Napa Valley wineries increasingly explore cannabis infusion

With wine sales growth trending down, especially among millennials, some vintners are looking to cannabis to fill the gap, and that could have repercussions for Napa Valley.

While no wineries are pulling up grapevines to plant pot just yet, the two industries are already beginning to cross paths in Napa and elsewhere because cannabis is now legal in California as of last year. Recent investments by large beverage companies in the cannabis industry might also telegraph a move toward a diversified pot and wine portfolio for some companies.

'Part of the reason that I looked at cannabis this last year was (because) the wine industry is declining in its growth rate over what we've seen in prior periods,' said Rob McMillan, executive vice president and founder of Silicon Valley Bank's Wine Division.

McMillan said the slowdown could not be attributed to newly available legal cannabis. Instead, he pointed to different age demographics for each product and noted lagging adoption of wine among millennials.

He said his research showed about 13% of adults used cannabis versus 57% of adults who use some form of alcohol. Cannabis users tend to skew younger than wine drinkers, which peaks at around age 58, McMillan said.

'In order for that 13% to affect the 57%, pretty much all of them would have had to have been wine consumers and then stopped consuming wine and started consuming cannabis instead,' McMillan said.

Cannabis may be legal in California, but it is also highly regulated and wine producers cannot grow cannabis under current law. They are also prohibited from infusing alcoholic drinks like wine with cannabis under state and federal law. Commercial cannabis grows are also outlawed in Napa County.

One way around this is to invest in cannabis. Alcohol giant Constellation Brands sunk $4 billion into the Canadian cannabis juggernaut Canopy Growth last year. Constellation sold around 30 brands from its wine and spirits portfolio, priced at $11 or less, for $1.7 billion in April.

While those kinds of heavyweight cash moves are not in the cards for Napa County vintners for the moment, some wine makers are straddling the two worlds and pushing to allow cannabis to flourish in Napa.

Stephanie Honig of Honig Vineyard and Winery in Rutherford is also the president of the Napa Valley Cannabis Association, which aims to be the main trade group for cannabis producers in the county and advocates for commercial cultivation of the plant in Napa.

'Cannabis is never going to take over wine grapes,' Honig said, adding that her winery does not produce cannabis. 'What we're proposing is a secondary crop that would occupy very small footprints — and not near grapes — because cannabis would not do well with any sulfur that's sprayed on grapes.'

Honig said she envisioned cannabis planted not on the prime vineyard land of the Napa Valley floor but instead on hillsides and elsewhere.

'You don't need to remove trees, it takes up a small footprint and it gives biodiversity because we don't want a monoculture,' she said. Cannabis could thrive in the long dry growing seasons that contribute to Napa's excellence as a wine-producing region, she added.

Honig acknowledged the challenge presented by McMillan's research, which showed that different age demographics favor cannabis versus wine. She sees that gap as a business opportunity.

'Don't we want to integrate these millennials and bring them up here?' she said. 'Just because they enjoy one thing doesn't mean they won't enjoy another … It just adds to the experience' she said of pot and wine.

The cultivation of cannabis in Napa may be illegal, but there are other ways to enjoy the pleasures of the plant along with the wine of the region. Just ask Devika Maskey, founder and CEO of luxury cannabis lifestyle company TSO Sonoma.

Maskey's background is in wine at the Ellipsis Wine Company in Napa, as well as cannabis. Her company puts on events that feature both, as well as local food and other products from the region as a 'way to make cannabis more approachable to new users by relating it to something people are familiar with like wine,' she said.

TSO Sonoma has an event permit from the California Bureau of Cannabis Control, allowing Maskey to put on 10 events annually, some at private residences. The kinds of events vary and some involve guests passing around glasses of wine and containers of cannabis to pair aroma profiles, creating a sensory and tasting experience that does not necessarily involve consumption.

That is because cities have differing laws on allowing on-site cannabis consumption. Facilities like tasting rooms licensed by the Alcohol Control Board do not allow consumption of cannabis.

'Wine makers are afraid of what cannabis is going to do to the environment of the county in terms of how it's going to be perceived, giving Sonoma or Napa a bad reputation,' Maskey said, noting her events are also educational and seek to bridge that gap.

She added wineries that are open minded about collaboration and introducing a different demographic to their tasting rooms and wines would benefit. 'The millennial generation or other generations that are younger are not necessarily coming to Napa anymore,' she said.

McMillan, the banker, said any wineries considering diversifying into cannabis should do so conservatively. 'I'd say don't go into it with something that you can't afford to lose, be prepared to have it end up taking a lot more time than you think,' he said. 'For a winery, their money is probably better spent focusing on what they know how to do,' and while cannabis presents an enticing new industry on the rise, it carries inherent risks.

'As a banker I'd say you'd really end up with a problem if it's a THC or CBD product and you can't deposit the proceeds into a bank,' McMillan said, referring to the prized chemicals in marijuana and hemp that some companies have begun to experiment with putting into dealcoholized beverages.

He noted banks risked losing their federal charter since cannabis is still illegal at the federal level, despite pending legislation to make it easier for cannabis companies to access the banking industry.

'You almost need a vice president of headaches and unintended consequences when you're in a business like that,' he said.

Staff Writer Chase DiFeliciantonio covers technology, banking, law, accounting, and the cannabis industry. Reach him at chase.d@busjrnl.com or 707-521-4257.