this deal, there were no notable like real MSOs uh operating in the state. And and now we have Viriel Wellness that's all has like five other states right now. They think they are currently in Minnesota, New York, Maryland, New Mexico, and Arizona. So coming back into California, big assets that they just now seven. So seven states with California. So yeah, this is a huge pickup for them. I I think that that's interesting. That's something to watch independently for Virio. Um the Ease component is is interesting, you know, a way to string together these assets. I'm I'm not sure how that plays into it all. Ease has just had a really rough go. Um, now they've been completely recapped, so it's probably a relatively clean slate and see if they can, you know, build some synergies between the dispensary network and and ease. But um, for me, like from the glasshouse perspective, like, you know, is this them personally focusing on on their grow uh grow operation, which I know has been their their pride and joy.

AnnaRae Grabstein 8:32

You know, I I see it that it's really important for Glasshouse to have more retail doors to sell into. And that is because they are growing so much cannabis and the bulk market continues to decline as as more states become legal and as more cultivation canopy matures in the state. And so this solidifies shelf space for them at really important locations. And your point about the MSOs paying attention to California, I think is really important because the narrative has been that California continues to decline. And from a top-line revenue perspective, that might be true. But if you look at the brands that are at the top, the top 10, top 20 brands, those brands actually continue to grow year over year. It's the small brands at the bottom that slowly have been just filtering out of the market and leaving the competitive landscape, kind of leaving shelf space and consumer uh optionality available for these brands that have the right capitalization and the operational infrastructure to be able to compete in the market. So um, I guess a prediction might be that more MSOs might be coming back to California on the back of a deal like this.

SPEAKER_01 9:49

Yeah. Yeah. Who gets who gets picked up next? Is it is it embark? Is it Spark or is Spark's Long?

AnnaRae Grabstein 9:56

Spark is very small at this point, but yes, very small.

Texas Hemp TRO And Regulatory Whiplash

SPEAKER_01 10:00

I'm a Bay A Bay Area native, clearly. Yeah, totally. Yeah.

AnnaRae Grabstein 10:04

Uh well let's move on to Texas. Uh Texas Hemp TRO. Judge hits pause on the smokable ban. Uh, Travis County judge issued a temporary restraining order on Friday blocking the Texas Department of State Health Services from enforcing the sweeping new hemp regulations that were supposed to take effect or did take effect March 31st. Um, the the rules changed how THC levels are calculated, effectively banning smokable hemp, uh, flour, and concentrate, which accounts for the vast majority of the Texas hemp sales currently. Um, industry leaders filed suit, accusing the department of exceeding its rulemaking authority and sidestepping process. Um, the TRO is a temporary lifeline, but the vigor fight still looms. Full injunction hearing is scheduled for April 23rd, and Texas is home to an estimated 6,300 hemp businesses employing over 40,000 workers. And the state level uh battle is unfolding, all while the backdrop of the federal November 2026 deadline is also getting closer and closer. So I'd say that this outcome that is happening in Texas could certainly shape how other states are handling their own transition and of looking at state-level regulatory environments uh as we kind of get closer to November. But ooh, what a mess, huh?

SPEAKER_01 11:39

Yeah, it seems to be the the continual uh narrative in not only in Texas, just in in hemp in general, right? It's uh this perpetual fight of of trying to fight for what the hemp industry believes it has a right to operate as and what regulators want. And I think, you know, I'm not sitting in Austin. I'm like I said, I'm in Sacramento. Um, so I don't know all the all the uh strategy that's being played, but I don't quite understand what the desired outcome is because the hemp industry continually says, we want regulations, we want taxation, um, you know, states' rights allow the states to regulate hemp how they want to regulate it, and and then this happens. And and so maybe there's some legitimacy to the rules not being followed. Like I I will I will kind of leave opportunity for that to be true. And and in that case, you know, uh a temporary restraining order um is just. But my big question is like, what are the rules and regulations that the hemp industry sees as being viable moving forward in Texas? Because if we keep telling the regulators that give us regulations, we want to be regulated, and then we fight against it, we file lawsuits or temporary restraining orders, then like what message is that sending? And so at some point it's going to come to a head, right? And what we've witnessed at the federal level and other states is that if you push back for too long, eventually something gets put into place. And so are we at the table trying to find a middle ground or are we just pushing until it breaks?

AnnaRae Grabstein 13:21

Such a solid point. And there has to be some type of compromise. It's clear that the Texas lawmakers are not happy with the way that things are. So this isn't gonna die with the TRO.

Meet Dawson Hobbs From WSWA

SPEAKER_01 13:32

Uh no, no. And I and I I think it makes a good segue to our conversation today because something that uh Dawson, uh, who our guest is that we've talked a lot about is is not what is optimal, but what is likely and achieving kind of that that viable path forward. And so I'm excited to have that conversation. And let's do it. Let's bring him in.

AnnaRae Grabstein 13:58

So yes. Uh our guest today is Dawson Hobbes. He spent nearly two decades navigating the most complex regulatory uh terrain in American commerce. And now he's at the center of the policy battle uh between or in Beverage and Cannabis. Uh Dawson Hobbes is the EVP of government affairs at the Wine and Spirits Wholesalers of America, where he leads state, federal, and regulatory advocacy on behalf of WSWA's 380-plus member companies who together distribute more than 80% of all wine and spirits sold at wholesale in the U.S. Um over two decades, Dawson has testified in dozens of state houses, built relationships with governors, AGs, alcohol regulators across all 50 states, and has become one of the most consequential voices for the three-tier system in Washington. So today he's here to talk about the November Cliff, what a real regulatory framework for hemp beverages could actually look like, and what it will take to get 218 votes in the House. Prior to joining WSWA, Dawson spent seven years working for the NRA. He's an avid sportsman, an advocate for conservation, promotes responsible wildlife management practices, and he is here with us. Welcome, Dawson, to the show.

SPEAKER_03 15:17

Glad to be here. Thanks for having me.

AnnaRae Grabstein 15:19

Yeah, so good to see you. You know, I met you in Miami at a dinner, and we sat next to each other, and I got to hear all kinds of exploits that you have had in nature from oyster farming to hunting. Really cool stuff. I really enjoyed getting to know you.

SPEAKER_03 15:35

Yeah, thank you. It was good. That was a fun dinner.

AnnaRae Grabstein 15:38

Yeah, it sure was. Well, let's jump in. Um, I want to talk about what's actually happening right now. We've got listeners who have been tracking this closely and people that might not know as much about what happened in November 2025 and the spending bill. And I would love for you to break it down for our audience from your perspective.

SPEAKER_03 16:00

Sure. And I'll actually take a second to even go back to before November when WSWA's involvement in this. You know, the far we all know that the farm bill in 2018 created the pathway to a viable hemp marketplace. And it was a few years after that that our members started being asked by retailers, hey, we're getting all these interest in hemp products. I have all these hemp producers coming and knocking on our doors, wanting us to put them on the shelves. Can you help us figure out how to navigate this space? So our members uh started calling us and saying, you know, there's this new category out there. What's the legal and regulatory framework around it? And so we looked into it and quickly realized, you know, these products were novel, and many states didn't have any kind of a regulatory framework. We started working with our state associations and our members to promote a regulatory framework at the state level that would regulate these hemp beverages like alcohol. We were making really good progress on that. We also recognized that there needed to be an overarching federal framework, like we have in alcohol, so there would be some consistency in products across the country. And we started working on that. We were having really good conversations about this time last year about what was achievable and putting into the farm bill, creating something that created some guardrails around the hemp beverage category. And then we got to July. And in July, in the appropriations process, uh uh Representative Andy Harris and Senator Mitch McConnell in the House and Senate were successful in including a ban on these products and the bills that moved through the committee process. But even at that juncture, we felt like we were in a really good position to negotiate, find a middle ground, build support, and come up with a regulatory structure that allowed appropriately dosed adult beverages to continue to exist while putting some safety mechanisms into the industry. Then the government shut down. We had the at that time longest government shutdown in U.S. history. Uh, everybody was desperate to have the government reopen. That put a tremendous amount of negotiating leverage into Senator McConnell, Representative Harris, and others that were aligned with them. And ultimately, in the bill that reopened the government, uh, they were able to include a provision that will ultimately cut the heart out of the hemp industry. Um, now we were successful along with others in the hemp industry in getting a one-year delay in the implementation of that ban. Uh, so we have a ticking clock until middle of November of this year, hemp hemp products remain legal. But come November, anything with more than 0.4 milligrams in the final package will be federally illegal. That's going to put federal law in conflict with many states that have enacted regulatory structures for hemp beverages and other hemp products. And it's going to cost the consumer who's come to enjoy these products because many legitimate retailers and those of us that hold a federal license, like our members, will exit the marketplace. The plant will still be legal. I have no doubt some people will make products out of the plant, but you're not going to see the most responsible manufacturers, the most responsible retailers, the most responsible distributors involved in the business in the same way that they are now.

Why WSWA Entered Hemp Policy Early

SPEAKER_01 19:25

Dawson, you you're not the only, or the organizations you represent aren't the only ones that are operating with retailers. Um, but you guys were notably early, like one of the first few kind of mainstream organizations that really like put their neck out there for for the category. And it was very much appreciated as an operator in the space. And and now where we stand today, we have a number of organizations that are very much aligning themselves with you US Hemp Roundtable, Kaba, HBA, uh, Bamco, BWR. And I'm curious as to those early conversations, like what got you guys confident enough to be like, yes, we will represent this in comparison to other organizations, say like MBWA, the the the beer wholesalers.

SPEAKER_03 20:15

Yeah, so I think we've been a little bit further along in the THC conversation in general. Um, way back in uh you know 2018, we actually took a position regarding cannabis legalization that Congress should take steps to regulate the product and allow states the freedom to legalize cannabis and not be in conflict with federal law. Um, we come to this from the standpoint of alcohol, where state-based regulation is the most important thing in our industry. We think the same can apply to both cannabis and hemp. That position that we took in 2018 regarding cannabis really laid the groundwork for our ability to extend into advocating on the hemp front. You know, we view it as uh hemp has been made a legal plant by the federal government. We think that there are derivatives of that plant that are appropriate for adult use. Uh, we think that the federal government can set guardrails and standards about how those products can be made and what they can contain, but the states should have broad authority to regulate them. It's the same model we've had for alcohol. Um, I really thank our members for being thoughtful and at the forefront of this. Um they pushed us to really think about how these products can be regulated so that they can exist safely in a system that's similar to that that we have for our products.

AnnaRae Grabstein 21:47

Um so you represent a very specific uh section of the alcohol supply chain. And um, and that is the wholesalers, the distributors. And I'd love it if you could help us understand. Understand the broader alcohol landscape and where all the different stakeholders in alcohol are landing as it relates to intoxicating THC beverages.

A Fourth Adult Beverage Category

SPEAKER_03 22:11

Yeah, if you think about the alcohol industry, it's really a nine-part diagram. You have three tiers you have producers, distributors, and retailers, and you have three categories: wine, beer, and spirits. And each one of, depending on where you sit within that intersection of which products you carry and where you are in the supply chain, you know, it slightly changes your perspective, not on these products, but on a whole host of regulatory things. So if you think about us, our members buy products from those that produce them and they sell them to retailers. We got interested, and our members got interested in hemp beverages because retailers were asking us to do the same thing for those products we do for wine spirits. Find them the best products, bring them to them, bring them the logistical efficiency, help them put them on their shelves. Producers have a little bit different take, right? So they're looking at this as a new category that they're not involved in, uh, that right now has a very low regulatory threshold and potentially enjoys a competitive advantage in the marketplace. I think it's perfectly legitimate for them to look at these products and say, we think if these products are going to be sold side by side with ours, they should be regulated on a level playing field, which is exactly what WSWA is advocating for. At the retail level, they're mainly regulated by the states. There's very little federal regulation of retail in our industry. So their perspective on these issues really depends on their what state they're in and whether or not they're allowed to carry them, how they're allowed to carry them, how they're allowed to market them compared to beer, wine, and spirits. So the perspectives are just different based on where you're situated in the supply chain and which categories you carry. I think where we all, what we all have in common is the desire for these products, if they are legal, to be manufactured safely, distributed safely, and treated on a level playing field with alcohol. And that means a whole host of things, not just that you have to be 21 to purchase them.

SPEAKER_01 24:21

Being that there's been this kind of like low barrier of entry and like the kind of lack of regulations, it's kind of breaking the mold, right? Where you have some retailers launching their own brands, you have wine, spirits, beer, uh everyone. Everyone's kind of like selling these products and creating these products, and so it it kind of ruins the matrix. It's like a layer has been dropped on this nice, pretty three by three matrix. And so I guess like as we continue to have this conversation about it going into the three-tier system, how do you envision that looking? Does does it become like a fourth column of the matrix and all of a sudden we have a four by three, or like does that kind of layer on top exist and wine, spirits, and beer all get to play in it? Like, like how how does this fit that model if it does indeed end up going to the three-tier system?

How You Get To 218 Votes

SPEAKER_03 25:24

I I think that's a great question. And I I think that ultimately the market will decide how it sits. Um, but at a basic level, yes, I think creating sort of a fourth category. So you'd have beer, wine, spirits, and then derived beverages, um, but all within that adult beverage category. And they all, beer, wine, and spirits, all have the same basic thresholds that govern their production, distribution, and sale in any given state. And then there become differences about whether it's the tax rate or where they can be sold, you know, the sometimes the types of outlets they can be sold in, sometimes it's the hours of sale. And it will take some time to determine where hemp products fit within those. But the first step is to get them to that same basic threshold, you know, to ensure that the products, from a federal perspective, are manufactured to the exact same standard so that somebody buying a product in Tennessee knows they're getting the exact same product that they get when they buy it in Georgia, but also make sure that the products are marketed appropriately, that they aren't marketed to children, that they don't have inappropriate claims on the labels, that they're taxed appropriately, and that they're distributed in a safe and accountable manner. Once we get to that, the states can take over that handling of the retail regulation and determine where they fit within those other products. In some states, you can sell wine in grocery stores, in some states you can't. In some states, you can sell spirits in grocery stores, in some states you can't, in some states you can't sell spirits on Sundays. Like there's there's a whole host of state-based regulations. And that's one of the things we really advocate, advocate for is that state flexibility. Utah and Nevada exist right next to each other. They have very different attitudes and and rules regarding alcohol, and it works great because the states have full authority to enforce that within their borders.

AnnaRae Grabstein 27:27

So I think a lot of people are probably tuning in to listen to you today because they want to know what's gonna happen, right? And uh, and often people will say, Well, nobody has a crystal ball. And and I don't think you have one either. Um, but I also know that it's this isn't actually about a crystal ball. Like what I know that you're thinking about is votes. Um, 218 in the house, you know, we need a simple majority. I want to talk with you and hear from your perspective about how we get to 218 votes, what that actually looks like. Is it possible to pass something as a standalone bill? Or is the future something that looks like the way that that the ban got passed in the first place, kind of embedded into some other piece of legislation? Loved love to hear your perspective on that.

SPEAKER_03 28:18

Yeah, I I would say if I could accurately predict exactly what Congress was going to do, I'd I'd probably be in a position to retire pretty soon. But um the the fact is that Congress doesn't pass very many significant standalone bills these days. Uh, with the narrow majority in both the House and Senate, any type of significant, meaningful legislation has to be a compromise, usually of multiple issues. And so whether it's part of a funding package, like what happened in November with the appropriations bill, or some sort of a larger package of authorizing, what we call authorizing bills, um, our best chance is to be part of a package where there is a bipartisan negotiation and where they are trying to build a majority in both the House and the Senate. Um, in the meantime, what we have to continue to focus on is the laser focus on safety, regulation, and responsibility. And we as an industry, the hemp industry, and needs to come together and have a unified voice on saying we are talking about a narrow band of products derived from hemp that are appropriately dosed for adult use, marketed in a responsible way, and regulated responsibly. And we get a lot of head nods when we talk about the details of that within Congress. What we don't have right now is the two or three really passionate champions on our side of this issue that will lead the charge up the hill. I firmly believe there are a lot of members of Congress that will go along with a reasonable and responsible compromise on this issue, but we need the leaders to help forge that compromise. And that's what our focus has been on is trying to educate folks to the point that we have somebody that's really going to drive the negotiation from the hemp beverage side of things.

Three Tier System Misconceptions

SPEAKER_01 30:31

I want to come back to the strategy on the hill, but I pausing just a moment because I can't get beyond like the voices in my head, or at least on LinkedIn. Anytime we start hearing about these narrow pathways, right? And I'm talking about the hemp operators, uh, or cannabis operators in some cases, to be like, oh, this is big bad alcohol coming for our space and and trying to put it in their little box that is the big bad wolf. And how do you dispel that? Like, like I know how to dispel it at this point, but like I want to hear from you. Like, what what do you tell these people? And how do you get an organization like US Hemp Roundtable, which had used to have a very kind of broad lens on this, and it seems like they very quickly refine their narrative. And and I can only presume that you've had a a significant influence on that.

SPEAKER_03 31:26

So I I'll start with if from the wine and spirit wholesalers perspective, if if we wanted to get rid of hemp, then we wouldn't be advocating to regulate hemp. We'd be we'd be saying the ban was a great thing, right? And so uh the alcohol industry uh is not, and and our view is not trying to take over the product. Rather, we're trying to share 90 years of experience in how to safely market and sell an adult product and take those lessons and adapt them to this new category. Um, I would also say to many of the people in the hemp industry, to really look and dig down beneath the surface about what the impact of the three-tier system is. The three-tier system means that we have the most vibrant craft spirits, craft beer, and craft winery market in the world. We have a better system because of the separation of the tiers and the way that it prevents the largest of any one of the tiers from dominating the marketplace, that it allows it to be the most competit, one of the most competitive consumer products on the market. And so, you know, really, I think that the industry itself will benefit from the regulations. It will help it grow, it will help it remain innovative. I've been in this industry 20 years, and I've been through the beginning, it was all about flavored vodka when I started in this industry. Then bourbon had its giant renaissance and brown, brown liquors. Rye took off and on the coattails of bourbon, and now we've seen tequila become the fastest growing category. That's innovation in a 20-year period. If you take any five-year period of that, the top brands rotate. The same thing will happen for the hemp industry if they adopt a similar similar regulatory structure. They're gonna have an opportunity for new innovators to bring new flavor profiles, new products to the market, and it's gonna remain competitive and vibrant.

SPEAKER_01 33:32

How come, and I don't know if you actually have the answer to this, but how come people make specifically the distributors out to be the bad guy when in actuality it's like the retailers and the suppliers have a lot of power, and you guys are kind of stuck in between, but like I've seen it so many times, especially out of certain states, uh maybe in the south, uh, where yeah, distributors are the big bad wolf and the gatekeepers.

SPEAKER_03 33:56

I what I'll say is that's how the system was built. The distributors were meant to be the buffer between the supplier and the retailer, and essentially to take the slings and arrows from both sides. I mean, there's the whole point of the distributor existing is so that no producer can exert too much influence on a retailer. And now, as we have these very large retailers, no retailer can exert too much influence on a producer. There's a buffer in between. Well, sometimes when you're the buffer, you get squeezed. And and so we do sort of get blamed for all the uh the the negatives. If if a if a supplier can't get on a retailer's shelf, oh it's the wholesaler's fault. My wholesaler didn't get me put on the shelf. If if a retailer can't get exactly the product they made because it's scarce or it's allocated, oh, my wholesaler won't give me the allocated products. When in reality, if there was no wholesaler, they'd just be blaming each other for the same same conflicts.

A Realistic Path Low Dose First

AnnaRae Grabstein 34:57

I want to I want to bridge some of the conversation that you brought up about innovation in spirits and and the legislative strategy, um, in so much as that when we look at prohibition of alcohol ending, uh, those spirits weren't even allowed initially. The first, the first thing that was allowed was 3.2% beer. And over time, through incremental steps and policy reform, uh the market opened up and more innovative products and form factors in terms of strength of alcohol uh was were able to be introduced. And and one of the things that's happening with within the policy debate about what should get pushed through Washington is about kind of how much and how soon of is it just beverage? How strong can the beverages be? And and certainly just like what we're seeing happen in Texas that we talked about at the beginning of the hour, there's folks that are heavily invested in certain products, be them smokable products or highly potent beverages that um that can't seem to get out of the way in order to create some sort of legislative compromise. And I'm wondering from your perspective, what a realistic path forward is for how we see this unwinding or how you and WSWA see this unwinding. If we're able to do something to avert the November shutdown, uh, what what might it look like? What is what is a realistic path?

SPEAKER_03 36:32

Yeah, I'll I'll start with just saying I think probably most of the listeners to your podcast are people that are already in this industry or they're consumers of the products in the industry. And so they're believers in THC. They're believers in the cannabis and hemp derivatives. Most policymakers are not. And this industry needs a proof of concept, it needs to prove itself to that it can make safe and responsible products and market them in a safe and responsible way. And it needs to prove that to the policymakers. You use the example of many states that started with 3-2 beer, or they started with beer and wine only. I mean, there were states that didn't allow uh mixed drinks until the 1980s or 1990s in uh alcohol. Uh, South Carolina still had many bottles within the the last 20 years uh for the serving of spirits. Um, but over time, policymakers and and consumers determined that maybe a wider variety was safe. Something very similar does need to happen for this industry. We need to work with Congress to take a step that Congress is comfortable with, and that is keeping low-dose products available in the marketplace. We happen to think that beverage products are the ones that are most approachable by policymakers and people that aren't familiar with with hemp and THC. Um, they are used to seeing a 12-ounce can that impairs you when you drink it. Most people are not used to something that you eat that impairs you or something that you inhale that impairs you. There's less comfort level there. Um, once we have that, I it may never go further than that. I mean, we have to be realistic. Policymakers may say this is as far as society may say this is as far as we want to go with what products are going to be legal. But you have to start with that proof of concept, get culture, society, policymakers comfortable with it, and then start having a conversation about consumers' desire for other formats or for other form factors. We believe that low-dose beverage has the best chance of congressional acceptance. Um, we think there are other products that might be acceptable to Congress. They don't necessarily fit into the alcohol regulatory model as well as the beverage products we do. They present additional challenges, and it may take more time to find out what the solutions to those regulatory challenges are. I do know that what the questions I get asked from members of Congress are about children, they're about road safety, they're about preventing overconsumption. So that means we have to come up with form factors and marketing that answers those questions. Form factors that aren't easily overconsumed. It's hard to drink enough of a low-dose beverage to get to a very high dosage. Highway safety, making sure people don't overconsume is the first step. The second step is making sure that law enforcement has the resources to do roadside testing, that they're trained to identify impairment from THC, and that the enforcement mechanisms and penalties are enough to be a deterrent. Underage access. That comes down to how the product is marketed, what it looks like, where it is marketed, is it on social media? Does it have guardrails like we have for alcohol to ensure the audience is an underage? Does it look like it has cartoon characters on the package? None of those things should be allowed. Those are the that's what we have to do as an industry to answer the questions of policymakers. Quite frankly, policymakers aren't used to seeing something that looks like Halloween candy that has an impairing effect. It's very hard to have them wrap their head around creating a pathway to make that type of product widely available.

Safety Concerns Congress Fixates On

SPEAKER_01 40:44

It's so a lot of what you're saying has to do with where Congress sits, whether it's ethically, morally, philosophically, on THC and the consumption thereof. Um what we also hear in this discussion a lot, mostly from the operator side, is oh, what about the jobs, the revenue, the farmers, etc., etc., which are probably important components, but I'm starting to hear like a complete separation of Congress just doesn't like weed, and and so they want to put it into as small as a box as possible, but there's all these other considerations that have blown up since 2018, you know, quoted numbers are like a$30 billion industry. And so how should the industry be thinking about that? And then like this pathway that we've been talking about, like getting Congress on board. We also know that there's White House influence with everything these days, and so it's like you know, how do we think about these conversations and what's most important? Is it is it these kind of more just like philosophical beliefs about THC that the jobs and the farmers don't actually matter all that much when it comes to this conversation?

SPEAKER_03 42:02

Jobs and farmers matter, they always matter. Um, but the fact is this industry isn't big enough with enough of an economic impact in any single state or congressional district to really drive the conversation from an economic and job standpoint.

SPEAKER_01 42:23

You're talking about each one of those 218 votes.

SPEAKER_03 42:26

Each one of those 218 votes, or or even if you look at the Senate, any state,$30 billion is a huge industry. It's a lot of money. It's not a huge industry in context of some of the other industries that Congress deals with on a regular basis. And so uh, you know, I think you know, if you think about it, thir thirty billion dollars is is, you know, as a measure of the defense industry is a pretty small company, right? And so it it's not it's it's not a matter of the jobs don't matter. It's that the jobs aren't our winning argument. Yes, we should talk about them. Yes, we should talk about farmers, we should talk about the environmental impact of growing hemp, that it's a drought-resistant crop, that it's great for the soil, that it has carbon capture in it. All of those things are additive. But the first threshold and the first responsibility of members of Congress in their mind and of this administration is to protect their communities, keep people safe. And right now, there is not a consensus of 218 and 60 in the Senate that says doing this this way is exactly the right way to keep our communities safe. And so we have to show them the pathway that these products can be safe within the marketplace.

Why Jobs Are Not The Winning Argument

AnnaRae Grabstein 43:50

Well, and so earlier you said that standalone bills rarely get through, but we are seeing standalone bills being introduced and and maybe. Maybe that's just a way to create a policy framework that could get kind of gobbled up by a larger package later. That seems to be the path. But you're also talking about how Congress is not there yet philosophically. And I'd love for you to talk a little bit about how you think we can get Congress there. And if WSWA has a part in that, because not all of us are in Washington, and not all of us should be in Washington. So what can we all be doing in the meantime? And what are you guys doing so that we can move this forward and people can get some kind of certainty on some kind of timeline, hopefully, please.

Standalone Bills As Coalition Builders

SPEAKER_03 44:39

I'd I'd build on that by saying many of you are lucky not to be in Washington. So that's true. So I what I would say is every one of those standalone bills, you know, I think we all probably remember when we were little kids the how a bill becomes a law and you know, the thing dancing down the street. That's not exactly how it works these days in Congress. Standalone bills are important because standalone bills focus the conversation. Standalone bills provide the opportunity for hearings, which allow stakeholders like the hemp industry to come and testify, to talk about their industry, to talk about its safety record. Standalone bills give us something to go talk to other members of Congress saying, This member of Congress has this bill, we want you to support it. Please sign on. They can then express their concerns about why they don't want to sign on as a co-sponsor of that bill. And maybe the original sponsor takes those concerns into consideration, modifies the bill, you know, creates a discussion process. Standalone bills are important because they allow us to coalesce that coalition so that it can be inserted into a larger bill later. It is very rare to have legislation that is included in a larger bill that just comes out of the sky, out of nowhere. It is usually those standalone bills that have been discussed and debated. This is how they enter the public forum. This is how they they really get hammered out within the congressional process. But one of the things that Congress has not heard yet, I think, they still don't understand who the consumer of these products is. And we've talked to them, we've talked to them with data that we've gotten from our retailers, with data that our wholesalers have, that show that these can are product, the consumers of these products are all ages, all genders, a variety of educational levels, all economic demographics, top to bottom. It's not what many of members of Congress think is sort of the 25-year-old skateboard guy. It's a wide variety of consumers. And we're going to try and open a portal for consumers to let their voice be heard. Um, in the next few weeks, we're going to be launching a grassroots project where we're going to be trying to work with retailers to put materials in the point of sale near the shelf of these products, explaining to consumers that if Congress doesn't act, these products will go away in November. And there'll be a QR code so the consumer can scan it and write a letter to their member of Congress, tell them who they are, tell them why they like these products. I also also really believe that other than those that listen to this podcast, many of the consumers don't realize the products will go away in November. So this is a two-way education. Educate the consumer that the products will go away, have that consumer communicate to Congress who they are and why they want the products to stay. We'll also be working with a variety of our partners, whether it's through HBA, CABA, Bamco, any of those others, to put these, you know, this grassroots campaign out through their websites, their social media. You'll be able to see it on our website when it's launched. We have a micro site within our website. If you go to wswa.org slash regulate hemp, uh, you can see the educational resources that we have there for congressional staff. Eventually we'll have a link there that goes to our grassroots campaign. Uh our goal is to help the consumer communicate to members of Congress who they are and why they like these products, because that will help Congress understand where these products can fit within society and within the economic activity of America.

SPEAKER_01 48:27

Wow. That is incredible. Um, and I was having a conversation recently. We mentioned on uh a couple episodes ago, uh, the National Association of Convenience Stores have also committed to doing something similar at their point of sale system. So it feels like there's an opportunity to really get the consumer engaged. And and to your point, I I think there was like a bump in sales in November for the people that did hear that these products were going to be banned. But I could imagine that almost creating this kind of sense of false like security, like that there was this big announcement, oh, but they're still available, and like, oh, it must be fine, something must have happened. Uh so it's really important that we change that narrative and get the word out that it it hasn't changed, that these are going away. Uh, so that that could be really powerful.

SPEAKER_03 49:16

Yeah, there and there was a big bump in contacts to Congress around November and when that ban went into effect. And I know members of Congress were telling me, oh, I'm getting so many phone calls on this. Well, we have to keep that up. We can't let Congress think, oh, the issue went away. Nobody's calling my office anymore. We we need to make sure they understand this remains important to their constituents because ultimately their constituents are their voters, they are responsive to their voters, and and they will try and find a pathway forward if they think it's important to the people of their districts.

Grassroots QR Campaign For Consumers

SPEAKER_01 49:53

So this actually comes up quite a bit uh with federal strategy, right? Like, where is my time and resources best spent? Is it is it letter writing? Is it fly ins to DC? Is it contributing to organizations to kind of push these these broader narratives forward? And I'm getting the sense the answer is yes, all of the above. Um, but I'd be curious to hear your perspective on on how, since it's this show, how operators and investors can best spend their time and resources as we barrel towards November.

SPEAKER_03 50:27

Well, I'd say the answer is yes, all of the above, but every individual fits into the all of the above in a unique way. Uh if you have relationships with member of Congress, use them, talk to them, explain your industry. Uh it doesn't have to be a relationship that's just a close friendship. It could be that a member of Congress has a kid on the same little league team as yours. Uh member of Congress frequents the same hardware store as you and you run into them from time to time. Bring it up, bring it up in an organic fashion. You know, if you are a business owner, write to your member of Congress, reach out to them, talk about the employment, talk about the jobs that it does create, talk about your commitment to responsibility, talk about your consumer. Um, if you are somebody that has the time and ability to come to a fly-in in DC, who's put on by one of the groups, whether it's HBA or CABA or one of the others, participate in that. But when you come, be respectful, be professional. You know, don't talk to the members of Congress as if they know everything you know about your industry. Uh, a huge part of what we traditionally do at the Wine and Spirit Wholesalers is simply tell people what a wholesaler does. Try and educate them on what we do and the important role we play in the community. The hemp industry is in a tough spot because they haven't had the chance to do that, and now they're at this crisis moment. And so we've got to try and do it all at once. But you need to, they need to know it's not just, oh, he's a hemp guy. It's he's a business owner that's in my district that has employees that is committed to responsibility. And he's saying if we have a pathway for low-dose adult beverages going forward, his business is going to survive, the community is going to remain safe, and we can all win together. Members of Congress want to try and make as many people win as possible when they enact legislation.

AnnaRae Grabstein 52:31

Great advantage. Yeah, totally. Ditto. Um, so Dawson, if November comes and there is no legislative fix, what do you think actually happens? Does the federal government enforce? Do products stay on shelves? Is there precedent for something like this happening in in some other industry?

How Operators Should Lobby Effectively

SPEAKER_03 52:54

There's not really precedent for it happening in this way. Obviously, we know there are robust recreational cannabis systems in across the country that are in conflict with federal law. Um so the question is how do how does hemp and hemp beverages fit within that? Because what will happen in November is essentially all these products in the eyes of the law become cannabis. And the question that will be very interesting is how the states that have developed regulatory structures react. Will they shut down the markets that are existing in Tennessee, in Minnesota, in Georgia? Um, no doubt some retailers, some, if not most of our members will exit the space. They won't want to work, they they're in heavily regulated industries, they won't want to operate in um you know that gray area that will exist in a conflict between state and federal law. Uh, but I can tell you, my opinion is the plant will still exist. People will make products out of the plant, and those products will be sold somewhere. Unfortunately, I think many of those products will be the ones made by the least responsible actors in the industry because they're going to be the ones that are willing to push the limits, to use synthetic cannabinoids, to make them into products that aren't responsibly uh marketed, and they'll sell them in places that they probably shouldn't. Um, there will still be some responsible actors, no doubt, that work in accordance with their state laws. Um, but I think it's going to give the advantage to the people that are willing to push the limits.

SPEAKER_01 54:49

Yeah, it's interesting. Like some of the states have actually skated ahead and have been implementing various regulations either in favor or or against hemp. You know, Ohio just banned intoxicating hemp products. They have an existing uh regulated cannabis system. Uh, Texas, although now under TRO, uh, banned TACA flour, Rhode Island wants to pull TAC beverages from liquor stores, et cetera, et cetera. How do these state level initiatives influence the conversation at the federal level today? And is it important for operators to kind of start continually pushing these bills forward to make the conversation relevant? Or can it just wait until after the federal moves?

If No Fix Happens In November

Last Call And What To Do Now

SPEAKER_03 55:34

No, absolutely. I I think you know, the South Carolina is still considering legislation that would allow the hemp-derived beverages. The more states that have good regulatory structures, the more momentum we have for creating a federal regulatory structure. One of the our biggest selling points that people appreciate is the work that states have done. States like Tennessee, Kentucky, Georgia, Alabama, you know, South Carolina working on it, Minnesota, New Jersey. But I will say it is hurtful when states enact regulations and then the industry sues because they don't like the regulations. That is harmful to our cause. Uh and I'll flat out say, things like smokable hemp flour are not helpful in trying to move this industry forward. Uh, they are viewed by members of Congress as a backdoor way to what they call gas station weed. They are not viewed as safe products. It is not helpful for the entire industry to fight regulation, trying to save what is really a look down upon category by policymakers. It hurts the overall effort, which is we have to be asking for a responsibly regulated, responsible market. And that's the only way this industry is going to have an opportunity to move forward.

AnnaRae Grabstein 56:56

All right. Well, Dawson, we always close our interviews with a last call, a final drink order, if you will. Uh so before we let you go, um, what is your last call for our audience?

SPEAKER_03 57:10

So, what I would say to your audience is it's important that Congress hear from you. It's important that Congress hear from your businesses, from your consumers. It's important that they see the breadth and variety of responsible adults that are interested in this category. And so the more that you can communicate to Congress that keeping appropriately dosed hemp beverages alive, the better we are as an industry in our opportunity to move forward. Also, don't let the perfect be the enemy of the good. What we as an industry have to do is accept regulation and move forward. And don't try and, you know, make every bill perfect down to the last letter. We have to accept that we've got to start somewhere. We've got to start with a responsible industry, and that starts with responsible regulation.

SPEAKER_01 58:06

Amen. Pick up the phones, people. Get at it. All right, Dawson Hobbs, the EVP of Government Affairs at the Wine and Spirits Wholesalers of America. Thank you so much for spending the last hour with us. Very enlightening conversation. Thank you.

SPEAKER_02 58:24

Yeah.

State Actions That Help Or Hurt

SPEAKER_01 58:25

All right, we'll talk to you soon. Thank you, everyone, for watching, for engaging, especially Scott Wessler out of Newport Beach, California, and Lloyd Covens out of Denver, uh, Denver, Colorado. That's where that is. Uh thank you to our producer, Eric Rossetti, and of course, our teams at Virtosa and Wolfmeyer. If you've enjoyed this episode, please drop a review in Apple Podcasts, Spotify, or wherever you listen to your podcasts, maybe even YouTube. Thank you, thank you, thank you. Uh please subscribe, share, do all the things. Uh yeah. As always, folks, stay curious, stay informed, and more importantly, keep your spirits high. Until next time.