Friday, July 19, 2024

Cali Wine Industry Worried It May Lose Workers To Marijuana

For decades, California’s unregulated medical marijuana industry relied heavily on migrant workers to harvest the crop, trim the bud and other labor-intensive duties. Now that the state has legalized cannabis, farmers of other crops — most notably wine grapes — fear that the burgeoning industry may steal hard-to-find laborers.

In a wide-ranging 72-page report —”State of the Wine Industry 2107,” released by Silicon Valley Bank — the potential labor shortage was singled out as a concern.

Why? Simple supply and demand economics.

In the cannabis industry, trimmers are paid nearly triple what a picker can get working in the hot fields. As a cash crop, cannabis is king in California, therefore it typically can pay its workers a higher hourly wage (or by-the-pound wage).

With legalization, the price of cannabis may drop and the wages may stagnate. But the conditions may be gentler for many workers.

According to the “State of the Wine Industry 2107” report:

Looking at the results of the past two years, we can say that the industry is more confident in the economy and the state of consumer demand. But overall, respondents reported that confidence is lower because of critical labor issues and, to a lesser degree, foreign competition and substitutions.

With respect to the latter, it’s a reflection of the growing concern about legalized cannabis. It remains to be seen if that will cool demand for fine wine. I’m on the side that believes that fine wine and cannabis will co-exist.

A more pressing concern is labor. In every growing area, the labor force is inadequate, which is leading to increased costs and more incentive to mechanize. From an American Viticultural Area perspective, Mendocino shows this as the largest concern. In our survey, one respondent said:

“Much of this shortage, especially during harvest, is caused by the competition from marijuana growers who hire laborers to sit on a white bucket and “trim buds” for $25–$30 an hour vs. working in the hot sun in the vineyard, where the average wage is around $20 an hour.”

The flow of migrant workers from Mexico has stalled in the last few years and winegrowers are concerned that the Trump administration will exacerbate the labor shortage. Of the three major issues facing the wine industry (labor, foreign competition and wine substitutes), the labor issue is by far and away the biggest worry, according to the report.

Eight states now have legalized marijuana for adult recreational use and 29 states have medical marijuana programs in place.

The global alcoholic beverage market is expected to grow from $1,198 billion today to $1,451.6 billion in 2020, according to P&S Market Research, an international analytics firm. In the U.S., the alcoholic beverage industry is estimated at more than $200 billion.

Can the nascent marijuana industry compete with the big boys of booze?

“While the alcohol beverage category has looked insulated from cannabis thus far — from a revenue perspective — with the legal market still in its infancy we think the risk to alcoholic beverage consumption will become increasingly apparent,” according to Vivien Azer, senior analyst for  Cowen and Co., an investment research firm.

According to Azer, the 10-year trend show that men in particular are substituting alcohol with marijuana.

“Over the last decade, while we have seen a rise in drinkers who use cannabis, we have also seen declines in cannabis users who drink,” Azer wrote. “Nonetheless, there is undeniable overlap, as close to nine million adult consumers used cannabis with their most recent alcoholic beverage occasion.”

The wine industry is taking notice.

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