Beer sellers use a loophole to break into weed drinks market

Cycling Frog says it will “get your head in the clouds.” Delta Light offers “euphoric, relaxing and calming effects.”

These canned drinks aren’t alcoholic, but they get buyers high because they’re infused with THC, the main psychoactive ingredient of the cannabis plant. These drinks, along with many others like them, are now being sold by alcohol distributors from Connecticut to Texas in a bid to counter dwindling sales of booze.

Unlike federally restricted marijuana products, the drinks are being sold across much of the U.S. because they’re made with THC derived from hemp, a form of the cannabis plant that contains less than 0.3% of the compound.

They were inadvertently legalized as part of the 2018 Farm Bill, which allowed hemp to be grown to manufacture everything from clothing and cement binders to car parts. But drink makers have exploited the loophole to distill hemp into a psychoactive concentrate — like turning grapes into wine.

Charlotte, North Carolina-based Drink Delta, which makes six hemp-derived THC drinks of varying potencies, described the opportunity on its website as “like finding a loophole in the Matrix.”

Now, some alcohol distributors are lobbying to keep that loophole open, putting them at odds with both lawmakers and some of the big, listed companies that sell strictly regulated marijuana products, who feel their market share is unfairly at stake.

The marijuana-derived THC products that those companies sell, in raw flower form and as edibles, pre-rolled joints, concentrates and tinctures, mean they can’t ship interstate, work with large national banks or accept credit cards, and can’t take tax deductions — all non-issues for hemp companies. While THC derived from marijuana is allowed for recreational use in 24 U.S. states, it remains illegal at the federal level as it awaits reclassification.

Regulators, meanwhile, worry that poorly labeled hemp-derived drinks could expose consumers — especially children — to unknown toxins or an unexpected high.

The distributors that sell the hemp beverages don’t, for the most part, need special licenses to do so, and many stores can display the brightly colored, seltzer-esque cans alongside their selections of beers, wines and liquors. The levels of THC they contain could range from inducing a mild buzz to concentrations stronger than two average joints.

State lawmakers in New York and Connecticut have already moved to change that: As of last summer, New York bans drinks with more than 1 milligram of THC per serving; while Connecticut last week advanced a bill that would do the same.

Attorneys general from 20 states and Washington, D.C. are taking things one step further, lobbying for an ongoing review of the Farm Bill to explicitly outline that states can ban high-potency products.

For beer distributors like Joe Grabowski, who started offering hemp-derived drinks in early 2023, the restrictions would make a lucrative new business line unsustainable.

“I would’ve never thought in a million years that this would be where my career is heading,” said Grabowski, co-founder of Sarene Craft Beer Distributors LLC, which stocks nine hemp-based drinks. In February, Grabowski testified against the Connecticut law, which cut the strength of even the lowest dose drinks by more than half.

“This year, my company is looking at growth despite slumping alcohol sales, largely due to these hemp products,” he said in his testimony. “If this bill is passed, as written, we will have layoffs.” By 2027, beer sales are expected to fall to 33% of the U.S. alcoholic beverage market, from 45% in 2017, according to Bloomberg Intelligence.

Instead, Grabowski advocated for the state to introduce age restrictions, safety testing and new taxes on the product — all of which he said could be facilitated by the alcohol industry.

For inspiration, hemp advocates are turning to Minnesota, which was one of the first states to put detailed rules around hemp-derived cannabis products. Businesses must be registered with the state to make sales, which are limited to those 21 and over.

Unlike in New York and Connecticut, where recreational marijuana has been legal since 2021 and dispensaries are fairly common, Minnesota only legalized the stronger drug last year, and no licenses have yet been issued to businesses.

That means hemp-derived products are the only source of legal THC in the state, boosting demand: Annual sales of hemp drinks in the state are about $180 million — or about 26 million cans — according to data from cannabis private equity firm Delta Emerald Ventures.

David Gonzalez, co-owner of Minneapolis-based store Hemp House, said the boom isn’t just about people wanting to get high: He recently made a $2,000 sale to a local retirement home resident with arthritis who was hoping to replace her prescription painkillers. The 120 cans she ordered were, Gonzalez said, to share with her friends.

Even listed marijuana companies are getting in on the surge in demand. On an earnings call last week, Curaleaf Holdings Inc. Chairman Boris Jordan said the company will add hemp-derived THC drinks to its roster of regulated cannabis products this year, calling the move a “long-term growth driver.”

Distribution Deals

Cooperation between booze distributors and the hemp industry is also helping get the drinks in front of more consumers, faster.

In Texas, Bayou City Hemp Co. now sells its drinks in more than 1,000 stores after a February deal with Silver Eagle Houston, which also distributes beer for brewing giant Anheuser-Busch InBev NV.

“Silver Eagle stepping in really legitimized what we’re doing to retailers,” Bayou City Hemp Chief Executive Officer Ben Meggs said.

Not everyone in the industry thinks that should be allowed. In an April letter to the House and Senate Agriculture Committees, Edward Conklin, executive director of the U.S. Cannabis Council, warned that hemp-derived drinks could create a “Prohibition-era” crisis if the market continues unchecked.

“The current regulatory vacuum opens the door to bad actors and allows for unregulated intoxicating products to be sold across the nation,” he wrote. The USCC — which counts Curaleaf as well as public companies like Canopy Growth Corp. and Cronos Group Inc. among its members — wants hemp-derived THC for consumption to be considered marijuana under the law.

While most big alcohol distributors are waiting for more legal clarity before stocking the drinks, the burgeoning support from the industry is providing confidence that hemp beverages will stay legal. And farmers are getting ready: Cannabis data provider New Leaf Data Services is forecasting that up to 50,000 acres of hemp will be planted solely for consumption this year, compared to 6,000 acres in 2023, CEO Jonathan Rubin said.

“Once alcohol starts getting involved and starts pushing their lobbying dollars against the other side, there’s no way you beat that,” Drink Delta’s CEO Jack Sherrie said.