Competition is the keen cutting edge of business, always shaving away at costs.

marijanaThe west coast has always been the incubator of trends for the United States, and this, of course, includes trends in the beer industry.  Crafts got their start on the west coast, predominantly due to that area’s favorable laws, and as some will point out, the mild climate of that area.  Expect the next big trend in the beer industry to appear on the west coast as well.  It just works that way.

So what will be that next industry trend?  If we knew what that trend would be, we would all probably be living in Palm Springs playing golf.  Perhaps the next trend in beer is not beer!  Maybe it will be marijuana.

How the legalization of weed will affect the beer sales has yet to be determined.  Most industry pundits are predicting a negative impact on beer sales, however, it is too early to make any such prediction.

What is clear in the early days of legalized sales is the dramatic impact on state budgets.  Oregon recently legalized the sale of marijuana for 2016.  Initial projections for the first two years of legal sales were $18.4 million dollars, however the total revenue collected between January 1 and July 31 is more than $25 million!  This is due, in part, to the fact that the Oregon medical dispensaries that sell recreational pot, started collecting a 25% tax on their sales.  In January alone, that amounted to $3.48 million in taxes.  The tax revenue collected is supposed to pay for police, addiction programs and schools.

The amount of tax revenue collected really has a positive effect on all Oregon beer sales, and one must believe that this tax will, especially in the early years of marijuana sales, take pressure off the beer industry for any tax increases!

Even with the marijuana-driven tax revenue increase for the state, Oregon has passed legislation to double the amount of deposits collected on all bottles and cans.  Oregon was the first state to implement a deposit law of five cents per container.  The Portland beer wholesalers created CRINC, a company owned by the wholesalers, to collect, process and sell aluminum and glass.  Even at five cents redemption, CRINC was a profitable company.  Now, doubling that deposit fee, one has to believe CRINC will be substantially more profitable.  The redemption rate of containers sold is below 100% which provides a cushion to cover costs.  It will be interesting to see if containers come in from California, Washington and other states for redemption.  What happens if the redemption rate goes to 105%+?

The impact of marijuana sales on beer sales is yet to be determined, however, early signs are positive for the beer industy, at least in the aspect of any new beer taxes.  Either way, these trends on marijuana sales and increased container deposit has begun on the west coast and will definitely be moving east.  Trends are headed east.  It will not be long, get ready.

Competition is the keen cutting edge of business, always shaving away at costs….

 

 

 


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One response to “Competition is the keen cutting edge of business, always shaving away at costs.”

  1. Peter Boettcher Avatar
    Peter Boettcher

    Hello Geoff,
    Another well written post, congratulations.
    Next trend marijuana great example of Sate tax revenue increase, maybe they get the hint in Texas as well and decimate the prison industry that we cultivate down here. I am all for legalization of marihuana it is long overdue but keep the real hardcore drugs like heroine and cocaine illegal of course.

    Back to beer business I also like your remarks on the effect of state tax collected with marijuana and how it could possible take pressure off beer sales tax increase, lets hope that this will be the case.

    I am not quite sure how a deposit on beer bottles and cans especially a doubling down would affect the beer market especially when as a result the beer prices for consumer would go further up or increase at a steeper rate. Although, generally speaking not necessarily a bad idea to put deposits on bottles and cans, but we need to keep beer prices in check.
    It wouldn’t look good on the shelf if the price for a 6 pack increases even though you would get a deposit back, lots of consumers won’t even do it.
    From an environmental perceptive point of view a returnable system like they have in Germany would be more sustainable and the way to go, but we are far away from that one.

    Finally, although slightly of topic I am wondering when are we ever going to address the real big elephant in the room: the 3-tiered system, this thing’s got to go. If you really want to do something to move small and medium sized independent breweries and supply businesses forward this would be it.

    Just my 5 cents.

    Cheers
    Peter Boettcher
    Master Brewer – Consultant – Six Sigma Black Belt
    Boettcher Brewery Consult LLC
    Fort Worth, TX 76244

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