There’s nothing else like a sure thing; that feeling where you know for a fact that something will come to pass before it happens. However, a “sure thing” isn’t always a good thing.
Take, for example, regulating the sale and distribution of hemp-derived beverages using the three-tier system. It is a sure thing that producers and retailers of these beverages will regret agreeing to be regulated under this system.
“Hemp-derived beverage products” are exactly what they sound like: THC delivered via liquids. The “three-tier system” is a form of product regulation that puts all power in the hands of middlemen by requiring producers to sell to wholesalers and requiring retailers to buy from wholesalers.
Hemp beverages, which had been produced and sold under something of a loophole in federal law, were set to be prohibited by federal legislation, and there has been a push to pass a bill that would keep these beverages regulated and legal. Well, that bill has been introduced. Reps. Beth Van Duyne, (R-Texas), and Greg Landsman, (D-Ohio) introduced The Beverage Regulatory Parity Act on Aug. 10. Among other things, the bill requires these beverages to be sold and distributed via a three-tier system that has been more or less a staple of the alcoholic beverage industry since 1933.
It will come as no surprise to anyone that alcohol wholesalers and their trade association, The Wine & Spirit Wholesalers of America (WSWA), has been lobbying for exactly this for a very long time.
But the sure thing here is not that WSWA got its way. The sure thing is that the producers and retailers of THC-derived beverages will be both disappointed and screwed by their wholesaler partners who, under this legislation, have been given complete control of distribution and margins within this niche industry.
What can the THC drink producers expect? It’s a sure thing that…
-Small producers will have a very difficult time finding a wholesaler to distribute their product.
-Small and medium-sized producers will see excessive margin extracted from them by wholesalers who have complete control over whether they can bring their products to market
-Small producers who seek the ability to self-distribute their products will be opposed by WSWA and local alcohol wholesalers who will tell legislators that children will die and tax payments will be avoided if producers are allowed to bypass wholesalers and sell directly to retailers.
-The THC Beverage industry will consolidate quickly around a very small number of huge wholesalers and a small number of huge manufacturers.
-Small producers will find their existence will come to depend on selling direct to consumers. Still, when they suggest legislation allowing this, they will be met by a collection of wholesalers, large producers, and retailers who will claim in the media and in one-on-one meetings when “campaign contributions” are delivered to lawmakers that allowing direct-to-consumer sales will lead to catastrophe and should be avoided.
The word “Parity” in the name of this legislation refers to parity with the way alcoholic beverages are regulated and sold. Producers of THC beverages are going to wish the name of the legislation actually carried some meaning. The alcohol beverage industry is moving away from a strict three-tier system as consumers, producers, and retailers attempt to overcome the damage this system and its wholesalers have done to the alcohol beverage industry.
The Sure Thing coming down the line is disappointment. Producers of THC-derived beverages will have a market when this legislation passes. They just won’t be in control of their products or their margins. That control is being given over to the wholesale tier. More than 30 years of experience working in an industry governed by the three-tier system has taught me that wholesalers care nothing for producers. The fewer, the better.
Three tiers, 51 different ways to stack and regulate those three tiers. Consumers get screwed as well as high and/or drunk. Meanwhile, politicians blather on about saving children and collecting sin taxes. Almost makes me want to smoke an illegal joint while sipping moonshine out of a Mason jar. Almost. I will default to a nice bottle of bubbly with my spouse. Taxes paid, middleman enriched.
The small-producer problem seems hard to ignore. If getting to market depends on first convincing a wholesaler you’re worth carrying, the system naturally favors scale before consumers ever get a chance to decide.