The Hemp industry is in a unique but tough space right now. Hemp was taken off the list of controlled substances by the 2018 Farm Bill. Hemp, which is different than its cousin marijuana, is a Delta 9 concentrate ( delta-9-tetrahydrocannabinol (Δ9-THC) is the  psychoactive compound responsible for the “high” associated with cannabis) with a THC concentration of less than .3%. Marijuana’s THC concentrate is typically 15-20%.

Although hemp maintains significantly less THC than its cousin, it can still if consumed in liquid form be intoxicating.

Since its legalization hemp has lived in a space without regulation, which has led to much concern and suspicion. Much of this revolves around legitimate concerns such as the lack of age gating and minors consuming and purchasing Hemp based products with THC.

There is no denying the intoxicating hemp world is growing and may need a regulatory solution.

So, the hemp industry faces a dilemma, keep going with an unregulated industry and face the threat of states shutting down your whole industry, or partner with beer or liquor wholesalers and risk doing permanent damage to your industry.  It’s a Hobson’s choice for hemp producers, who have seemed to be aligning with wholesaler, as this may be the only path available for them to stave off legal annihilation from the state governments.

Myth of the system

Some people believe that it makes sense to have hemp intoxicating beverages regulated by the same system that regulates intoxicating alcoholic beverages. But the best way to deal with this industry is by considering alternatives.

The beer wholesalers are taking the lead on hemp beverage bills in many states, which should be a concern of anyone that wants free and open markets.

In Illinois the cannabis system avoided the three-tier mandatory distribution model and allowed manufacturers to sell directly to retailers. There have been no safety issues or a lack of tax collection issues raised in public discourse. The public policy reasons advanced for mandating a wholesaler in the liquor world have not raised concerns in the cannabis world.

By mandating an alcohol regulatory scheme for the hemp beverage world, states will ensure that hemp beverage producers will face the same problems as the liquor industry and without the societal benefits the mandatory wholesaler system supposedly supplies.

Mandating of wholesalers will lead to increased consumer cost and the lack of control by the manufacturer over its product in the marketplace.

The three-tier system was setup nearly one hundred years ago to ensure that manufacturers were not using their retail business to push the dangers of alcohol overconsumption, which often occurred pre-Prohibition. This setup led to retailers providing incentives to saloon managers to push alcohol, which led to many societal ills.

Somehow, I don’t see how the hemp beverage industry necessitates the same solution. There is no evidence that societal ills are being created akin to the pre-Prohibition days. Although intoxicating substances need firm oversight, the solution does not gel with what’s needed.

Additionally, bills like the one in Illinois, make it illegal for hemp beverage producers to ship DTC. Shutting off this route to market and forcing producers into the three-tier system will guarantee that many producers across the country will have no route to market. A well-regulated winery DTC shipping system resulting from the U.S. Supreme Court decision in Granholm opened up shipping markets, which lead to more than double the number of American wineries 20 years later.

Without access to inter-state shipping markets, the ability to grow the hemp beverage industry will stagnate.

Conclusion

The hemp beverage reforms across the country are not about creating a prosperous market but about creating additional revenue for the middle tier.

I feel bad for the hemp beverage industry because their choice is tough. Face the prospect of being banned or go with a system that guarantees your profits will suffer and the ability for people to enter the market will be hindered.

It would be nice if the political class in both parties actually looked at this issue not from the view of special interest but the view of the overall economic impact.

But I am not holding my breath on this one and in the end, we will unnecessarily impose the three-tier system where it is not needed.