Is the High Over for Hemp Drinks?

0:05There's a new kind of drink that's been taking off over the past couple of years. It's not alcohol, but it can give you a buzz.

0:15They're drinks with THC in them, only they're not made from marijuana. They're made from hemp. Some states allow them in convenience stores or Total Wine or even Target. It really depends. But one thing is for sure, if they're allowed to be sold in the state, these bright cans are very prevalent in the places they're allowed to be sold. Which aisle would it be sold in? I guess not the alcohol aisle because there's no alcohol in it. It depends by store. For me, if I go into a bodega, it will be next to alcohol. And sometimes it'll be next to seltzer. That's our colleague Laura Cooper. she covers beverages for The Wall Street Journal, including these hemp drinks that can get you high and are packaged in colorful cans and can have fruity flavors like tangerine and ginger lemongrass.

1:10Today, these hemp drinks are a billion-dollar industry. They're one of the bright spots in the beverage market in terms of growth at a time when, like, beer, wine, and spirits are hurting. Right now, it's estimated that they have between$1 billion and$1.3 billion in annual sales. It's in no way taking over, but it's gaining ground.

1:38But the rule that made these drinks legal in the first place is about to expire. And a new law is about to take them off the shelves. So they're in crisis. It's full-on save our businesses or they're going to be obsolete come November.

1:58Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Monday, April 6th.

2:12Coming up on the show, a total buzzkill for hemp drinks that get you high.

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3:29Hemp is a fibrous plant, and for tens of thousands of years, it's been used to make things like fabric and rope. The hemp plant is also in the cannabis sativa family, which means it contains some THC, the same psychoactive compound in marijuana that gets you stoned. In the 70s, hemp was caught in the crossfire of President Richard Nixon's war on drugs. America's public enemy number one in the United States is drug abuse. In order to fight and defeat this enemy, it is necessary to wage a new all-out offensive. Hemp got banned. And it was banned for decades, until 2018. The U.S. House of Representatives just passed the 2018 Farm Bill.

4:17It now heads to President Trump for his signature, which he is expected to sign. The Farm Bill was designed to support American farmers. It included everything from help with insurance to subsidies for conservation. The bill also included a reversal on this decades-old ban on the hemp plant, with the idea that it could help open up a new industry for farmers, for things like fabric, paper, and construction materials. The person behind that reversal? Senator Mitch McConnell. I particularly want to thank the chairman and a ranking member for including my Hemp Farming Act in this bill. There are a lot of supporters around this table.

4:56Thank you.

5:01It legalized all parts of the hemp plant and, you know, where hemp can be used for like rope and things like that. But they weren't thinking hemp THC. But hemp-based THC is exactly what also became legal when this bill passed. And it was the beginning of a whole new industry. Entrepreneurs were like, okay, well, all parts of the hemp plant were made legal so they could create hemp-derived THC products, which means you can put them in gummies and drinks and all these things. And so they just didn't see this as a possibility, Congress people, Congress members didn't? Unclear. They say it was an unintended consequence of this legalization.

5:44Uh-huh. But this is America, and entrepreneurs will find a way if they find somewhere that they think that they could make money. It's capitalism. One of the people to take advantage of this so-called loophole was Jake Bullock. I'm the co-founder and CEO of Can. Can. It's spelled C-A-N-N, kind of a pun on cannabis. The company's drinks have colorful, bright packaging and are labeled social tonics. We make a range of microdose, THC and CBD-infused drinks that are really alcohol alternatives. We now sell in 30 states in primarily liquor stores, but also more often now emerging in convenience stores and grocery stores.

6:25We also sell online. I think maybe it's up to 35, 38 states as well, shipped directly to your door. How would you describe these drinks to someone who's like never had it or maybe never had weed or cannabis or THC? These drinks actually are for those people that have never had THC or maybe have been afraid about it or heard a story from a friend, you know, that had a really bad experience because they're so mild. Our most popular product has two milligrams of THC in it. Can drinks come in a variety of flavors and dosages. He can start at one milligram, which Jake calls a microdose, and go all the way up to 10 milligrams per serving.

7:04We make one, a two, a three, a five, and a 10. So for a mainstream person who hasn't built up a tolerance, who's just trying this for the first time, two milligrams is going to be a really good starting place. If you're a daily cannabis consumer, you might need something more like our 10 milligram product, right? Jake says he's found that there's a wide range of customers who are interested in his products. The face of this, the canned drinker, is not who you'd expect, right? Our median age is 42, you know,$110 ,000 household income. It is about the middle there. We have really strong populations, 65 plus veterans, young parents.

7:42It's amazing. No one wants to wake up parenting hungover. I got this special drink and I've had a long freaking day. So let's drink it and then we'll make dinner. They're basically the equivalent of drinking a glass of wine without the hangover. And so they love these products. The midweek grabbing a bottle of wine, having a cocktail, that's going away because folks are drinking can instead and they're feeling so much better the next day.

8:11But as this industry has grown, so has the scrutiny. Some parent groups and public health organizations say they're concerned these drinks could be too appealing to minors. Here's our colleague Laura Cooper again. So they think that the packaging might be confusing to kids. And recently I had seen like a picture of them next to Easter candy or, you know, stuff like that. So it became apparent, I believe, that people were concerned about it. Jake says that his product is clearly labeled with the amount of THC that's in each can and includes all state required warnings. Another big critic of hemp-based drinks is the alcohol industry.

8:52Unlike with alcohol, there's no nationwide minimum drinking age for hemp drinks, though there are state-based laws that say if you want to buy one, you have to be 21 or older. And these drinks are not subject to the same so-called sin taxes that the alcohol and tobacco industries are. Alcohol companies are very concerned about it, too, because they operate where everything is regulated. You have to be 21, and you have to be taxed a certain way, and it's very specific. and these makers do not have to do that. So that is a huge problem for the alcohol industry, which is losing ground to these THC makers that don't pay taxes the same way they do and are not regulated the same way.

9:35This fresh competition comes at a bad time for the alcohol industry, as more people are choosing to drink less and it's been hitting alcohol's bottom line. Once it became clear to lawmakers, policymakers, that this loophole existed and that there was a booming industry that was coming out of it, what did they do? You know, Mitch McConnell was behind this farm bill, and I think that he does not think that that was how this should have happened. Like, it shouldn't have been a loophole that allowed for hemp-derived THC and potential bad actors to, like, sell these things in gas stations to kids, which is, like, the concern.

10:12Mitch McConnell was seemingly very unhappy that he took the genie out of this bottle. After the break, Congress tries to put the hemp genie back in its bottle.

10:41When Congress passed a new spending bill last fall, they included a provision to tighten regulation on hemp. Starting this November, hemp drinks will be illegal if they have more than 0.4 milligrams of THC, which is a lot less than the one milligram offered by brands like Cannes as their lowest dose. So think 0.4 milligrams. That's nothing that literally knocks out any kind of drink. Right. I was going to say I'm guessing 0.4 means that you don't actually, most people probably wouldn't feel anything. Oh, that's for rope. That's for rope. Okay. The new law is a huge blow for companies that make THC products from hemp.

11:26I just want to go back to the moment when you realized this law, the federal spending bill included, you know, a line that meant that this might not work out for your industry. What went through your mind in that moment when you realized that? Sheer terror. We weren't expecting it. That's Jake Bullock from CanNagin. What will happen, though, to be clear, is all of our products will come off of the shelves in all of these markets. You know, Target, Circle K's, Prouds, that goes off November 12th. We're not selling those products anymore. What has the impact been on your business so far? I think within the first 24 hours, we saw a big spike in sales as a result of that, right?

12:05You know, sort of like 40 % up in November and December. Now, as we've gotten into the new year, we were really worried that a lot of the retailers we've been talking to will say, oh, well, there's the ban, we're not going to do it. that inventory is going to become more and more risky as we get closer to the deadline because they don't want to be holding big warehouses of products that will ultimately become federally illegal. By July, we know that our wholesale partners want to see real regulation in order for them to keep buying. Your distributors, your retailers don't want to be hanging on to product that they won't be able to sell.

12:36Exactly.

12:42With seven months until hemp drinks are banned, Jake has been in full lobbying mode, meeting with lawmakers and other CEOs in the hemp THC business. And he wants the industry to set up a legal framework that would let them keep selling their drinks, including taxation and a federally established minimum purchasing age. So we want regulation. That's the headline. Principles of what regulatory framework needs to look like here are obviously number one, 21 plus. These products should not be sold to minors. This is one of the only industries that's going to Washington saying, Texas, please. That's the opportunity that we have here.

13:18How has your lobbying effort been going? What kind of conversations have you been having? And is there any indication of progress? Absolutely. We have seen a ton of movement. I would say particularly of Republican lawmakers in the House, as we have these conversations, as they understand who these consumers are and what's in their district, they want to support these efforts. The biggest challenge that we face in Washington today is not convincing lawmakers that drinks like can should stay. That argument we can win. The challenge we face is actually what legislative vehicles are going to pass Congress between now and the November ban.

13:55It's actually a political challenge, I think, more than anything. Jake is hoping that between now and November, there will be a new bill coming up that he can latch on to for the THC hemp industry. We have a number of plan B, C, Ds. If we go dark, you know, for a period of time, we are not going dark forever. Like there is demand sufficient to support a 10, maybe even bigger billion dollar industry here. And that just doesn't go away because, you know, Congress changes a lot. So it may be that we just have to survive, right? Like, okay, now is time. We have to go convince folks of why we should exist and why we are safe and why we are doing it the right way and that this can be regulated in a safe way using alcohol-type rules.

14:39And we have to go do it fast. Jake is optimistic. But getting Congress to pass legislation that makes his business legal again is an uphill battle. Last fall, there was a proposed amendment to block the ban on intoxicating hemp products. It failed in a 76-24 vote.

15:10That's all for today, Monday, April 6. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Dean Seale and Anvi Bhutani.

15:23Thanks for listening. See you tomorrow.

15:50on what's ahead. Listeners of this podcast can access exclusive discounted rates by visiting wsj.com slash future. That's wsj.com slash future.