Reed Smith LLP

Friends, as long-term readers of these Cannabis Musings know, one of my favorite topics to muse is the overlap between the cannabis industry and the wine industry. (such as link; link; link) An article today in Marijuana Business Daily (link) piqued my interest for that very reason.

There’s an old adage in the wine industry that it’s easy to make wine, but hard to sell it. The two main channels for selling wine are generally through wholesale distribution (either to an alcohol distributor or directly to a retailer/restaurant if you’re in-state) or directly to the consumer (DTC). Wholesale provides volume and consolidation, but at a lower sales price and the challenge of getting a distributor to take your products. DTC gets the producer a full price for the product and sticky customer loyalty, but requires a full sales and marketing structure (which takes time and money). I’m overly simplifying this here for the sake of my readers, but the point is that there’s a tradeoff, and what works for one company doesn’t necessarily work for another. Each winery tries to find the right balance that works for it.

I was excited then to read today’s story about California cannabis brands moving into DTC sales. I’m certainly not going to opine on whether DTC is the right or wrong answer for any particular brand, because, as we’ve seen from the wine industry, the answer is that it depends (not marketing/sales advice!).

Instead, to me, this is another great example of the maturation of the cannabis marketplace, organically developing solutions while taking what works elsewhere as its cue. At the same time, it raises again the question about how cannabis distribution will evolve – if and when we see the breakdown of (in my opinion, most likely unconstitutional (not legal advice!)) state laws prohibiting interstate commerce (another favorite topic of mine (link; link)), how will distribution (link) and DTC (link) work, and who will be involved? Will the benefits and drawbacks to distribution versus DTC that play out in wine also show up in the cannabis marketplace? How do cannabis brands find the right balance?