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Alcohol, Cannabis and the Dawn of a New Era

November 2013
by Cary Greene and Jeff Giametta
When the U.S. Department of Justice announced in late August that it would not preempt state laws legalizing the regulated recreational use of cannabis, residents of Colorado and Washington state suddenly were transported to 1933. Now as then, states scramble toward regulatory control of a product still seen by many as taboo, clouded in stereotypes of abuse and criminality.

If our own industry’s experience is any guide, attitudes are likely to change as the legal landscape and markets develop. The strange path of alcohol from the Anti-Saloon League to the American Wine Society, from Prohibition-era pariah to mainstream product, is an almost perfect analogue to the probable development of a legal, commercial market for cannabis, and wineries should be paying attention.

Certainly there are significant differences—for one thing, production and sale of cannabis will be a purely intrastate affair pending new federal legislation—but the similarities are striking. In the 1910s there was W.C. Fields, in the 1980s there were Cheech and Chong. In the 1920s there was medicinal alcohol, in the 1990s and 2000s there’s been medical marijuana. Today—just as in the 1930s—a catastrophic economic downturn has led government officials to reconsider a widely used but taboo product as a source for new tax revenue. The market is poised for venture capital to step in and identify innovative and responsible ways to establish an industry that reflects the changing attitudes and perceptions of consumers.

This new industry is expected to be massive. It’s easy to imagine a not-so-distant future when legal cannabis will be the law of the land. What does this have to do with wineries? Well, we’ve seen this movie already.

If alcohol’s long history since the 1930s teaches us anything, the pleasures of touring wine country only became feasible because the residual stigma of alcohol consumption had faded by the time it was legally possible. There’s a reason Ernest and Julio Gallo were successful before Robert Mondavi reinvented the market. Among a short-list of other producers, E. & J. Gallo Winery marshaled the transition from the necessarily restrictive control framework of the 1930s and 1940s to build and formalize a legal production and distribution system centered around mainstream brands that the country trusted. Gallo marketed its products in a way that matched well with consumer attitudes toward wine. By the 1960s and ’70s, Mondavi had fertile ground to make craft king.

In the case of wine in America, broad consumer acceptance was made possible only because formal rigidity gave an immature market time to develop. Innovators like the Gallos and the Mondavis were there to make the most of the market opportunities they saw reflected in changing public attitudes. Legal flexibility made sense only after the market matured sufficiently that the mainstream understood and felt they could purchase wine without apology.

States seeking to maximize the economic potential of the cannabis market would be wise to follow the lessons of the wine market as it matured in the wake of Prohibition. This suggests that rather than looking to recent state winery laws as a model, as Colorado apparently did in establishing its direct-sales model for cannabis, they should be dusting off books like “Toward Liquor Control,” which allowed alcohol producers in the 1930s to foster legitimate large-scale commercial success and acceptance from the public without stigma. Conventional branding and investment—something more likely under the Washington control model than the Colorado direct-sales model—must come well before craft packaging and marketing. Starting with a strict and upright regulatory framework, in other words, allows responsible market innovators to take business risks and succeed.

While the eventual need to rewrite antiquated legal codes is difficult, that step becomes impossible without initial policymaking that encourages a responsible business climate that facilitates development of a dynamic, mainstream, moderate consumer culture.

Over the longer term, there’s likely to be common ground between the wine and cannabis industries—shared land, shared concern for spray drift, shared need for agricultural labor, a shared place at the value-added agricultural table. So while wineries ignore the changes seemingly poised to sweep the country at their peril, there is a strong possibility that wineries will eventually adapt to, coexist with and even accept this newly emerging market. After all, it will largely follow on our heels, and who knows our shoes better than we do?

Cary Greene and Jeff Giametta are food and beverage attorneys with the law firm of Davis Wright Tremaine LLP. Greene previously was the chief operating officer and general counsel of Wine America, the national association of American wineries.Giametta was previously in-house counsel with E. & J. Gallo, where he managed marketing, advertising and promotions compliance.

Posted on 11.08.2013 - 10:18:29 PST
During Prohibition, my dad was legally able to sell wine solely for medicinal and sacramental use. When NY Mayor "gentleman Jimmy" Walker hosted Lindbergh's triumphal return from his non-stop flight to Paris, my Dad's "champagne" was (quietly) poured at the city's Commodore Hotel party. It sure takes a long time for times to change, but change, but they do! I was "a child of the '60s" and spent my lifetime - 50 years - retailing the world's fine wines secretly wondering when it would happen that cannabis would finally arrive on our tasting table. When it does become legal, the question is: will the licensed wine & spirits purveyors become the logical sellers? I wonder...
Peter Morrell

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Wine Industry Metrics
Off-Premise Sales » Month   12 Months  
October 2014 $570 million
$7,775 million
October 2013 $539 million $7,342 million
Direct-to-Consumer Shipments » Month   12 Months  
October 2014 $284 million
$1,751 million
October 2013 $240 million $1,556 million
Winery Job Index » Month   12 Months  
October 2014 139
October 2013 131 192
MORE » Released on 11.13.2014


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