🌿🎙️ 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
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Your hosts are Ben Larson and AnnaRae Grabstein.
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Remember to always stay curious, stay informed, and most importantly, keep your spirits high.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
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Ben Larson (00:53):
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, march27th 2025.
We have a great show for you.
Today We'll be digging into ahot topic that could reshape the
(01:14):
hemp beverage industry statelegislation that's treating hemp
drinks like alcohol ThinkTidehouse 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 theforefront of advising both
brands and regulators on thisissue.
But before we get there, allowme to check in with my co-host,
(01:38):
anna Rae.
How are you doing?
How's the week?
AnnaRae Grabstein (01:41):
The week is great.
I started off the week feelingsuper inspired because over the
weekend I had the opportunity togo and accompany my second
grader, who's seven, to ourneighbor's house for a homework
assignment and the homeworkassignment was Women's History
(02:03):
Month and he was supposed tointerview a woman about her life
and her career for apresentation and he didn't
choose you.
I know I gave him a hard timefor not choosing me.
But also inspired him to try tothink about other people, and I
wanted to share a little bit ofwhat I learned, because
(02:25):
sometimes seeing somethingthrough the eyes of a kid can be
a great unlock for the thingsthat are all around us and the
magic.
And so we went.
We went next door and myneighbor, as a 15 year old,
decided she wanted to be anastronaut, and so, in order to
be an astronaut, she realizedthat she needed to learn how to
(02:46):
fly a plane.
So she went and learned how tofly a plane as a 15 year old and
then set out on a mission tobecome an astronaut and found
out along the way that shereally wasn't very good at math,
and not being good enough atmath meant she couldn't be an
astronaut.
But she still wanted to fly andso I don't have calculators for
(03:06):
that.
Ben Larson (03:08):
That's one of those things in school where you're
like, oh, you're going to usethis in the future.
Am I going to use this in thefuture?
AnnaRae Grabstein (03:13):
Apparently you do.
Yeah, no, you have to have thecalculator 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 submarineone of only two women out of 250
(03:33):
people that were living underthe sea for three months um,
which is wild.
And then, after the air force,became the first helicopter
pilot in the los angeles policedepartment and then started a
long career in law enforcement,flying planes, and ultimately
came to the San Francisco PoliceDepartment, where she served
for over 25 years doing allkinds of incredible work and
(03:58):
retired about six years ago andbecame a therapist serving first
responders and has been doingintervention work, and she has,
just throughout the course ofher life, stuck to her passion
and helped people.
And the last question that thesecond grade teachers asked my
second grader to ask as part ofthe interview is what advice
(04:21):
would you give a kid my age andthat's really what I'm telling
the story to get to is that thisincredible woman who really is
like a real life superhero.
Her advice was to figure outwhat makes you happy, what
brings you joy, but, mostimportantly, to practice that
and become an expert in it, andthat knowing what makes you
(04:42):
happy isn't good enough.
It's the discipline and thepractice and being good.
And that knowing what makes youhappy isn't good enough.
It's the discipline and thepractice 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 onthroughout the week is this
concept of discipline, practiceand expertise being the real
superpower that that can take itto the next level for us in our
(05:04):
lives.
Ben Larson (05:06):
I love that.
It's like she's the actualphysical embodiment of one of my
favorite quotes, which is shootfor the moon.
Even if you miss, you'll landamongst the stars.
AnnaRae Grabstein (05:17):
I love that too.
So good, so good.
I love it man.
Ben Larson (05:22):
I'm feeling all the feels this morning.
This is so good I know.
AnnaRae Grabstein (05:25):
It's really good stuff, and the thing is is
that we hadn't really talkedabout Women's History Month and
I didn't think that we weregoing to make any content around
it.
But then it just sort of landedin my lap and I wanted to tell
this story.
But then at the same time, Ithink that you also have some
big news about a superhero womanthat you just brought onto your
(05:45):
team.
Ben Larson (05:47):
I heard that you- yeah, yeah, the cat's out of the
bag, so to speak.
So, yeah, we made anannouncement this morning that
we brought on Diana Eberlein,who's the chair of the Coalition
of Adult Beverage Alternativesand just been a huge shepherd of
the cannabis beverage movement,and we're in such a critical
(06:07):
moment and all the close workthat we've been doing together
just culminated into us bringingher on as our chief external
affairs officer.
And, yeah, I couldn't be moreexcited.
You know we as business owners,especially our attention, is
often divided and pulled intomany directions, and there's
(06:28):
been many times where I'm like Ican't raise my hand here.
I have to.
I have to be there for mybusiness and for my employees
first, and then I need to alsodo this lobbying, because it's
going to create the opportunityfor my business but also
progress the industry in thedirection that we see it.
And to be able to now work armin arm with Diana and to share
(06:52):
that load and not have thatanxiety about being torn away
from my business and knowingit's in good hands is just a
huge breath of fresh air, butalso a highlight to the
leadership that Diana has beenfor this category and will
continue to be.
AnnaRae Grabstein (07:08):
Diana is a total badass.
I am so excited for her and foryou and for the industry.
Federal reform is not going tobe possible without the work of
people like Diana really puttingin the effort to have a voice
and to explain what needs tohappen for this next phase of
(07:29):
progress.
So I think that the wholeindustry is lucky to have her
and, yeah, federal reformbrought to you by Virtosa, yeah.
Neil Willner (07:41):
Very cool.
AnnaRae Grabstein (07:43):
Well, let's dive in to our topic today,
because I think that there'sjust 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 incredibleresource for us as we're
(08:03):
wrapping our heads around what'shappening at the state level
legislation.
He's also been a key personthat has been advising
policymakers, attorneys generaland stakeholders around
intoxicating hemp products for awhile now, so really excited to
bring on this nationallyrecognized expert and talk to us
today.
Welcome, neil.
Thanks for being here, hey.
Neil Willner (08:23):
thanks so much for having me guys.
I'm so thrilled to be here.
I love listening to the podcastand it's just it's excellent to
participate.
Ben Larson (08:31):
Awesome.
Well, neil, we've had our pathscrossed a number of different
times.
We ever chose to rely on Neiland his work and now his home at
Vicente.
But I think the first time wemet it was when we were
launching the beverage councilwith Attach, and there's a lot
(08:52):
of interesting pathways thathave happened since then and the
industry has evolved inpeople's positions.
But, yeah, super excited to seeyou 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 (09:12):
Yeah, it's been an excellent transition.
I've been at Vicente for acouple of months now, and it was
you know.
I was able to fit right in andbe part of the larger team,
working with some exceptionallybrilliant folks that have a lot
to offer, and I'm learning newthings every day, which is my
(09:32):
favorite part about being alawyer.
AnnaRae Grabstein (09:34):
Nice Well, Neil.
There's been legislation inaround 10 states that have been
seeking to shift oversight ofhemp beverages to alcohol
regulatory agencies, that havebeen seeking to shift oversight
of hemp beverages to alcoholregulatory agencies.
Some of these states includeArkansas, Arizona, Illinois,
Kentucky, Massachusetts.
They go on and on.
Neil Willner (09:56):
A busy legislative session.
AnnaRae Grabstein (09:58):
Can you give us an overview of what's
happening here?
What's pushing this type oflegislation?
Neil Willner (10:07):
and what's the motivation behind these bills?
Sure yeah, it's always a busytime of year when the
legislature is in session inhemp land, but this year, more
so than any years past that Ican remember, and like you
mentioned, anna Rae, there'sbeen about 10, maybe a couple
more states that have started tointroduce legislation shifting
(10:30):
regulatory oversight of hempbeverages specifically to the
alcohol beverage regulatoryscheme.
The first state that actuallypassed one of these bills was
Kentucky, and it was just signedinto law two days ago by the
governor.
What's motivating this shift isanybody's guess about what's
(10:54):
happening behind the scenes, butI think you ask a really
important question that allowsus to kind of think about why
alcohol beverage policy in theregulatory scheme is the way it
is and that could shed somelight onto why hemp beverage may
be shifting into that direction.
So when the 21st Amendment wasratified in 1933, it came at a
(11:18):
time where you know alcohol wasprohibited nationally, that
there was a ton ofoverconsumption, the women's
temperance movements, and it wasprohibited nationally, which is
crazy to think about.
Alcohol was illegal at thefederal level for quite some
time.
(11:39):
So when it became legal again,one of the policy directives was
consumer protection and thatwas the real genesis behind this
kind of three-tier model that alot of folks talk about when
they think about alcoholbeverage regulation where you
have three separate tiers of thedistribution channels.
(11:59):
You have the supplier tier,which is the folks that actually
manufacture the alcohol youthink your Bacardi's, your
Biagio's, your Budweiser's.
Then you have the distributiontier, which distributes the
alcohol, meaning they purchaseit from the supplier and then
sell it to the retailer.
And then you have the retailtier, which is the consumer
facing tier, that sells alcoholbeverage directly to the
(12:22):
retailer, to the consumers.
That sells alcohol beveragedirectly to the retailer, to the
consumers.
And the thought of separatingthe industry into these three
tiers is that it would prohibitoverconsumption and put the onus
on the retailer, which isessentially a member of the
community, to know when folksare drinking too much, when
folks are intoxicated, and tokind of foster that personal
(12:46):
relationship with your communityto prohibit that
overconsumption.
So instead of the brand sellingdirectly to consumers, you now
have an individual in yourneighborhood where they could
help with the overconsumptionissue.
And that is, I think, relevantto how hemp beverages are
(13:07):
starting to be looked at, whereyou you again have this consumer
protection policy at theforefront of any regulation of
intoxicating substance,exploding growth, um, you, one
way to to protect consumers isto regulate it similarly to
(13:28):
another intoxicating?
Ben Larson (13:30):
you know another intoxicating consumer product,
before we like alcohol neil,before we get too deep into that
, I want to get your thoughtsand and I I don't expect you to
have all the answers on thisparticular topic, but do I?
I understand how, likeon-premise consumption at
restaurants and bars, how theretailer has like a very obvious
(13:51):
um impact on, on how much a aconsumer is consuming, but that
doesn't really translate to meat the the point of retail.
Like, how do you control overconsumption at the point of
retail and how is the driversany different to that of the
brands?
And I know this is a bigdiscussion in alcohol in general
(14:11):
is like, why the three tiersystem?
But it just seems like it's theexact same incentives.
Like you know, from acapitalistic perspective, the
retailer is going to want tosell as many units as possible,
same as the brands, and so howis that providing any sort of
protection?
Neil Willner (14:27):
Sure.
So it's not only protectingagainst overconsumption, it's
also, you know, the three-tiersystem helps ensure that only
goods that are marketable andsafe for consumption will be
available to the consumerthrough rules like primary
source rules or price postingrules.
So by having this three-tiersystem you're making it
(14:48):
expensive to operate in.
It's a heavy regulatory burden,and businesses that can afford
to excel in this regulatedenvironment are generally
thought of as good orresponsible actors and the ones
that will exceed in thisenvironment.
So by primary source laws Imean that states have laws
(15:13):
designating a manufacturer orimporter as the only source that
a wholesaler or retailer canpurchase that specific brand
from.
So it's a.
It's almost like track andtrace right.
By having these primary sourcerules, you know that the
absolute vodka you're purchasingat the point of sale is real,
(15:36):
absolute vodka.
Um, that that Jack Daniels thatyou're purchasing is real Jack
Daniels because it's the, the,the, the, the, because the
retailer purchased it from thewholesaler, who was the only
person allowed to sell it insome states to the retailer, and
then the wholesaler purchasedit from either Jack Daniels or
his designated agent, who's theonly person that's able to sell
(16:00):
it to the wholesaler.
So it ensures that the productsare safe and marketable and the
consumer is ingesting realproduct.
And again, I think that'sreally relevant in the broader
marijuana space as the industrybattles with the illicit market,
as we start to see more andmore fake packaging that has
(16:25):
popular brands of cannabisproducts being sold with who
knows what in illicit markets orthrough the internet or what
have you.
AnnaRae Grabstein (16:35):
And Neil, as we're talking about this
state-by-state alcohol system.
Part of that is because whenthe 21st Amendment ended
prohibition of alcohol at thefederal level, it didn't
actually fully regulate alcoholat the federal level.
What it did is it empowered thestates to put their own
programs in place, and nowthat's what we have, and now
(16:57):
we're talking about looking atcertain hemp products as being
regulated under these alcoholagencies at state levels.
How similar are the differentalcohol programs from state to
state?
And we're familiar with howdifferent ways from state to
state is.
(17:17):
Is the alcohol, is the alcoholregulatory environment, as as
different and disparate?
Neil Willner (17:27):
Yeah.
So the cannabis industry andthe hemp industry like to
complain about how overregulatedthe industry is and how
different regulations are fromstate to state, how different
testing regulations aremilligram limits, advertising
restrictions, limits,advertising restrictions.
Alcohol is very similar tocannabis, but I would say times
(17:50):
10.
There are a lot of regulation,a lot of varying degrees of
regulation over alcohol that aredifferent from state to state.
I think franchise rights wouldbe a good example of that.
Some states have a conceptcalled franchise rights, which
give additional protections tothe wholesale tier, the
(18:13):
distributor tier.
Some states don't.
In the states that do havefranchise rights, those
franchise rights are applicablefor just beer.
In other states they'reapplicable for just wine and
spirits, and in some statesthey're applicable for just wine
and spirits.
And in some states they'reapplicable to both beer and wine
and spirits.
And in those states wherethey're applicable to beer, wine
and spirits, the franchiserates are different for all
(18:35):
three of those commodities.
So that's just one example ofhow states vary in their
approaches to regulating alcohol.
States also will categorizedifferent products differently.
For example, some states willlook at an RTD like a White Claw
(19:00):
and whether it's spirit-basedor malt-based, we'll qualify it
as a wine or a spirit or a beerfrom the alcohol regulatory
perspective.
But the taxing agency in thestate may categorize it as
something else, so it's taxeddifferently than how it's
actually regulated by thealcohol agency.
(19:22):
And this is on a national scale, which we're starting to see in
the hemp beverage world and thehemp products world too.
One of the biggest challenges ofadvising clients in the hemp
space is that it is a nationalmarket, so we're considering all
50 state rules at the sameexact time.
(19:44):
Whereas cannabis, when newmarkets launched, it was your
sole focus to understand themarket, the rules for that
market, the sale and regulationwas completely intrastate.
There was no intrastatecommerce.
There is no intrastate commerceat all.
So you are singularly focusedon one state and master the
rules of that one specific state.
But again, on the hemp side andthe alcohol side too, it's
(20:09):
critical to understand the rulesof all 50 states, because you
can sell your product intointerstate commerce.
You can manufacture a productin New York and sell it into
every state across the country.
So it's critical to becognizant of all those rules.
Ben Larson (20:27):
It's interesting because we have what I'll call
like a three-tier problem setgoing on right now.
So there's this conversationabout should it be incorporated
into the alcohol regulatoryframework?
Right, and depending on who youask in the industry, whether
it's the beverage category orthe broader cannabis category,
(20:49):
people have their opinions aboutthe alcohol regulatory
structure.
We also have the complexity ofthe category.
So, from the new alcohol youknow distributors and retailers.
They're just trying to createthis thc category.
But you have every type of formfactor, every type of potency,
(21:15):
minor cannabinoids, you name it.
And Patrick Ray in the audiencehey, patrick mentioned even the
derivation of a lot of thoseingredients.
And I think there's such aneducation gap between where
these products are landing andkind of where the sophistication
of the industry is at or not at, and I don't know if people are
(21:38):
ready.
Like it's really hard to kindof bridge that gap.
Like just teaching people aboutTHC is like a huge hurdle.
And yet alcohol benefits fromthis idea of like.
Oh, if you put it in a 750milliliter bottle or 375
milliliter bottle, clearlythat's a spirit.
And if it goes into a 12 ouncecan or an 8 ounce can, you know
(21:59):
one's a beer, one's maybe like acanned cocktail or a wine and
it's like like we know that fromdecades of evolution in the
alcohol industry.
But trying to get that all intoplace as quickly as possible
has been a really big, bigchallenge get that all into
place as quickly as possible hasbeen a really big, big
challenge.
Neil Willner (22:18):
Yeah, you know, consumer education is, I think,
that the biggest uphill battlethat that that the industry has,
especially as we're starting tosee, um, intoxicating hemp
products uh permeate throughthrough the country.
Um, and understanding what fivemilligrams of THC does to you
versus five milligrams of THCplus 10 milligrams of THCP, plus
10 milligrams of THCJD plus HHC, is something that consumers
(22:45):
just don't understand, norshould they have to understand.
Should they have to understandBecause I think, at the end of
the day, consumer wants a safeproduct and regulation
unfortunately always lags behindthe speed at which industry
moves.
But I think industry will,regulation will catch up to that
(23:06):
.
But there is no standardizeddosing metric.
That there is in alcohol.
Like you said, ben, when youtake a shot of whiskey, you know
exactly how you're going tofeel.
When you drink a beer, that's3.2% versus a triple IPA that's
11.5%, you know the differenceit's going to make in your body.
(23:26):
But does the average consumerknow the difference between 5
milligrams of THC and 10milligrams of THC?
That could be a world of adifference for some people.
Ben Larson (23:36):
Or something that we focus a lot on is are they
actually consuming five or 10milligrams of THC, which is a
big challenge?
Neil Willner (23:43):
Yeah, absolutely.
How do you know?
How can you be confident you'reconsuming what the package says
you're consuming?
Absolutely A very big challenge.
But I think again, with alcoholthere's three different tiers
that share responsibility inensuring the product is safe.
(24:03):
In that when I say safe, I meanthe product is what the label
says.
It is that it's vodka that youknow.
The product is what the labelsays.
It is that you, it's vodka thathad, that is.
You know 40 alcohol, you know80 proof uh, and you know what
you're, what you're, what you'regetting.
You have a supplier who youknow has to manufacture it
(24:25):
properly.
You have the distributors heldto you the standard of
distributing only the productsthat are legally produced, and
then you have the retailer ofonly being able to sell products
that have been legally producedand moved through the
three-tier structure.
So it's three differentcheckpoints to ensure that the
product is what the package orlabeling says it is.
AnnaRae Grabstein (24:47):
It's interesting to be having this
conversation because over thecourse of the past 15 years in
cannabis policy, there's beenlots of different moments in
time where people have usedalcohol as a point of reference
of regulate cannabis likealcohol, or cannabis is safer or
less harmful than alcohol as areason behind forward progress
(25:09):
for policy, as now it's startingto come to fruition for the
hemp category, of potentiallyregulating cannabinoid product
like alcohol, like a hempbeverage.
Aside from different compliancecheckpoints, of maybe having to
get a license or a registrationthrough a new agency in a state
(25:31):
that you didn't need to workwith before, what are some of
the ways that the businessenvironment and supply chain
might shift and the businessmodels might shift as a result
of this, and or consumer accessas well?
And I'm thinking first ofthings like direct to consumer,
but also the other aspects of avery specific behaviors that are
(25:55):
regulated in alcohol, like incertain states there's only
certain days that you're allowedto buy alcohol.
Things like that I'd love tohear from your perspective, like
what this actually means tobusinesses and consumers.
Neil Willner (26:10):
I think this is the most important point that
the hemp beverage industry mustunderstand as we enter this new
phase in industry growth, thereare going to be a lot of
practical changes because of howit's going to be regulated.
(26:32):
So I think start talking aboutdirect shipping and your direct
to consumer access is is a greatkind of starting point.
Um, so, generally in alcoholit's again I'm speaking
generally and and I have tocaveat that, like hemp and like
marijuana, each state has vastlydifferent rules and regulations
(26:56):
but in alcohol, direct shipping, meaning the supplier shipping
directly to the consumer isgenerally prohibited.
Up until 2004,.
2005, it had been prohibitedalmost exclusively across the
board until a Supreme Court casecalled Granholm came down the
(27:16):
pike.
And in the 2000s the wineindustry had been wanting to
sell wine directly to consumers.
Some states, like New York andMichigan, allowed in-state
wineries to sell their winedirectly to consumers but
prohibited out-of-state wineriesto sell their wine directly to
(27:38):
consumers.
So why manufacturers file thelawsuit saying, hey, even though
there's this 21st Amendmentthat allows states to regulate
alcohol a little bit morestringently than other
commodities, this is still aviolation of the Dormant
Commerce Clause because you areprotecting the in-state actors
to the exclusion of out-of-stateactors and that went all the
(28:00):
way up to the Supreme Court.
And in a five to four decisionthe Supreme Court agreed with
the wine manufacturers that the21st Amendment the 21st
Amendment, while granting statescertain protections over
regulating alcohol, does not goso far as to favor in-state
(28:21):
actors to the detriment ofout-of-state actors in this
particular circumstance.
So that opened up directshipping just for wine, nothing
else.
So wine manufacturers were ableto ship, began shipping
directly.
In the past rules regulatingthis um, ship directly to
consumers, um, and that's stillgenerally true today.
(28:44):
I think there there may be asmall handful of States that
allow direct shipping forspirits, but generally direct
shipping is only allowed forwine.
So what does that mean forcannabis beverages, for hemp
beverages as they start to beregulated like alcohol?
Well, in states that you haveto first look at how the
(29:07):
legislation classifies the hempbeverage.
Is it lumped in in the wine?
It is it lumped in in the winecategory or is it lumped in in
the spirits category or is itlumped in in the beer and malt
beverage category, like we justsaw, I think, in North Carolina
or South Carolina thatintroduced new legislation, um,
if it needs to get lumped intoone, or can it have its own
(29:28):
category?
or or is it is?
It is it is its own category?
If it's?
If it's its own category, howcan alcohol beverage
distributors and retailershandle it?
Is it treated like any othercommodity, like a wine and juice
that a distributor can sell orthat, in some states, retailers
can sell, or is it its ownspecific category, like you just
(29:51):
said, that has its own specialpermissions?
So those are big things to lookout for for the industry as
they're looking at these bills,deciding and deciding where to
spend their lobbying dollars onwhat's best for their business,
what's best for the industry atKentucky's legislation that was
just passed into law.
(30:12):
I forget how Kentucky classifiesa cannabis beverage, but there
is a direct shipping permit thatmanufacturers of cannabis
beverages can get to shipdirectly to consumers.
So if we think about that for amoment, we need to also think
(30:33):
about, well, how is the cannabisbeverage made right?
In the industry, it's a widelyadopted practice that co-packers
or co-manufacturers are the onemanufacturing these beverages,
whereas the brand is anasset-light entity that just
licenses its IP to the co-packerto pack.
The direct shipping laws inKentucky only allow the
(30:57):
co-manufacturer, the actualmanufacturer of the product, to
ship directly, not the brand.
So can brands that use aco-packer have their website and
ship directly to consumers,like they're currently doing now
?
Maybe not.
That's something to look intofurther.
And again, that's because ofthe way that the state direct
(31:22):
shipping laws are structured andthe way in which cannabis
beverages are classified withinthe Kentucky regulatory scheme
and each state has a differentapproach.
So, as each state introduceslegislation regulating hemp
beverages, like alcohol, this isjust one of the components
(31:43):
that's going to be critical tolook at and understand the true
impact it has on the industry asa whole on the industry as a
whole.
Ben Larson (31:57):
It's so.
This topic of direct-to-consumershipping is a really hot-button
topic in the hemp beveragespace because there's a number
of brands that are doing 50, 60,70, 80% of their revenue in
direct-to-consumer shipping andthere's, as you mentioned, with
the federal implement, thefederal laws implemented around
(32:17):
alcohol.
It was around consumerprotection and the three-tier
system and and having these,these, these checkpoints.
And I think there's a lot ofpushback to that, because you
know capitalism and and creatingaccess and and where we want to
go.
And I'm wrestling with this alot because, you know, I think
(32:40):
oftentimes with a long lens, andI see this argument and I see
this conversation happening withalcohol and I'm like, do we
really want to have thisargument on the front end of
trying to get onto shelves andreally like, just kind of
getting our foot in the door,you know, do we want to hold
back that timeline to fight forthis, or do we kind of set it
(33:01):
aside and like let's just try toprocure the opportunity for
states to have, you know, toimplement states' rights, get it
onto the shelves, and thisargument's going to persist
anyway.
So why don't we just join theargument that's already going on
?
Neil Willner (33:15):
Yeah, no.
I think that that's the exactkind of tension and push and
pull that operators in theindustry as a whole need to
grapple with right.
Is it better to have wide andbroad adoption and access, or do
you want to push for theperfect piece of legislation,
legislation, the saying don'tlet perfection get in the way of
(33:35):
progress?
I don't know.
I'm just a lawyer.
I advise on what the policiessay, I don't make those
decisions.
Ben Larson (33:43):
You could be a human too, neil.
You could just, you know, giveit a position.
I don't envy your position atall.
We'll take Vicente off of yourtitle here, and it's not always
perfection getting in the way ofprogress.
AnnaRae Grabstein (33:56):
For some groups it is actual business
opportunity form factors,products that are popular.
It's like if they say yes, thatmeans if they agree with the
legislative path, it might meanthat huge parts of their
business can no longer be andgrappling.
That can just be veryexistential for a business, as
(34:18):
they're thinking about how tosupport something like this
Within that context, as thesedifferent states are looking at
putting hemp-derivedintoxicating products into an
alcohol system, is it onlybeverages or are they talking
about other hemp derived formfactors like gummies or even
(34:38):
inhalable form factors likevapes or pre-rolls?
What are you seeing?
Neil Willner (34:44):
Yeah.
So I think Kentucky, again, isa perfect example of that.
In Kentucky it's just beveragesthat are shifting over to the
ABC, where other form factorsare staying with the Department
of Health or I forget what thename of the exact agency is.
So there is a split betweenbeverages and other form factors
, which I think is whichcertainly recognizes the
(35:08):
difference in the form factors,the practical differences of
them, and analogizes beveragemore, more like alcohol, where
it's going to be taxed, justlike a spirit where there's a
you know excise tax on pergallon of of of cannabis.
Beverage produced, again justlike alcohol, is in Kentucky,
(35:31):
and I think that's the trendwe're starting to see.
There is also a trend ofprohibiting all other foreign
factors and having a carve outfor hemp beverages and only
allowing hemp beverages whichare going to be regulated to you
by the alcohol beverageregulators in a given state.
(35:54):
And is that the best policy?
I don't know, but it certainlyis a policy that will have a
severe effect and impact on manybusinesses across the country
(36:20):
and as hemp becomes more andmore widely accessible, what's
the impact of that going to beon the broader marijuana
category?
How will marijuana be regulatedonce it becomes federally legal
?
Will it only be beverage andeverything else kind of goes by
the wayside?
Or will beverages be regulatedby the TTB and other form
factors regulated by the FDA?
I think this is the perfectexample of why states are the
(36:43):
laboratory of democracy, andthis is the experiment playing
out in real time.
Ben Larson (36:50):
It's so interesting.
I was just on LinkedIn thismorning and John Halper had a
post.
John Halper is the CEO of Top10 Liquors up in Minnesota.
Minnesota has a very liberalyou know hemp THC laws and so
you'll find other form factorsin liquor stores and grocery.
And he says here the evolutionin THC products over the past
(37:13):
year has been incredible, butthe pace of change is just
getting started.
Our latest sales data shows aclear shift.
Flavored shots, edibles aresurging, liquid THC is climbing
fast, and so there's been thisbig conversation as we talk to,
to legislators and in differentstates about you know what
(37:37):
happens after we get beverageonto the shelves.
And some of the conversationsare like well, it'll drive
normalization of THC and drivepeople to dispensaries because
they'll be in search of otherform factors.
And this is the first time I'mactually seeing it posted online
where it's like oh, we actuallyhave a little bit of proof here
.
It's not direct proof, we don'thave like, oh, this customer
(37:59):
converted to a dispensarycustomer, but they indeed are
expanding beyond beverage, uh,in this particular case.
And so, um, it is.
I found myself sitting with itthis morning and thinking about
oh, what does the future looklike with these different
pathways and what do peopleconsume and the regulatory
aspect and how those decisionsare made are um will be really
(38:22):
really telling you like where do, where do the states want to
see these products end up?
Neil Willner (38:27):
Yeah, absolutely, I think I.
You know, I've heard a lot offolks float the alcohol model in
that lower dose products couldbe accessible, like beer in wine
, in grocery in states thatallow grocery stores or
convenience stores to sell beeror alcohol, Whereas higher dose
(38:47):
products, regardless of the formfactor, are reserved for the
dispensary, for the cannabisonly environment that has a
little bit more heightened agegating.
A little bit more heightenedage gating that has a little bit
more restrictive access, justlike spirits in a number of
(39:12):
states.
In New York you have to go to aliquor store to get any alcohol
or wine.
I could buy beer in asupermarket or a convenience
store, but not wine or spirits.
A lot of states are similar.
So that model for low doseversus high dose products,
regardless of hemp or marijuana,at the end of the day I know
you've talked about this a bunchOnce there is kind of a merging
of the two which eventuallywill come, but who knows?
Ben Larson (39:48):
NRA's favorite the humbug.
Neil Willner (39:50):
Yes, we could spend, I'm sure, a full year
getting into the ins and outs ofthat, but I think the low-dose
versus high-dose model is a goodmodel.
It's a practical model, but notonly that.
It's one that's familiar toregulators.
Right, there is a sense offamiliarity and that says
(40:11):
something.
I think one of the reasons whybeverage has seen explosive
growth is because it's afamiliar form factor.
It's not a vape pen, it's not a90% live rosin hash extract
that you need a blowtorch tosmoke, not knocking any of that
at all.
I think they're exceptionalproducts with incredible taste.
(40:35):
Like Scotch, we'll give you aclient, okay.
Ben Larson (40:38):
We'll dab everyone, if anyone was wondering.
AnnaRae Grabstein (40:38):
Okay, no-transcript and have been
(41:32):
doing some of their own directdistribution in order to get
started, because alcohol lawsend up having complicated rules
in distribution contracts thatmight bind brands to long-term
relationships.
There's these tied house rulesthat might bind retailers to
certain distributors.
(41:52):
For folks that maybe started ahemp beverage but have never
worked in alcohol distribution,worked in alcohol distribution
Can you give us a little bit ofan overview of what some of
these alcohol-related agreementsthat distributors hold and that
end up dictating kind of therelationship and the way that
the products move?
Neil Willner (42:13):
Sure, yeah, so distribution agreements are.
It's a really interesting topicin the alcohol beverage space
(42:36):
and I think the initial questionyou have to ask, depending on
whether you're a distributor ora supplier, is is it necessary
to have a distribution agreement?
As crazy as that sounds, a lotof the answer depends on the
market you're in and what tieryou're on.
If you do have a distributionagreement, what should it cover?
Does it cover marketing?
And a lot of distributionagreements that we've been
(42:57):
working on covers marketingexpenses.
It requires the distributor toput a certain dollar amount of
marketing dollars behind thesupplier's brand or split the
marketing costs with thesupplier.
I think the logic is that thedistributor knows the market its
local market, its state marketreally well and knows how to
(43:17):
market products really well.
So the distributor is reallythe boots on the ground for the
supplier in that market and thedistributor in a lot of spaces
certainly the alcohol side isresponsible for building that
alcohol brand, for helpinglaunch an alcohol brand, helping
(43:37):
launch a small batch distilleryor a microbrewery and getting
their products much morevisibility.
Especially for an out-of-statemanufacturer getting its product
into a new market, it's thedistributor that's the one that
is heavily marketing thatproduct.
So the distributor can belooked at as a way to advocate
(44:01):
for the supplier in new markets.
On the flip side, like you said,anna Rae, there are a lot of
protections for the distributorbaked into state law in the
context of franchise rights.
And, again, franchise rightsvary greatly from state to state
, like we discussed at the top,at the top of the show, um.
(44:23):
But there are some, some stateswhere franchise protections are
so strong and the, you know,exclusivity provisions in
franchise protections are sostrong that for for distributors
, it may not be beneficial tohave a a uh a distribution
agreement with the supplier,because nothing in that
agreement could trump theprotections they get under the
(44:45):
franchise laws.
So whether to have adistribution agreement in the
first place is certainly aconsideration that depends on,
again, the state you're in andthe laws of that specific state,
but what else you want to coverin it.
But there's other states thatexpressly require distribution
(45:10):
agreements and to disclose thoseagreements to the state
regulators.
A lot of the agreements notonly cover marketing costs but
they'll also cover, again,exclusivity, whether the
distributor is the exclusivedistributor of the product in a
specific territory, and whenwe're talking about territory do
we mean the entire state.
A state like Texas orCalifornia.
That's a really, really bigstate.
(45:31):
Small distributors that are justgetting into hemp beverages may
not have the footprint todistribute across the state.
So it's important for thesebrands to find distributors that
either have that largefootprint for a single state or
they want to limit thatterritory to regional
(45:53):
distribution, and having anagreement in that instance that
dictates the territory iscritical.
Having an agreement in thatinstance that dictates the
territory is critical both forthe brand and the distributor
there.
Also, the distributor is in alot of states primarily
responsible for registering thelabels of the suppliers or the
(46:14):
products that they carry.
Whether that's by regulation orby agreement is something to
consider too.
So if a national brand again Ikeep going back to Absolute, for
some reason that's on the topof my head for Absolute to
register their brand in everysingle state that they're in.
That's a lot.
(46:35):
So they work again, this is abroad assumption and may not be
the case, but in a lot ofbusinesses they'll work with the
wholesaler, the distributor, tobe 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.
(46:56):
They know the system of thestate really really well.
They know the market reallyreally well.
So those are a lot of just thedifferent considerations to
think about as hemp beveragesbegin shifting over to
regulation.
It'll be regulated like alcohol.
Ben Larson (47:11):
Yeah, we're in an interesting phase of hemp
beverage.
It's still very early and I tryto remind people that constantly
, but I'm hearing you kind oftalk about the frameworks of
these distributors and how lawsare established to protect the
distributor.
But it's not a completely openmarket right now and we have,
(47:35):
you know, the typical buildup ofbasically risk aversion or
metered by risk aversion in thespace, and so you have small
distributors leading tomid-sized distributors like
regional distributors, and it'skind of been building up.
But who's not in the space yetis like RNDC Southern Glacier,
you know Reyes, and so I'mcurious about your perception,
(48:00):
like in understanding how theselaws work and what does it mean
for brands that have entered thespace thus far, have signed a
lot of like these distributiondeals across the us, and then,
when these larger distributioncompanies do come in, what is
going to be the mechanism forsome of these brands to kind of
(48:20):
like level up and and get intothese bigger distribution houses
, versus that being theopportunity in time for the big
brands that we know are sittingon the sidelines to just kind of
leverage those relationshipsthat get broader distribution
than what everyone else has beenfighting tooth and nail for
thus far in the battle.
Neil Willner (48:39):
No, that's a lot to unpack there, sorry.
That's what you get.
Ben Larson (48:44):
I've been living this every day and.
I just you know.
Neil Willner (48:49):
Leveling up and a brand's desire to level up is
exactly why the franchise rightsare in place to protect
distributors.
Right, as a supplier brand getsbigger and bigger and they want
to move on to biggerdistributors, right, as a
supplier brand gets bigger andbigger and they want to move on
to bigger distributors withlarger footprints, that kind of
small or mid-tier distributorwould be at a loss.
(49:11):
They spent a ton of money andtime and expense helping that
supplier to build its brand inthe specific state and then for
what?
For it to just go go awaybecause the supplier wants to
level up and go with a a largerdistributor.
I think that was the genesis ofwhy franchise laws came into
(49:38):
existence in I don't know the1950s or 1960s.
As big beer companies startedessentially wanting to level up,
the mid-tier and smaller-tierdistributors were getting left
in the dust with really norights at all.
So that is the exact genesis ofthe franchise protections.
(49:58):
Is that issue.
The distributors are certainlyused to that.
I think it's going to be anuphill battle for the brands to
understand that dynamic and thatframework in the laws
surrounding distributionagreements in order to have that
(50:18):
flexibility as the space getsmore national recognition and
larger players start enteringthe playing field.
There's a lot of catch up to do, for sure.
But that's a very broadquestion that depends a whole
(50:39):
lot on state specific laws.
That's my lawyerly cop-out toanswer the question for sure.
AnnaRae Grabstein (50:48):
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 feelingthat hemp is going by the way of
(51:12):
cannabis and that there is apotential for the farm bill to
shift legal access to hemp froma federal perspective.
But now there's going to be allof these state laws on the
books that are creatingregulatory environments for hemp
products and then does it turninto a situation where there are
(51:34):
states that are regulatingsomething that's federally
illegal, or does it push thefeds to actually figure this out
?
What do you think?
Neil Willner (51:45):
No idea, who knows , it could go either way, but
it's certainly something that'sbeen putting a little bit more
gray into my beard.
Thinking about that andthinking about any sort of farm
bill permissions going awayseemingly overnight.
I would like to think thatagain, the federal government is
(52:05):
listening to the states andobserving the trends of states
and seeing that states are fullyadopting hemp laws laws,
although I would have liked tothink they would have listened
to states as states started tobegin to adopt marijuana laws as
well, but hemp seems to be lessof a dirty word.
(52:26):
It doesn't have the sameconnotations that a lot of
lawmakers think marijuana have.
So I would like to think thelegislators are going to listen
to states and have some sort ofbroad adoption and insert
(52:48):
themselves in oversight over theindustry to have more oversight
now.
I think the lack of federaloversight is a huge issue and,
at the end of the day, it justharms the consumer, because the
consumer is the one that hasaccess to these products.
AnnaRae Grabstein (53:05):
They're the ones actually using these
products and without a fullyregulated, safe environment, it
is the consumer that gets hurtthe feds were going to listen to
you and take the sensibleaction of of pushing forward
some type of federal policychange.
(53:26):
Do you think that alcohol lawsat the state level that are
incorporating cannabinoidproducts will inform the
eventual federal path?
Like that, it will looksomething more like the way the
21st Amendment did as a resultof this, which is sort of like
what Nancy Mace was introducingwith some of her legislation.
Neil Willner (53:47):
It's a state rights bill, right, it's a state
rights bill.
Let states do what the stateswant to do and remove the
federal prohibitions.
I think that that is thesensible approach.
And, going back to something wediscussed earlier, that alcohol
regulation is what's familiar,it's what gives regulators and
policymakers a lot of comfort.
(54:08):
So if that is the mechanism bywhich hemp and marijuana are
again just going back tocannabinoids in general are
legal at the federal level, thenI think that's something that
the federal government and theindustry really needs to think
hard about.
Is that the best way to do itor do we forego a better way for
(54:33):
more widespread adoption?
But I think, again, leaving thedecision primarily to the
states, while having somefederal oversight, like we do in
alcohol, there is a federaloverlay.
The TTB regulates alcohol and,but primarily, the states are
(54:54):
the regulatory bodies overseeinga lot of the trade practice
issues and all the otherday-to-day issues.
So having that in place forcannabinoid regulation, I think
would be a very beneficialsystem for the industry and for
the consumer.
Ben Larson (55:13):
Amen man, we can just keep jamming on this for
hours.
Unfortunately we can't.
But, neil, I want to just takein a little bit of a personal
direction real quick, and I byno 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 (55:36):
Yes, I do.
I have a beverage that's verynear and dear to my heart.
I've tried a lot of beverages.
I love trying beverages, butone of the beverages that kind
of has stuck out and which I,whenever I have at home, offer
to my friends that come over, isSenorita Really, really
delicious beverage.
It's yes, it's fresh, it'sgreat.
(55:59):
Great on a summer day I reallyenjoy that a lot.
But I love, I love trying newbeverages, seeing what else is
out there.
Um, every time I, when I was Iwas in Florida for winter break
went into a total wine and go.
A third of the aisle isdedicated to hemp beverages.
And that was the first time Iwent to a actual store that
wasn't a dispensary and saw TCproducts Um, that wasn't a
(56:19):
dispensary and saw THC productsand it was right next to the
vermouth and gin and it was justlike any other adult commodity
who would have thought that'samazing.
AnnaRae Grabstein (56:29):
Well, neil, it's time to move to our last
call, so we would love to giveyou the mic for one last time
and if you can share any adviceor call to action with our
audience, what would you like toleave them with?
Neil Willner (56:41):
If you can share any, advice or call to action
with our audience.
What would you like to leavethem with?
I think at the end of the day,it's mission critical for the
industry to understand that itis a cannabinoid industry.
It is not a hemp industry or amarijuana industry.
It is a cannabinoid industry.
The more support we have behindthat position, I think, the
(57:03):
more effect we'll have on ourlobbying and influencing the
government officials aboutregulation.
It's cannabinoids cannabinoids.
Cannabinoids, it's not, hemp,it's not marijuana Preach?
Ben Larson (57:20):
Yes, absolutely Well , neil, thank you so much for
taking the time.
I'll expect the bill later goback to your lawyerly duties.
Um and yeah, and thank you forjust sharing so much wisdom.
We got a bunch of comments anduh would love it if you could
jump in there and help answersome questions for us.
Neil Willner (57:40):
uh, otherwise, until next time, thank you
Thanks so much for having me.
Guys Really appreciate it.
AnnaRae Grabstein (57:47):
Thanks, Neil.
Ben Larson (57:48):
All right, everyone.
Like I said, we did get a lotof comments coming in during our
live recording here on LinkedIn, live man.
Each one of these actuallycould 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 inthe comments, thank you.
Thank you for engaging.
Please keep doing so.
It keeps us energized, it keepsthe show going.
(58:10):
It lets us know where to takethe next episode.
Thank you to our teams ofVertosa and Wolfmeyer we love
you guys.
Thank you for supporting us inthis constant weekly boondoggle
that we get to do and, of course, our producer, eric rosetti uh,
you're amazing.
And thank you for populatingthe socials with our beautiful
faces.
(58:30):
Thank you, please like,subscribe, do all the things.
If you're listening to us onapple podcast or spot, give us a
review and a five-star rating.
That'd be great.
But, most importantly, asalways, folks stay curious, stay
informed and keep your spiritshigh Until next time.
(58:50):
That's the show.
We want to give a quick shout out to our
friends and sponsor over atKitPrint, the cannabis operators
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Ben Larson (00:53):
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, march27th 2025.
We have a great show for you.
Today We'll be digging into ahot topic that could reshape the
(01:14):
hemp beverage industry statelegislation that's treating hemp
drinks like alcohol ThinkTidehouse 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 theforefront of advising both
brands and regulators on thisissue.
But before we get there, allowme to check in with my co-host,
(01:38):
anna Rae.
How are you doing?
How's the week?
AnnaRae Grabstein (01:41):
The week is great.
I started off the week feelingsuper inspired because over the
weekend I had the opportunity togo and accompany my second
grader, who's seven, to ourneighbor's house for a homework
assignment and the homeworkassignment was Women's History
(02:03):
Month and he was supposed tointerview a woman about her life
and her career for apresentation and he didn't
choose you.
I know I gave him a hard timefor not choosing me.
But also inspired him to try tothink about other people, and I
wanted to share a little bit ofwhat I learned, because
(02:25):
sometimes seeing somethingthrough the eyes of a kid can be
a great unlock for the thingsthat are all around us and the
magic.
And so we went.
We went next door and myneighbor, as a 15 year old,
decided she wanted to be anastronaut, and so, in order to
be an astronaut, she realizedthat she needed to learn how to
(02:46):
fly a plane.
So she went and learned how tofly a plane as a 15 year old and
then set out on a mission tobecome an astronaut and found
out along the way that shereally wasn't very good at math,
and not being good enough atmath meant she couldn't be an
astronaut.
But she still wanted to fly andso I don't have calculators for
(03:06):
that.
Ben Larson (03:08):
That's one of those things in school where you're
like, oh, you're going to usethis in the future.
Am I going to use this in thefuture?
AnnaRae Grabstein (03:13):
Apparently you do.
Yeah, no, you have to have thecalculator 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 submarineone of only two women out of 250
(03:33):
people that were living underthe sea for three months um,
which is wild.
And then, after the air force,became the first helicopter
pilot in the los angeles policedepartment and then started a
long career in law enforcement,flying planes, and ultimately
came to the San Francisco PoliceDepartment, where she served
for over 25 years doing allkinds of incredible work and
(03:58):
retired about six years ago andbecame a therapist serving first
responders and has been doingintervention work, and she has,
just throughout the course ofher life, stuck to her passion
and helped people.
And the last question that thesecond grade teachers asked my
second grader to ask as part ofthe interview is what advice
(04:21):
would you give a kid my age andthat's really what I'm telling
the story to get to is that thisincredible woman who really is
like a real life superhero.
Her advice was to figure outwhat makes you happy, what
brings you joy, but, mostimportantly, to practice that
and become an expert in it, andthat knowing what makes you
(04:42):
happy isn't good enough.
It's the discipline and thepractice and being good.
And that knowing what makes youhappy isn't good enough.
It's the discipline and thepractice 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 onthroughout the week is this
concept of discipline, practiceand expertise being the real
superpower that that can take itto the next level for us in our
(05:04):
lives.
Ben Larson (05:06):
I love that.
It's like she's the actualphysical embodiment of one of my
favorite quotes, which is shootfor the moon.
Even if you miss, you'll landamongst the stars.
AnnaRae Grabstein (05:17):
I love that too.
So good, so good.
I love it man.
Ben Larson (05:22):
I'm feeling all the feels this morning.
This is so good I know.
AnnaRae Grabstein (05:25):
It's really good stuff, and the thing is is
that we hadn't really talkedabout Women's History Month and
I didn't think that we weregoing to make any content around
it.
But then it just sort of landedin my lap and I wanted to tell
this story.
But then at the same time, Ithink that you also have some
big news about a superhero womanthat you just brought onto your
(05:45):
team.
Ben Larson (05:47):
I heard that you- yeah, yeah, the cat's out of the
bag, so to speak.
So, yeah, we made anannouncement this morning that
we brought on Diana Eberlein,who's the chair of the Coalition
of Adult Beverage Alternativesand just been a huge shepherd of
the cannabis beverage movement,and we're in such a critical
(06:07):
moment and all the close workthat we've been doing together
just culminated into us bringingher on as our chief external
affairs officer.
And, yeah, I couldn't be moreexcited.
You know we as business owners,especially our attention, is
often divided and pulled intomany directions, and there's
(06:28):
been many times where I'm like Ican't raise my hand here.
I have to.
I have to be there for mybusiness and for my employees
first, and then I need to alsodo this lobbying, because it's
going to create the opportunityfor my business but also
progress the industry in thedirection that we see it.
And to be able to now work armin arm with Diana and to share
(06:52):
that load and not have thatanxiety about being torn away
from my business and knowingit's in good hands is just a
huge breath of fresh air, butalso a highlight to the
leadership that Diana has beenfor this category and will
continue to be.
AnnaRae Grabstein (07:08):
Diana is a total badass.
I am so excited for her and foryou and for the industry.
Federal reform is not going tobe possible without the work of
people like Diana really puttingin the effort to have a voice
and to explain what needs tohappen for this next phase of
(07:29):
progress.
So I think that the wholeindustry is lucky to have her
and, yeah, federal reformbrought to you by Virtosa, yeah.
Neil Willner (07:41):
Very cool.
AnnaRae Grabstein (07:43):
Well, let's dive in to our topic today,
because I think that there'sjust 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 incredibleresource for us as we're
(08:03):
wrapping our heads around what'shappening at the state level
legislation.
He's also been a key personthat has been advising
policymakers, attorneys generaland stakeholders around
intoxicating hemp products for awhile now, so really excited to
bring on this nationallyrecognized expert and talk to us
today.
Welcome, neil.
Thanks for being here, hey.
Neil Willner (08:23):
thanks so much for having me guys.
I'm so thrilled to be here.
I love listening to the podcastand it's just it's excellent to
participate.
Ben Larson (08:31):
Awesome.
Well, neil, we've had our pathscrossed a number of different
times.
We ever chose to rely on Neiland his work and now his home at
Vicente.
But I think the first time wemet it was when we were
launching the beverage councilwith Attach, and there's a lot
(08:52):
of interesting pathways thathave happened since then and the
industry has evolved inpeople's positions.
But, yeah, super excited to seeyou 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 (09:12):
Yeah, it's been an excellent transition.
I've been at Vicente for acouple of months now, and it was
you know.
I was able to fit right in andbe part of the larger team,
working with some exceptionallybrilliant folks that have a lot
to offer, and I'm learning newthings every day, which is my
(09:32):
favorite part about being alawyer.
AnnaRae Grabstein (09:34):
Nice Well, Neil.
There's been legislation inaround 10 states that have been
seeking to shift oversight ofhemp beverages to alcohol
regulatory agencies, that havebeen seeking to shift oversight
of hemp beverages to alcoholregulatory agencies.
Some of these states includeArkansas, Arizona, Illinois,
Kentucky, Massachusetts.
They go on and on.
Neil Willner (09:56):
A busy legislative session.
AnnaRae Grabstein (09:58):
Can you give us an overview of what's
happening here?
What's pushing this type oflegislation?
Neil Willner (10:07):
and what's the motivation behind these bills?
Sure yeah, it's always a busytime of year when the
legislature is in session inhemp land, but this year, more
so than any years past that Ican remember, and like you
mentioned, anna Rae, there'sbeen about 10, maybe a couple
more states that have started tointroduce legislation shifting
(10:30):
regulatory oversight of hempbeverages specifically to the
alcohol beverage regulatoryscheme.
The first state that actuallypassed one of these bills was
Kentucky, and it was just signedinto law two days ago by the
governor.
What's motivating this shift isanybody's guess about what's
(10:54):
happening behind the scenes, butI think you ask a really
important question that allowsus to kind of think about why
alcohol beverage policy in theregulatory scheme is the way it
is and that could shed somelight onto why hemp beverage may
be shifting into that direction.
So when the 21st Amendment wasratified in 1933, it came at a
(11:18):
time where you know alcohol wasprohibited nationally, that
there was a ton ofoverconsumption, the women's
temperance movements, and it wasprohibited nationally, which is
crazy to think about.
Alcohol was illegal at thefederal level for quite some
time.
(11:39):
So when it became legal again,one of the policy directives was
consumer protection and thatwas the real genesis behind this
kind of three-tier model that alot of folks talk about when
they think about alcoholbeverage regulation where you
have three separate tiers of thedistribution channels.
(11:59):
You have the supplier tier,which is the folks that actually
manufacture the alcohol youthink your Bacardi's, your
Biagio's, your Budweiser's.
Then you have the distributiontier, which distributes the
alcohol, meaning they purchaseit from the supplier and then
sell it to the retailer.
And then you have the retailtier, which is the consumer
facing tier, that sells alcoholbeverage directly to the
(12:22):
retailer, to the consumers.
That sells alcohol beveragedirectly to the retailer, to the
consumers.
And the thought of separatingthe industry into these three
tiers is that it would prohibitoverconsumption and put the onus
on the retailer, which isessentially a member of the
community, to know when folksare drinking too much, when
folks are intoxicated, and tokind of foster that personal
(12:46):
relationship with your communityto prohibit that
overconsumption.
So instead of the brand sellingdirectly to consumers, you now
have an individual in yourneighborhood where they could
help with the overconsumptionissue.
And that is, I think, relevantto how hemp beverages are
(13:07):
starting to be looked at, whereyou you again have this consumer
protection policy at theforefront of any regulation of
intoxicating substance,exploding growth, um, you, one
way to to protect consumers isto regulate it similarly to
(13:28):
another intoxicating?
Ben Larson (13:30):
you know another intoxicating consumer product,
before we like alcohol neil,before we get too deep into that
, I want to get your thoughtsand and I I don't expect you to
have all the answers on thisparticular topic, but do I?
I understand how, likeon-premise consumption at
restaurants and bars, how theretailer has like a very obvious
(13:51):
um impact on, on how much a aconsumer is consuming, but that
doesn't really translate to meat the the point of retail.
Like, how do you control overconsumption at the point of
retail and how is the driversany different to that of the
brands?
And I know this is a bigdiscussion in alcohol in general
(14:11):
is like, why the three tiersystem?
But it just seems like it's theexact same incentives.
Like you know, from acapitalistic perspective, the
retailer is going to want tosell as many units as possible,
same as the brands, and so howis that providing any sort of
protection?
Neil Willner (14:27):
Sure.
So it's not only protectingagainst overconsumption, it's
also, you know, the three-tiersystem helps ensure that only
goods that are marketable andsafe for consumption will be
available to the consumerthrough rules like primary
source rules or price postingrules.
So by having this three-tiersystem you're making it
(14:48):
expensive to operate in.
It's a heavy regulatory burden,and businesses that can afford
to excel in this regulatedenvironment are generally
thought of as good orresponsible actors and the ones
that will exceed in thisenvironment.
So by primary source laws Imean that states have laws
(15:13):
designating a manufacturer orimporter as the only source that
a wholesaler or retailer canpurchase that specific brand
from.
So it's a.
It's almost like track andtrace right.
By having these primary sourcerules, you know that the
absolute vodka you're purchasingat the point of sale is real,
(15:36):
absolute vodka.
Um, that that Jack Daniels thatyou're purchasing is real Jack
Daniels because it's the, the,the, the, the, because the
retailer purchased it from thewholesaler, who was the only
person allowed to sell it insome states to the retailer, and
then the wholesaler purchasedit from either Jack Daniels or
his designated agent, who's theonly person that's able to sell
(16:00):
it to the wholesaler.
So it ensures that the productsare safe and marketable and the
consumer is ingesting realproduct.
And again, I think that'sreally relevant in the broader
marijuana space as the industrybattles with the illicit market,
as we start to see more andmore fake packaging that has
(16:25):
popular brands of cannabisproducts being sold with who
knows what in illicit markets orthrough the internet or what
have you.
AnnaRae Grabstein (16:35):
And Neil, as we're talking about this
state-by-state alcohol system.
Part of that is because whenthe 21st Amendment ended
prohibition of alcohol at thefederal level, it didn't
actually fully regulate alcoholat the federal level.
What it did is it empowered thestates to put their own
programs in place, and nowthat's what we have, and now
(16:57):
we're talking about looking atcertain hemp products as being
regulated under these alcoholagencies at state levels.
How similar are the differentalcohol programs from state to
state?
And we're familiar with howdifferent ways from state to
state is.
(17:17):
Is the alcohol, is the alcoholregulatory environment, as as
different and disparate?
Neil Willner (17:27):
Yeah.
So the cannabis industry andthe hemp industry like to
complain about how overregulatedthe industry is and how
different regulations are fromstate to state, how different
testing regulations aremilligram limits, advertising
restrictions, limits,advertising restrictions.
Alcohol is very similar tocannabis, but I would say times
(17:50):
10.
There are a lot of regulation,a lot of varying degrees of
regulation over alcohol that aredifferent from state to state.
I think franchise rights wouldbe a good example of that.
Some states have a conceptcalled franchise rights, which
give additional protections tothe wholesale tier, the
(18:13):
distributor tier.
Some states don't.
In the states that do havefranchise rights, those
franchise rights are applicablefor just beer.
In other states they'reapplicable for just wine and
spirits, and in some statesthey're applicable for just wine
and spirits.
And in some states they'reapplicable to both beer and wine
and spirits.
And in those states wherethey're applicable to beer, wine
and spirits, the franchiserates are different for all
(18:35):
three of those commodities.
So that's just one example ofhow states vary in their
approaches to regulating alcohol.
States also will categorizedifferent products differently.
For example, some states willlook at an RTD like a White Claw
(19:00):
and whether it's spirit-basedor malt-based, we'll qualify it
as a wine or a spirit or a beerfrom the alcohol regulatory
perspective.
But the taxing agency in thestate may categorize it as
something else, so it's taxeddifferently than how it's
actually regulated by thealcohol agency.
(19:22):
And this is on a national scale, which we're starting to see in
the hemp beverage world and thehemp products world too.
One of the biggest challenges ofadvising clients in the hemp
space is that it is a nationalmarket, so we're considering all
50 state rules at the sameexact time.
(19:44):
Whereas cannabis, when newmarkets launched, it was your
sole focus to understand themarket, the rules for that
market, the sale and regulationwas completely intrastate.
There was no intrastatecommerce.
There is no intrastate commerceat all.
So you are singularly focusedon one state and master the
rules of that one specific state.
But again, on the hemp side andthe alcohol side too, it's
(20:09):
critical to understand the rulesof all 50 states, because you
can sell your product intointerstate commerce.
You can manufacture a productin New York and sell it into
every state across the country.
So it's critical to becognizant of all those rules.
Ben Larson (20:27):
It's interesting because we have what I'll call
like a three-tier problem setgoing on right now.
So there's this conversationabout should it be incorporated
into the alcohol regulatoryframework?
Right, and depending on who youask in the industry, whether
it's the beverage category orthe broader cannabis category,
(20:49):
people have their opinions aboutthe alcohol regulatory
structure.
We also have the complexity ofthe category.
So, from the new alcohol youknow distributors and retailers.
They're just trying to createthis thc category.
But you have every type of formfactor, every type of potency,
(21:15):
minor cannabinoids, you name it.
And Patrick Ray in the audiencehey, patrick mentioned even the
derivation of a lot of thoseingredients.
And I think there's such aneducation gap between where
these products are landing andkind of where the sophistication
of the industry is at or not at, and I don't know if people are
(21:38):
ready.
Like it's really hard to kindof bridge that gap.
Like just teaching people aboutTHC is like a huge hurdle.
And yet alcohol benefits fromthis idea of like.
Oh, if you put it in a 750milliliter bottle or 375
milliliter bottle, clearlythat's a spirit.
And if it goes into a 12 ouncecan or an 8 ounce can, you know
(21:59):
one's a beer, one's maybe like acanned cocktail or a wine and
it's like like we know that fromdecades of evolution in the
alcohol industry.
But trying to get that all intoplace as quickly as possible
has been a really big, bigchallenge get that all into
place as quickly as possible hasbeen a really big, big
challenge.
Neil Willner (22:18):
Yeah, you know, consumer education is, I think,
that the biggest uphill battlethat that that the industry has,
especially as we're starting tosee, um, intoxicating hemp
products uh permeate throughthrough the country.
Um, and understanding what fivemilligrams of THC does to you
versus five milligrams of THCplus 10 milligrams of THCP, plus
10 milligrams of THCJD plus HHC, is something that consumers
(22:45):
just don't understand, norshould they have to understand.
Should they have to understandBecause I think, at the end of
the day, consumer wants a safeproduct and regulation
unfortunately always lags behindthe speed at which industry
moves.
But I think industry will,regulation will catch up to that
(23:06):
.
But there is no standardizeddosing metric.
That there is in alcohol.
Like you said, ben, when youtake a shot of whiskey, you know
exactly how you're going tofeel.
When you drink a beer, that's3.2% versus a triple IPA that's
11.5%, you know the differenceit's going to make in your body.
(23:26):
But does the average consumerknow the difference between 5
milligrams of THC and 10milligrams of THC?
That could be a world of adifference for some people.
Ben Larson (23:36):
Or something that we focus a lot on is are they
actually consuming five or 10milligrams of THC, which is a
big challenge?
Neil Willner (23:43):
Yeah, absolutely.
How do you know?
How can you be confident you'reconsuming what the package says
you're consuming?
Absolutely A very big challenge.
But I think again, with alcoholthere's three different tiers
that share responsibility inensuring the product is safe.
(24:03):
In that when I say safe, I meanthe product is what the label
says.
It is that it's vodka that youknow.
The product is what the labelsays.
It is that you, it's vodka thathad, that is.
You know 40 alcohol, you know80 proof uh, and you know what
you're, what you're, what you'regetting.
You have a supplier who youknow has to manufacture it
(24:25):
properly.
You have the distributors heldto you the standard of
distributing only the productsthat are legally produced, and
then you have the retailer ofonly being able to sell products
that have been legally producedand moved through the
three-tier structure.
So it's three differentcheckpoints to ensure that the
product is what the package orlabeling says it is.
AnnaRae Grabstein (24:47):
It's interesting to be having this
conversation because over thecourse of the past 15 years in
cannabis policy, there's beenlots of different moments in
time where people have usedalcohol as a point of reference
of regulate cannabis likealcohol, or cannabis is safer or
less harmful than alcohol as areason behind forward progress
(25:09):
for policy, as now it's startingto come to fruition for the
hemp category, of potentiallyregulating cannabinoid product
like alcohol, like a hempbeverage.
Aside from different compliancecheckpoints, of maybe having to
get a license or a registrationthrough a new agency in a state
(25:31):
that you didn't need to workwith before, what are some of
the ways that the businessenvironment and supply chain
might shift and the businessmodels might shift as a result
of this, and or consumer accessas well?
And I'm thinking first ofthings like direct to consumer,
but also the other aspects of avery specific behaviors that are
(25:55):
regulated in alcohol, like incertain states there's only
certain days that you're allowedto buy alcohol.
Things like that I'd love tohear from your perspective, like
what this actually means tobusinesses and consumers.
Neil Willner (26:10):
I think this is the most important point that
the hemp beverage industry mustunderstand as we enter this new
phase in industry growth, thereare going to be a lot of
practical changes because of howit's going to be regulated.
(26:32):
So I think start talking aboutdirect shipping and your direct
to consumer access is is a greatkind of starting point.
Um, so, generally in alcoholit's again I'm speaking
generally and and I have tocaveat that, like hemp and like
marijuana, each state has vastlydifferent rules and regulations
(26:56):
but in alcohol, direct shipping, meaning the supplier shipping
directly to the consumer isgenerally prohibited.
Up until 2004,.
2005, it had been prohibitedalmost exclusively across the
board until a Supreme Court casecalled Granholm came down the
(27:16):
pike.
And in the 2000s the wineindustry had been wanting to
sell wine directly to consumers.
Some states, like New York andMichigan, allowed in-state
wineries to sell their winedirectly to consumers but
prohibited out-of-state wineriesto sell their wine directly to
(27:38):
consumers.
So why manufacturers file thelawsuit saying, hey, even though
there's this 21st Amendmentthat allows states to regulate
alcohol a little bit morestringently than other
commodities, this is still aviolation of the Dormant
Commerce Clause because you areprotecting the in-state actors
to the exclusion of out-of-stateactors and that went all the
(28:00):
way up to the Supreme Court.
And in a five to four decisionthe Supreme Court agreed with
the wine manufacturers that the21st Amendment the 21st
Amendment, while granting statescertain protections over
regulating alcohol, does not goso far as to favor in-state
(28:21):
actors to the detriment ofout-of-state actors in this
particular circumstance.
So that opened up directshipping just for wine, nothing
else.
So wine manufacturers were ableto ship, began shipping
directly.
In the past rules regulatingthis um, ship directly to
consumers, um, and that's stillgenerally true today.
(28:44):
I think there there may be asmall handful of States that
allow direct shipping forspirits, but generally direct
shipping is only allowed forwine.
So what does that mean forcannabis beverages, for hemp
beverages as they start to beregulated like alcohol?
Well, in states that you haveto first look at how the
(29:07):
legislation classifies the hempbeverage.
Is it lumped in in the wine?
It is it lumped in in the winecategory or is it lumped in in
the spirits category or is itlumped in in the beer and malt
beverage category, like we justsaw, I think, in North Carolina
or South Carolina thatintroduced new legislation, um,
if it needs to get lumped intoone, or can it have its own
(29:28):
category?
or or is it is?
It is it is its own category?
If it's?
If it's its own category, howcan alcohol beverage
distributors and retailershandle it?
Is it treated like any othercommodity, like a wine and juice
that a distributor can sell orthat, in some states, retailers
can sell, or is it its ownspecific category, like you just
(29:51):
said, that has its own specialpermissions?
So those are big things to lookout for for the industry as
they're looking at these bills,deciding and deciding where to
spend their lobbying dollars onwhat's best for their business,
what's best for the industry atKentucky's legislation that was
just passed into law.
(30:12):
I forget how Kentucky classifiesa cannabis beverage, but there
is a direct shipping permit thatmanufacturers of cannabis
beverages can get to shipdirectly to consumers.
So if we think about that for amoment, we need to also think
(30:33):
about, well, how is the cannabisbeverage made right?
In the industry, it's a widelyadopted practice that co-packers
or co-manufacturers are the onemanufacturing these beverages,
whereas the brand is anasset-light entity that just
licenses its IP to the co-packerto pack.
The direct shipping laws inKentucky only allow the
(30:57):
co-manufacturer, the actualmanufacturer of the product, to
ship directly, not the brand.
So can brands that use aco-packer have their website and
ship directly to consumers,like they're currently doing now
?
Maybe not.
That's something to look intofurther.
And again, that's because ofthe way that the state direct
(31:22):
shipping laws are structured andthe way in which cannabis
beverages are classified withinthe Kentucky regulatory scheme
and each state has a differentapproach.
So, as each state introduceslegislation regulating hemp
beverages, like alcohol, this isjust one of the components
(31:43):
that's going to be critical tolook at and understand the true
impact it has on the industry asa whole on the industry as a
whole.
Ben Larson (31:57):
It's so.
This topic of direct-to-consumershipping is a really hot-button
topic in the hemp beveragespace because there's a number
of brands that are doing 50, 60,70, 80% of their revenue in
direct-to-consumer shipping andthere's, as you mentioned, with
the federal implement, thefederal laws implemented around
(32:17):
alcohol.
It was around consumerprotection and the three-tier
system and and having these,these, these checkpoints.
And I think there's a lot ofpushback to that, because you
know capitalism and and creatingaccess and and where we want to
go.
And I'm wrestling with this alot because, you know, I think
(32:40):
oftentimes with a long lens, andI see this argument and I see
this conversation happening withalcohol and I'm like, do we
really want to have thisargument on the front end of
trying to get onto shelves andreally like, just kind of
getting our foot in the door,you know, do we want to hold
back that timeline to fight forthis, or do we kind of set it
(33:01):
aside and like let's just try toprocure the opportunity for
states to have, you know, toimplement states' rights, get it
onto the shelves, and thisargument's going to persist
anyway.
So why don't we just join theargument that's already going on
?
Neil Willner (33:15):
Yeah, no.
I think that that's the exactkind of tension and push and
pull that operators in theindustry as a whole need to
grapple with right.
Is it better to have wide andbroad adoption and access, or do
you want to push for theperfect piece of legislation,
legislation, the saying don'tlet perfection get in the way of
(33:35):
progress?
I don't know.
I'm just a lawyer.
I advise on what the policiessay, I don't make those
decisions.
Ben Larson (33:43):
You could be a human too, neil.
You could just, you know, giveit a position.
I don't envy your position atall.
We'll take Vicente off of yourtitle here, and it's not always
perfection getting in the way ofprogress.
AnnaRae Grabstein (33:56):
For some groups it is actual business
opportunity form factors,products that are popular.
It's like if they say yes, thatmeans if they agree with the
legislative path, it might meanthat huge parts of their
business can no longer be andgrappling.
That can just be veryexistential for a business, as
(34:18):
they're thinking about how tosupport something like this
Within that context, as thesedifferent states are looking at
putting hemp-derivedintoxicating products into an
alcohol system, is it onlybeverages or are they talking
about other hemp derived formfactors like gummies or even
(34:38):
inhalable form factors likevapes or pre-rolls?
What are you seeing?
Neil Willner (34:44):
Yeah.
So I think Kentucky, again, isa perfect example of that.
In Kentucky it's just beveragesthat are shifting over to the
ABC, where other form factorsare staying with the Department
of Health or I forget what thename of the exact agency is.
So there is a split betweenbeverages and other form factors
, which I think is whichcertainly recognizes the
(35:08):
difference in the form factors,the practical differences of
them, and analogizes beveragemore, more like alcohol, where
it's going to be taxed, justlike a spirit where there's a
you know excise tax on pergallon of of of cannabis.
Beverage produced, again justlike alcohol, is in Kentucky,
(35:31):
and I think that's the trendwe're starting to see.
There is also a trend ofprohibiting all other foreign
factors and having a carve outfor hemp beverages and only
allowing hemp beverages whichare going to be regulated to you
by the alcohol beverageregulators in a given state.
(35:54):
And is that the best policy?
I don't know, but it certainlyis a policy that will have a
severe effect and impact on manybusinesses across the country
(36:20):
and as hemp becomes more andmore widely accessible, what's
the impact of that going to beon the broader marijuana
category?
How will marijuana be regulatedonce it becomes federally legal
?
Will it only be beverage andeverything else kind of goes by
the wayside?
Or will beverages be regulatedby the TTB and other form
factors regulated by the FDA?
I think this is the perfectexample of why states are the
(36:43):
laboratory of democracy, andthis is the experiment playing
out in real time.
Ben Larson (36:50):
It's so interesting.
I was just on LinkedIn thismorning and John Halper had a
post.
John Halper is the CEO of Top10 Liquors up in Minnesota.
Minnesota has a very liberalyou know hemp THC laws and so
you'll find other form factorsin liquor stores and grocery.
And he says here the evolutionin THC products over the past
(37:13):
year has been incredible, butthe pace of change is just
getting started.
Our latest sales data shows aclear shift.
Flavored shots, edibles aresurging, liquid THC is climbing
fast, and so there's been thisbig conversation as we talk to,
to legislators and in differentstates about you know what
(37:37):
happens after we get beverageonto the shelves.
And some of the conversationsare like well, it'll drive
normalization of THC and drivepeople to dispensaries because
they'll be in search of otherform factors.
And this is the first time I'mactually seeing it posted online
where it's like oh, we actuallyhave a little bit of proof here
.
It's not direct proof, we don'thave like, oh, this customer
(37:59):
converted to a dispensarycustomer, but they indeed are
expanding beyond beverage, uh,in this particular case.
And so, um, it is.
I found myself sitting with itthis morning and thinking about
oh, what does the future looklike with these different
pathways and what do peopleconsume and the regulatory
aspect and how those decisionsare made are um will be really
(38:22):
really telling you like where do, where do the states want to
see these products end up?
Neil Willner (38:27):
Yeah, absolutely, I think I.
You know, I've heard a lot offolks float the alcohol model in
that lower dose products couldbe accessible, like beer in wine
, in grocery in states thatallow grocery stores or
convenience stores to sell beeror alcohol, Whereas higher dose
(38:47):
products, regardless of the formfactor, are reserved for the
dispensary, for the cannabisonly environment that has a
little bit more heightened agegating.
A little bit more heightenedage gating that has a little bit
more restrictive access, justlike spirits in a number of
(39:12):
states.
In New York you have to go to aliquor store to get any alcohol
or wine.
I could buy beer in asupermarket or a convenience
store, but not wine or spirits.
A lot of states are similar.
So that model for low doseversus high dose products,
regardless of hemp or marijuana,at the end of the day I know
you've talked about this a bunchOnce there is kind of a merging
of the two which eventuallywill come, but who knows?
Ben Larson (39:48):
NRA's favorite the humbug.
Neil Willner (39:50):
Yes, we could spend, I'm sure, a full year
getting into the ins and outs ofthat, but I think the low-dose
versus high-dose model is a goodmodel.
It's a practical model, but notonly that.
It's one that's familiar toregulators.
Right, there is a sense offamiliarity and that says
(40:11):
something.
I think one of the reasons whybeverage has seen explosive
growth is because it's afamiliar form factor.
It's not a vape pen, it's not a90% live rosin hash extract
that you need a blowtorch tosmoke, not knocking any of that
at all.
I think they're exceptionalproducts with incredible taste.
(40:35):
Like Scotch, we'll give you aclient, okay.
Ben Larson (40:38):
We'll dab everyone, if anyone was wondering.
AnnaRae Grabstein (40:38):
Okay, no-transcript and have been
(41:32):
doing some of their own directdistribution in order to get
started, because alcohol lawsend up having complicated rules
in distribution contracts thatmight bind brands to long-term
relationships.
There's these tied house rulesthat might bind retailers to
certain distributors.
(41:52):
For folks that maybe started ahemp beverage but have never
worked in alcohol distribution,worked in alcohol distribution
Can you give us a little bit ofan overview of what some of
these alcohol-related agreementsthat distributors hold and that
end up dictating kind of therelationship and the way that
the products move?
Neil Willner (42:13):
Sure, yeah, so distribution agreements are.
It's a really interesting topicin the alcohol beverage space
(42:36):
and I think the initial questionyou have to ask, depending on
whether you're a distributor ora supplier, is is it necessary
to have a distribution agreement?
As crazy as that sounds, a lotof the answer depends on the
market you're in and what tieryou're on.
If you do have a distributionagreement, what should it cover?
Does it cover marketing?
And a lot of distributionagreements that we've been
(42:57):
working on covers marketingexpenses.
It requires the distributor toput a certain dollar amount of
marketing dollars behind thesupplier's brand or split the
marketing costs with thesupplier.
I think the logic is that thedistributor knows the market its
local market, its state marketreally well and knows how to
(43:17):
market products really well.
So the distributor is reallythe boots on the ground for the
supplier in that market and thedistributor in a lot of spaces
certainly the alcohol side isresponsible for building that
alcohol brand, for helpinglaunch an alcohol brand, helping
(43:37):
launch a small batch distilleryor a microbrewery and getting
their products much morevisibility.
Especially for an out-of-statemanufacturer getting its product
into a new market, it's thedistributor that's the one that
is heavily marketing thatproduct.
So the distributor can belooked at as a way to advocate
(44:01):
for the supplier in new markets.
On the flip side, like you said,anna Rae, there are a lot of
protections for the distributorbaked into state law in the
context of franchise rights.
And, again, franchise rightsvary greatly from state to state
, like we discussed at the top,at the top of the show, um.
(44:23):
But there are some, some stateswhere franchise protections are
so strong and the, you know,exclusivity provisions in
franchise protections are sostrong that for for distributors
, it may not be beneficial tohave a a uh a distribution
agreement with the supplier,because nothing in that
agreement could trump theprotections they get under the
(44:45):
franchise laws.
So whether to have adistribution agreement in the
first place is certainly aconsideration that depends on,
again, the state you're in andthe laws of that specific state,
but what else you want to coverin it.
But there's other states thatexpressly require distribution
(45:10):
agreements and to disclose thoseagreements to the state
regulators.
A lot of the agreements notonly cover marketing costs but
they'll also cover, again,exclusivity, whether the
distributor is the exclusivedistributor of the product in a
specific territory, and whenwe're talking about territory do
we mean the entire state.
A state like Texas orCalifornia.
That's a really, really bigstate.
(45:31):
Small distributors that are justgetting into hemp beverages may
not have the footprint todistribute across the state.
So it's important for thesebrands to find distributors that
either have that largefootprint for a single state or
they want to limit thatterritory to regional
(45:53):
distribution, and having anagreement in that instance that
dictates the territory iscritical.
Having an agreement in thatinstance that dictates the
territory is critical both forthe brand and the distributor
there.
Also, the distributor is in alot of states primarily
responsible for registering thelabels of the suppliers or the
(46:14):
products that they carry.
Whether that's by regulation orby agreement is something to
consider too.
So if a national brand again Ikeep going back to Absolute, for
some reason that's on the topof my head for Absolute to
register their brand in everysingle state that they're in.
That's a lot.
(46:35):
So they work again, this is abroad assumption and may not be
the case, but in a lot ofbusinesses they'll work with the
wholesaler, the distributor, tobe 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.
(46:56):
They know the system of thestate really really well.
They know the market reallyreally well.
So those are a lot of just thedifferent considerations to
think about as hemp beveragesbegin shifting over to
regulation.
It'll be regulated like alcohol.
Ben Larson (47:11):
Yeah, we're in an interesting phase of hemp
beverage.
It's still very early and I tryto remind people that constantly
, but I'm hearing you kind oftalk about the frameworks of
these distributors and how lawsare established to protect the
distributor.
But it's not a completely openmarket right now and we have,
(47:35):
you know, the typical buildup ofbasically risk aversion or
metered by risk aversion in thespace, and so you have small
distributors leading tomid-sized distributors like
regional distributors, and it'skind of been building up.
But who's not in the space yetis like RNDC Southern Glacier,
you know Reyes, and so I'mcurious about your perception,
(48:00):
like in understanding how theselaws work and what does it mean
for brands that have entered thespace thus far, have signed a
lot of like these distributiondeals across the us, and then,
when these larger distributioncompanies do come in, what is
going to be the mechanism forsome of these brands to kind of
(48:20):
like level up and and get intothese bigger distribution houses
, versus that being theopportunity in time for the big
brands that we know are sittingon the sidelines to just kind of
leverage those relationshipsthat get broader distribution
than what everyone else has beenfighting tooth and nail for
thus far in the battle.
Neil Willner (48:39):
No, that's a lot to unpack there, sorry.
That's what you get.
Ben Larson (48:44):
I've been living this every day and.
I just you know.
Neil Willner (48:49):
Leveling up and a brand's desire to level up is
exactly why the franchise rightsare in place to protect
distributors.
Right, as a supplier brand getsbigger and bigger and they want
to move on to biggerdistributors, right, as a
supplier brand gets bigger andbigger and they want to move on
to bigger distributors withlarger footprints, that kind of
small or mid-tier distributorwould be at a loss.
(49:11):
They spent a ton of money andtime and expense helping that
supplier to build its brand inthe specific state and then for
what?
For it to just go go awaybecause the supplier wants to
level up and go with a a largerdistributor.
I think that was the genesis ofwhy franchise laws came into
(49:38):
existence in I don't know the1950s or 1960s.
As big beer companies startedessentially wanting to level up,
the mid-tier and smaller-tierdistributors were getting left
in the dust with really norights at all.
So that is the exact genesis ofthe franchise protections.
(49:58):
Is that issue.
The distributors are certainlyused to that.
I think it's going to be anuphill battle for the brands to
understand that dynamic and thatframework in the laws
surrounding distributionagreements in order to have that
(50:18):
flexibility as the space getsmore national recognition and
larger players start enteringthe playing field.
There's a lot of catch up to do, for sure.
But that's a very broadquestion that depends a whole
(50:39):
lot on state specific laws.
That's my lawyerly cop-out toanswer the question for sure.
AnnaRae Grabstein (50:48):
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 feelingthat hemp is going by the way of
(51:12):
cannabis and that there is apotential for the farm bill to
shift legal access to hemp froma federal perspective.
But now there's going to be allof these state laws on the
books that are creatingregulatory environments for hemp
products and then does it turninto a situation where there are
(51:34):
states that are regulatingsomething that's federally
illegal, or does it push thefeds to actually figure this out
?
What do you think?
Neil Willner (51:45):
No idea, who knows , it could go either way, but
it's certainly something that'sbeen putting a little bit more
gray into my beard.
Thinking about that andthinking about any sort of farm
bill permissions going awayseemingly overnight.
I would like to think thatagain, the federal government is
(52:05):
listening to the states andobserving the trends of states
and seeing that states are fullyadopting hemp laws laws,
although I would have liked tothink they would have listened
to states as states started tobegin to adopt marijuana laws as
well, but hemp seems to be lessof a dirty word.
(52:26):
It doesn't have the sameconnotations that a lot of
lawmakers think marijuana have.
So I would like to think thelegislators are going to listen
to states and have some sort ofbroad adoption and insert
(52:48):
themselves in oversight over theindustry to have more oversight
now.
I think the lack of federaloversight is a huge issue and,
at the end of the day, it justharms the consumer, because the
consumer is the one that hasaccess to these products.
AnnaRae Grabstein (53:05):
They're the ones actually using these
products and without a fullyregulated, safe environment, it
is the consumer that gets hurtthe feds were going to listen to
you and take the sensibleaction of of pushing forward
some type of federal policychange.
(53:26):
Do you think that alcohol lawsat the state level that are
incorporating cannabinoidproducts will inform the
eventual federal path?
Like that, it will looksomething more like the way the
21st Amendment did as a resultof this, which is sort of like
what Nancy Mace was introducingwith some of her legislation.
Neil Willner (53:47):
It's a state rights bill, right, it's a state
rights bill.
Let states do what the stateswant to do and remove the
federal prohibitions.
I think that that is thesensible approach.
And, going back to something wediscussed earlier, that alcohol
regulation is what's familiar,it's what gives regulators and
policymakers a lot of comfort.
(54:08):
So if that is the mechanism bywhich hemp and marijuana are
again just going back tocannabinoids in general are
legal at the federal level, thenI think that's something that
the federal government and theindustry really needs to think
hard about.
Is that the best way to do itor do we forego a better way for
(54:33):
more widespread adoption?
But I think, again, leaving thedecision primarily to the
states, while having somefederal oversight, like we do in
alcohol, there is a federaloverlay.
The TTB regulates alcohol and,but primarily, the states are
(54:54):
the regulatory bodies overseeinga lot of the trade practice
issues and all the otherday-to-day issues.
So having that in place forcannabinoid regulation, I think
would be a very beneficialsystem for the industry and for
the consumer.
Ben Larson (55:13):
Amen man, we can just keep jamming on this for
hours.
Unfortunately we can't.
But, neil, I want to just takein a little bit of a personal
direction real quick, and I byno 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 (55:36):
Yes, I do.
I have a beverage that's verynear and dear to my heart.
I've tried a lot of beverages.
I love trying beverages, butone of the beverages that kind
of has stuck out and which I,whenever I have at home, offer
to my friends that come over, isSenorita Really, really
delicious beverage.
It's yes, it's fresh, it'sgreat.
(55:59):
Great on a summer day I reallyenjoy that a lot.
But I love, I love trying newbeverages, seeing what else is
out there.
Um, every time I, when I was Iwas in Florida for winter break
went into a total wine and go.
A third of the aisle isdedicated to hemp beverages.
And that was the first time Iwent to a actual store that
wasn't a dispensary and saw TCproducts Um, that wasn't a
(56:19):
dispensary and saw THC productsand it was right next to the
vermouth and gin and it was justlike any other adult commodity
who would have thought that'samazing.
AnnaRae Grabstein (56:29):
Well, neil, it's time to move to our last
call, so we would love to giveyou the mic for one last time
and if you can share any adviceor call to action with our
audience, what would you like toleave them with?
Neil Willner (56:41):
If you can share any, advice or call to action
with our audience.
What would you like to leavethem with?
I think at the end of the day,it's mission critical for the
industry to understand that itis a cannabinoid industry.
It is not a hemp industry or amarijuana industry.
It is a cannabinoid industry.
The more support we have behindthat position, I think, the
(57:03):
more effect we'll have on ourlobbying and influencing the
government officials aboutregulation.
It's cannabinoids cannabinoids.
Cannabinoids, it's not, hemp,it's not marijuana Preach?
Ben Larson (57:20):
Yes, absolutely Well , neil, thank you so much for
taking the time.
I'll expect the bill later goback to your lawyerly duties.
Um and yeah, and thank you forjust sharing so much wisdom.
We got a bunch of comments anduh would love it if you could
jump in there and help answersome questions for us.
Neil Willner (57:40):
uh, otherwise, until next time, thank you
Thanks so much for having me.
Guys Really appreciate it.
AnnaRae Grabstein (57:47):
Thanks, Neil.
Ben Larson (57:48):
All right, everyone.
Like I said, we did get a lotof comments coming in during our
live recording here on LinkedIn, live man.
Each one of these actuallycould 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 inthe comments, thank you.
Thank you for engaging.
Please keep doing so.
It keeps us energized, it keepsthe show going.
(58:10):
It lets us know where to takethe next episode.
Thank you to our teams ofVertosa and Wolfmeyer we love
you guys.
Thank you for supporting us inthis constant weekly boondoggle
that we get to do and, of course, our producer, eric rosetti uh,
you're amazing.
And thank you for populatingthe socials with our beautiful
faces.
(58:30):
Thank you, please like,subscribe, do all the things.
If you're listening to us onapple podcast or spot, give us a
review and a five-star rating.
That'd be great.
But, most importantly, asalways, folks stay curious, stay
informed and keep your spiritshigh Until next time.
(58:50):
That's the show.
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