Big Alcohol Wants To Own Legal Pot, But Prop 64 Stops Them

[Note: Story updated Sept. 2 with response from RVR]

A new Politico story this week indicates that major alcohol industry players want to corner the market on legal pot. But what the story does not make clear is that voting for California legalization Proposition 64 helps stop Big Alcohol.

Voters who approve Prop 64 will set back liquor industry goals to control legal pot, sources say. The Nov. 8 vote in California would keep marijuana distribution in the hands of the existing industry, and roll back a sweetheart deal from 2015 that puts police, unions and Big Alcohol in the driver’s seat of legalization, it would appear.

It all comes down to who gets to distribute cannabis.

Last year, California made history by regulating its billion-dollar medical marijuana industry for the first time. Part of those regulations included a “mandatory distribution” layer of licensed independent drivers, who were billed as being a check on other parts of the industry.

The model was copied from the California alcohol industry, where brewers are not allowed to distribute directly to retail stores. Alcohol distributors wield enormous power to make or break a brewer.

Since those medical regulations passed, news has emerged that some of the biggest players in Big Alcohol were making moves to become marijuana’s main distributors. California’s biggest newly licensed pot distributor, RVR, is run by a liquor millionaire from the nation’s biggest booze company.

Critics have warned that there is a long-standing nexus of power between police, unions, big alcohol and government officials. Now, it seems the group thinks they can muscle in on legal pot — an industry mostly made up of small farmers and stores.

Barry Broad, legislative director of the California Teamsters Public Affairs Council, told Politico, “I’m not hiding our self interest. This is a growing industry and we’d like it to grow unionized,” he says. “To have local government, organized labor and law enforcement all together is a pretty potent alliance. What’s on the other side? A couple marijuana people with illusions of grandeur?”

RVR chief Ted Simpkins is the retired CEO of Southern Wine & Spirits, and at the center of the coalition with the Teamsters, police, cities and counties, and the California Growers Association (CGA). Simpkins was a senior manager of Florida-based Southern Wine & Spirits, the country’s largest liquor distributor with $12 billion in revenues. Simpkins earned $7.8 million a year in salary and bonus compensations, Politico reports.

During the 2015-16 state legislative session, Simpkins’ company paid $134,500 to lobby for the distribution rules the CGA helped negotiate, Politico reports.

This power nexus already serves Big Alcohol in California, where gun-toting Alcoholic Beverage Control officers supervise unionized alcohol distributors. Many in this group donate money to public officials to protect their interests.

People like Harborside Health Center’s Stephen DeAngelo fear what the liquor-ization of cannabis could mean. For one — vastly decreased patient choices and increased costs, as the distributors take their cut, he said.

It took decades for craft brewers to break Budweiser’s stranglehold on regulations and distribution, historians note. Today craft brewers face renewed threats from alcohol distributor consolidation. Mega-distributors often refuse to carry boutique brands, who cannot afford Budweiser-sized marketing budgets to ensure massive sales.

By contrast, the California cannabis industry is almost entirely made up of what amounts to small-batch craft growers who distribute directly to their choice of over one thousand stores.

If the mandatory distribution layer sticks, DeAngelo predicts, “growers won’t have more than five groups they can sell to and [patients] are going to be paying three times as much for weed.”

There will be no farm to table options. No bud and breakfasts. No cannabis wineries, he said.

“Big distribution is not interested in new, obscure strains, or catering to small niches of the market,” he said. “They’re not interested in veganics, or gluten-free edibles.”

CGA director Hezekiah Allen disputes DeAngelo’s predictions, stating that, “mandatory distribution is not the same as Budweiser. Thankfully the legislation includes a cap on the size of grows and effectively prohibits companies from establishing the market dominance brands like Budweiser and Coors have achieved. ”

Still, when the text of Proposition 64 came out, it was immediately opposed by the alcohol-police-union nexus. The Teamsters and law enforcement publicly denounced it. Nationally, big alcohol lobbyists hyped the threat of legalization to Washington DC lawmakers, wikileaks reports.

That’s because Prop 64 removes the mandatory distribution later from recreational pot for all but the biggest farms.

“That came about in response to pressure from myself and [WeedMaps founder] Justin Hartfield,” said DeAngelo. “We had to fight hard with the Adult Use of Marijuana Act folks.”

“I support #Prop64 but oppose MMRSA mandatory distribution,” DeAngelo tweeted.

By contrast, legalizers in Nevada earned the support of big alcohol by giving liquor distributors sole rights to distribute marijuana for the first 18 months of legalization.

Marijuana Policy Project Rob Kampia director admitted as much to Politico, saying legalization is pay to play, and alcohol is paying while “the retailers are writing themselves out of the game, because they’re not showing us any love.”

DeAngelo said Nevada legalization and California’s medical regulations are “the opening salvo of a takeover of the entire cannabis industry by the alcohol industry.”

But what’s so bad about having Big Alcohol run legal cannabis, I ask DeAngelo? The powerful alcohol lobby has for almost a century kept booze taxes low, made beer cheap and widely available, and fought off regulatory attacks on alcohol users. Consumers can walk into almost any corner store in America and spend just an hour’s wages to buy enough ethanol to put a person in a coma.

“We don’t need the alcohol industry to lobby for us. We call our own shots,” DeAngelo told me.

“Alcohol companies don’t understand cannabis as a wellness product,” he said. “They’re going to market it as another intoxicant. That’s the wrong way to present cannabis to the world. It will deter the progress of reform. Intoxication is not so popular. Wellness is more popular. If the alcohol industry alcohol-izes cannabis — it could lead to re-prohibition.”

It’s a war for the soul of pot, DeAngelo said, and alcohol is winning.

Even if Prop 64 passes, Big Liquor along — with unions and police — plan to use their pull in Sacramento to insert mandatory distribution back into legalization, multiple reports indicate.

All they need is 50 percent of lawmakers to vote on it, which is why DeAngelo is raising as much, “holy f*cking hell as I can. Even if I lose, I cost them. They feel some pain when AUMA passes and it comes times to start messing with it. You cannot breach the will of the voters.”

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[Update: In response to this article, Cannabis Now received the following statement from Lauren Fraser, one of the visionaries and co-founders of RVR:]

Steve DeAngelo has been sending his press kit to media sources with allegations portraying RVR as the alcohol industry attempting to take over cannabis. RVR is not in any way affiliated with Big Alcohol. One of my co-founders and the lead investor in RVR is retired from alcohol distribution, bringing tremendous expertise that can be applied to our industry.

Steve is a co-founder of The ArcView Group, the investor network that brings non-cannabis investors with corporate experience from other industries into the cannabis industry to link up with cannabis entrepreneurs and apply their experience and help these companies succeed. RVR’s story is no different than this, in fact it was inspired by my experience going through ArcView and is how I met Ted Simpkins.

Prior to co-founding RVR, I co-operated a leading edibles brand in California, Auntie Dolores. As an edibles brand in an increasingly competitive market, we experienced what many growing cannabis brands experienced – the challenges of distribution.

Most small producers can attest to the challenges of getting their product to market and have attempted to find a third-party (broker, rep, or distributor) to get their product to market. They struggle to get their foot in the door with a buyer, get their product on the shelf for the first time, and keep their product on the shelf as new competitors enter the market. When we evaluated ourselves, we recognized that our core competency was developing great products and a great brand. Building a successful sales organization and the logistics to support statewide distribution was not our strength and would require resources that we didn’t have or that would take away from doing what we did best. We began exploring relationships with independent distributors.

Of the few distributors we found, they either weren’t interested because our products competed with one of the brands they carried, or they were just getting started. There weren’t any real options out there. This was a light bulb moment for me.

I had met Ted in mid-2014, while recruiting him and his ArcView member partner to become an investor in Auntie Dolores. Ted explained he knew nothing about manufacturing edibles, and that he was more interested in distribution since that was his area of expertise. We stayed in touch, and a year later, I approached him about the concept for a cannabis distribution company.

This was May of 2015, pre-MMRSA. We knew that the company we wanted to build would not be possible until medical cannabis in California was effectively regulated. With past failed attempts to legislate a regulatory framework, we became active in supporting the legislation in 2015. I personally met with several senators and assembly members during the months leading up to the passing of AB 266, AB 243, and SB 643. The main message to these lawmakers was that we have to regulate now, and the status quo is not acceptable anymore. I personally sat in the offices of senators and assembly members educating them about our industry and the need for regulations.

Steve DeAngelo likes to frame our political lobbying efforts as an attempt to insert mandatory distribution requirements (makes sense right, since we are in the distribution business?) but our efforts were much more whole-picture focused. Our primary focus was to ensure that these bills passed in 2015, which was a fight against forces supporting AUMA who wanted MMRSA to fail.

RVR is a first mover in the distribution space in California, or the most visible at least, thanks to Steve DeAngelo. Unfortunately, we’ve been used as a scapegoat for Steve to paint the picture he wants to paint about MMRSA, using his false narrative as a platform for the AUMA campaign.

There are two camps here: 1) those who want unrestricted vertical integration to own all pieces in the supply chain and want unrestricted grow size for limitless production consolidated under one roof, and 2) those who want tens of thousands cultivators and manufacturers to transition into the regulated market and have outlets to sell their products legally.

Restrictions on vertical integration is what Steve is most upset about – because he wants to produce the majority of the products on the shelves of Harborside. MMRSA doesn’t allow that to happen. This isn’t about mandatory distribution – that’s the scapegoat. The independent distributor framework under MMRSA was supported by the legislature and the Governor’s office for the safeguards it provides to the market and the controls it offers for regulators. This is about wanting to own the supply chain from seed to sale. Just keep in mind who that puts out of business.

Let me close by clarifying what RVR does support and continues to advocate for:
We wanted residency requirements in MMRSA to give California operators a head start.
We thought that the restrictions on alcohol retailers owning a [cannabis] license should apply to alcohol distributors as well.
We agreed that existing vertically integrated businesses should be grandfathered in.
We supported the cottage cultivator license and believe these operators are the backbone of the industry.
We want one day for there to be onsite sales from the farm, like the winery model, and for the appellations of cannabis to be recognized like the appellations of wine.

Whether AUMA passes or fails, distributors will be a resource for cultivators and manufacturers who need help carving out their space on the shelf, and a resource for retailers who care about the quality assurance, diversity, and professionalism of the brands they carry.