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Northern California cannabis industry abuzz with beverage innovation

A sampling of cannabis beverages

Aperitifs

Beer (non-alcoholic)

Champagne (non-alcoholic)

Coffee (hot and cold)

Cola

Energy drinks

Lemonade

Smoothies

Sparkling water (flavored and unflavored)

Tea

Wine (non-alcoholic)

To get the buzz of cannabis in a faster, easier to control, more socially acceptable way, the latest focus is drinking it.

“It makes sense as an ingestion method, especially for new consumers. Smoking anything in front of people is not popular,” Aaron Silverstein, managing director and enologist with BevZero. The Santa Rosa-based company specializes in removing alcohol from beer, wine and cider.

“Traditional edibles take a few hours. With beverages, you feel the impact within 15 minutes so you can pace yourself. It mimics alcohol consumption. It’s not a huge part of the cannabis industry now, but I expect it to be significant in maybe 15 years where beverages will be 30% to 40% of all cannabis sales.”

Technology and entrepreneurship have contributed to the growing variety and availability of these drinks. But those in beverage industry complain a slew of unnecessary regulations, like what color bottle they can use, is holding them back.

“It’s by far the fastest growing sector of the industry,” said David Quintana, lobbyist for the Cannabis Beverage Association, based in Sacramento. “This way you can do your vice in public, you can have all the fun without the calories, and it’s a lot cheaper.”

Fortune Business Insights predicts cannabis beverages worldwide will be worth $8 billion by 2027.

In the North Bay the cannabis beverage trend is definitely growing.

“Beverages are one of the fastest growing categories at our store and in the cannabis industry. They are picking up a lot of traction,” said Eli Melrod, founder and CEO of Solful dispensary in Sebastopol. “Basically they didn't exist in 2017 when we opened and now we don't have enough cooler space. Still, beverages make up only 2.5% of all sales, but it was zero in 2017.”

Variety of beverages

Any beverage, except milk, can get a dose of cannabis without running afoul of the law. Wine is okay, if the alcohol is removed.

“The low-dose sparkling waters are hands down the most popular; in single servings and four- and six-packs,” Melrod said. “I think people are looking for ways to relax and ways to unwind. I think people perceive cannabis as a healthy alternative to alcohol.”

Aimee Henry, a director with Napa Cannabis Collective in Napa, said its two big sellers are Lagunitas’ cannabis-infused hoppy sparkling water and House of Saka wines.

House of Saka was founded in 2018 by Tracey Mason, a wine industry veteran, and Cynthia Salarizadeh, whose expertise is cannabis. In 2020, they sold 530 of the 675 cases of wine they produced. In 2021, they expect to produce 7,500 cases. The increase largely has to do with distribution expansion, though consumer demand and awareness of their products are also key.

The company makes alcohol-free Saka Pink, a rosé made from pinot noir grapes, and Saka White, a chardonnay. Grapes are sourced mostly from the Carneros region of Napa Valley. In February, Saka Sparkling will be introduced in single-serve bottles.

BevZero’s Silverstein, whose company removes alcohol from beverages, said it does not make sense to dealcoholize everything. For example, to do so with vodka would pretty much leave water. Spirits like tequila and bourbon that can rely on wood barrels to be part of the taste profile are also not good candidates for dealcoholization, he said.

For those wanting to imbibe a cannabis cocktail there are other ways to satisfy that craving by being a mixologist at home or on the road by adding cannabis liquid to a drink.

“It’s like a little ketchup packet that has liquid in it. It has 10 (milligrams) and you dump that into your mocktail,” explained Annie Holman with The Galley in Santa Rosa. “The packets are discrete; you can bring it in your purse.” Some are flavored, some aren’t.

The Galley can create these liquids and other beverages for companies in its kitchen, as well as bottle the product. Mobile bottle operations can be brought in if needed, as is similar to what some wineries do.

However, beer presents a different set of obstacles when it comes to taking the alcohol out because if in the process, too much oxygen gets in, it will ruin the batch.

“The big draw to beer is hops. Hops and cannabis are related to each other. There is a natural synergy,” said Wes Deal, co-founder and brewmaster at Barrel Brothers Brewing Company in Windsor. “Anytime you dealcoholize beer the flavor changes because alcohol does have flavor, and it affects mouth feel.”

He continues to experiment with taking the alcohol out of his line of beers to see what works. To start with the brewery has infused an IPA and a blonde ale. The products hit the market last fall. Valhalla Confections in Santa Rosa infuses the beer with cannabis and handles the distribution to dispensaries.

A sampling of cannabis beverages

Aperitifs

Beer (non-alcoholic)

Champagne (non-alcoholic)

Coffee (hot and cold)

Cola

Energy drinks

Lemonade

Smoothies

Sparkling water (flavored and unflavored)

Tea

Wine (non-alcoholic)

Creating the high

Cannabis chemistry is divided between cannabidiol (CBD), the nonpsychoactive component of marijuana and hemp plants, and tetrahydrocannabinol (THC), the psychoactive ingredient in marijuana. It is the latter in drinks which provides the mood-altering element. CBD’s main attraction is for health benefits — touted to be physical and mental.

Beverages infused with any component of marijuana cannot be shipped across state lines because the product is illegal at the federal level.

CBD derived from hemp is regulated by the 2018 U.S. Farm Act, which allows for sales from one state to another. This is because the legislation no longer classifies hemp as a controlled substance. The law is the main difference between CBD derived from hemp and marijuana. That is why some beverage makers are using only CBD from hemp.

SipCozy is one of those companies. While the company is based in Florida, winemaker Meredith Leahy resides in Napa. Only California grapes are used in the product. The initial production in 2019 was 600 cases of a 2018 Grenache Rosé blend that was infused with 40mg of broad-spectrum hemp extract.

The $18 bottles are sold online right to consumers who reside in states that allow this. How much SipCozy will produce this year has not been determined. The company is also contemplating providing other varietals.

“The biggest problem was solving the solubility of it. We didn’t want to leave an oil sheen on top of our product or have it left behind in a glass,” Leahy said. “A lot of technology advances have come about in the emulsion process and the dealcoholization process in the last two years.”

Improved technology

Technology has allowed for the rapid growth in the number of cannabis beverages.

The first iterations of cannabis drinks are described by industry veterans as liquid with sticks and twigs. It wasn’t until people figured out how to infuse the cannabis oil with liquids that they became palatable. Emulsions are needed so the oil and beverage don’t separate.

Few companies are in the emulsion business. The one most people point to is Vertosa in Oakland.

“Emulsions start with extracted oil. We emulsify them into an ingredient. Emulsions you see every day are in milk, ice cream and salad dressing. It makes it dispersible in water. We all know oil and water don’t mix. Emulsions make oil and water mix better,” explained Austin Stevenson, chief innovation officer with Vertosa. “We make it stable so it won’t separate. So it won’t float at the top or sink to the bottom.”

No one cannabis emulsion works for every beverage. A lot of chemistry is involved. This is because the liquid the emulsion will be infused with has different components. That IPA and blonde ale at Barrel Brothers Brewery are nothing alike, therefore the cannabis emulsions are just as different.

Whether the product is going to be in a can, glass or plastic also plays a role. If a product is pasteurized or had a chemical treatment, will help determine the appropriate emulsion.

Stevenson said it can take a few months before the food scientists settle on the correct emulsion for an individual product.

Beer and wine with cannabis adds another layer because first the alcohol needs to be removed.

“We pioneered the use of these processes in wine about 30 years back. We’ve always been constantly improving, maybe not radical jumps, but with the ability to have greater quality,” said Silverstein with BevZero.

BevZero is the sister company of 30-year-old ConeTech which developed the dealcoholization method. Both are located in Santa Rosa. BevZero was created to do business with the cannabis industry. “We remove alcohol at low temps so we don’t harm the wine at all. It’s a very short process. We separate aromas, dealcoholize, then add aromas back.”

Some varietals are easier to do this with than others, like a lot of white wines. Alcohol has weight and texture, which needs to be considered when removing it from a product. Silverstein said replicating the flavors of a big, bold cabernet would be hard to do.

“When you remove alcohol from wine, you remove quite a lot. You lose weight, sweetness that the palate can recognize. And you lose flavor so we work really hard to build back the flavor profiles. We work with a natural flavor compound,” said Mason with House of Saka.

All beverages in California must be made with cannabis grown in the state.

“The quality of the cannabis extraction is super important. Only certain emulsions work so you have to be careful,” Mason said.

Red tape

Those is the cannabis beverage industry are working with the state to rejigger the rules including packaging, transportation and distribution.

Beverages fall in the same category as all cannabis products which are eaten, which has created hurdles the industry folks would like to abolish.

When California voters approved the legalization of recreational marijuana in 2016 cannabis infused drinks were not part of the equation. Because cannabis beverages didn’t exist at the time as a standalone sector it was thrown in with all edibles. That is coming back to bite the drink industry. Edible cannabis is anything that is a food or drink.

“We need to be decoupled from regulations that regulate edibles,” Macai Polansky, founder of the Cannabis Beverage Association, said.

At the time the regulations were created, the rules were written so packaging hid the contents, to dissuade children being attracted to cannabis-laced brownies and gummy bears.

“We need to educate policymakers that these are very safe products. While we take seriously that kids should not get into them, the rules around child-proof packaging need to be deregulated a bit,” Polansky said. The added restraints ultimately drive up the cost of the product.

Quintana, also with the CBA, said, “We will be doing a lot more legislatively this year.” He pointed out how today cannabis wine cannot use a traditional green bottle because cannabis containers must not be see through.

“I see some (changes) as lower hanging fruit than others. I hope what will change is the restriction on bottle color. That is just absurd,” Mason with House of Saka said. Their bottles are painted to conform to the rules. This adds to the final price.

What is written on the packaging is also governed by the state.

“They prevent us from using any language that relates to alcohol. For instance, infused wine can’t even say non-alcoholic wine,” Polansky said. “They can’t put it comes from Napa unless they can source the cannabis from one producer. Cannabis usually is from cultivators from around the state. They can’t put that wine is in there. They have to put fermented grape juice.”

Cannabis beverages per state law must also carry an expiration date even though many would likely never grow too old to consume. That means makers face the prospect of a sales slump which leaves product in a warehouse waiting to be distributed, then expiring and becoming unsellable.

In transporting product, the rules dictate trucks are supposed to be owned and not leased. While loose leaf marijuana easily can be driven around in a van, pallets of beverages need trucks. The regulations require purchasing trucks which are not often needed on a daily basis.

“Distribution is challenging. (Cannabis beverages are) a very different economic model for distributors. What we have had to do is partner with distributors who have a forward facing view and realize beverages are the future,” Mason said.

The Napa Valley company in early January signed with a statewide distributor. “We will be able to expand from 30 dispensaries to 150 dispensaries by the end of Q1.”

Entrepreneurs with an idea for a new cannabis beverage but who lack one of the various licenses from the state to operate in the marijuana world are out of luck or need to partner with someone who is licensed.

For Holman with The Galley in Santa Rosa, “The biggest thing the state needs to do is put in a brand license. They don't have a path for licensing.” At her 8,300-square-foot cannabis manufacturing and distribution facility she only works with licensed individuals or companies.

The California Department of Public Health Manufactured Cannabis Safety Branch, which regulates cannabis beverages, dodged a question regarding its opinions about changing current legislation surrounding edibles so the beverage sector could operate by rules the industry deems more appropriate.

“Members of the public are invited to voice their opinions for how the regulations can be improved by sharing their comments during meetings of the Cannabis Advisory Committee,” Corey Egel, spokesman with the state, said.

Polansky hopes if federal rules surrounding cannabis change, that cannabis drinks one day will be on store shelves everywhere.

All cannabis infused food products must be sold in a dispensary and not at a regular retail store. At the end of 2019, California had 1,440 dispensaries, according to Statista. This compares with the 28,432 stores in the state that are licensed to sell alcohol by the Department of Alcoholic Beverage Control.

When California is ready to change the law it could look to Canada which in 2019 began allowing the sale of cannabis infused beverages in retail stores.

“There really should be no reason these beverages (cannot be) sold in the same cooler as alcohol in my opinion,” Polansky said. “That is a long time out, maybe 10 or 20 years to get there. Once we have the data, arguably there will be no reason cannabis shouldn’t be sold in traditional retail.”

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