The cannabis industry is on fire. As more and more states permit some form of legal marijuana—recreational marijuana is now legal in 10 states and the District of Columbia, and medical marijuana is legal in 33 and D.C.—the stereotypical Birkenstocks and tie-dyes associated with cannabis culture are being replaced by Ferragamos and button-downs, not to mention a gold rush mentality. “The market growth is felt by everyone,” says Demi Pradolin, the community manager for Endoca, a producer of hemp products based in San Diego, “and everyone wants to get involved in one way or another.”
The excitement was palpable at the annual Marijuana Business (MJBiz) Conference in Las Vegas in 2018, which was by far its biggest to date, with 27,600 attendees—more than double the attendance in 2017—and over a thousand exhibitors. An eye-popping array of CBD products was on display, including nonalcoholic beverages infused with CBD, as well as such cannabis products as vape pens and edibles, categorized according to the sensations they offer, like “relaxing” or “energizing,” rather than by specific strains of cannabis, like Sour Diesel or Granddaddy Purple.
In general, products made from the Cannabis sativa L. plant—which include both marijuana- and hemp-based products—are expected to trend big in the upcoming year, but hemp-derived CBD, says Brian Staffa, the vice president of cultivation and manufacturing at MariMed Advisors in Norwood, Massachusetts, “is going to be the major story in 2019.”
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Cannabidiol, or CBD, is the most common cannabinoid found in hemp and marijuana. Hemp-derived CBD, which contains only trace amounts of tetrahydrocannabinol, or THC (less than 0.3 percent), will be a hot topic in the coming year not only because of its anecdotal health benefits but because of the passage of the 2018 federal farm bill. This bill removes hemp from the U.S. Drug Enforcement Administration’s Schedule I list of controlled substances—it will now be regulated by the Department of Agriculture. Smoke Wallin, the president of Vertical Companies based in Agoura Hills, California, who left the spirits industry for cannabis in 2018, expects that with the passage of the farm bill, chains like Walmart and CVS will soon be stocked with CBD products.
Also anticipating this mainstreaming of CBD is Scott Leshman, the founder and CEO of Cannabinoid Creations, a producer of CBD edible snacks and drinks, which recently launched a first-of-its-kind CBD soda for soda dispensers, adding to the Detroit-based company’s lineup of CBD beverages. “The farm bill will ease the minds of retailers,” says Leshman. It will “remove the stigma, get [retailers] more comfortable, and result in greater demand.”
Naturally, the beverage alcohol industry is keeping a close eye on the cannabis industry. And it should. After all, 52 percent of third-quarter sales of hemp-derived CBD products in the U.S. and Canada in 2018 were in the ingestibles category, which includes beverages, according to BDS Analytics, a cannabis-focused market research company in Boulder, Colorado. Analysts at Canaccord Genuity, an investment bank and cannabis market research firm based in Vancouver, British Columbia, have reported that cannabis-infused beverages could generate $600 million by 2022. Some major corporate drinks giants are already on board, including Constellation Brands, with a $4 billion investment in Canopy Growth, a Canada-based cannabis company, and Anheuser-Busch, with a recently announced partnership in Canada with Tilray, a global cannabis producer and distributor—their joint investment of US$100 million will go toward researching nonalcoholic beverages containing THC and CBD.
It makes sense, notes MariMed Advisors’ Staffa, that alcohol companies are interested in cannabis—and particularly in infused beverages, whether they contain alcohol or not. “These would be consumed in the same settings as alcohol,” says Staffa. “And cannabis products have already started to cut into alcohol sales.” This was part of the business planning for MariMed’s product Diskrete—a tiny disk formulated with THC that can quickly dissolve in any beverage—which launched at the 2018 MJBiz Conference. The product was designed to enable consumers to add cannabis to beverages they already consume, whether coffee, soda, or juice, in a wide variety of settings, says Staffa, though the company does not advocate simultaneous consumption of alcohol and cannabis.
“Alcohol companies,” Staffa points out, “have deep pockets and existing infrastructure and distribution systems, and they’re used to working in an environment [that’s] subject to both state and federal regulations.” Many of them have not been willing to enter the cannabis industry, however, because of the risk associated with federal illegality and uncertainty. But that’s likely to change with the passage of the farm bill, at least as the bill relates to products made with hemp-derived CBD.
Also on the horizon for 2019 is a proliferation of low-potency cannabis products. As with general consumer market trends, cannabis users are seeking healthier products and those that would help them embrace moderation. In the beverage alcohol space, that has become apparent in a trend toward lower-proof cocktails and the popularity of products like Seedlip’s nonalcoholic distilled spirits; with respect to cannabis, it translates into products that offer microdosing options, such as beverages and edibles that contain low levels of CBD or THC. For example, with its Cannabier products—nonalcoholic beers infused with microdoses of THC—Two Roots Brewing offers an alternative to a night of drinking beer with friends that still provides a psychoactive result. According to Two Roots’ marketing materials, its products “emulate the rapid onset of alcohol as well as its rapid dissipation from the body” but with “no hangover.”
An industry lawyer discusses what brands need to know about using cannabis, CBD, THC, and hemp derivatives
Says Wallin, “people want something fast acting, that doesn’t take an hour to affect you, and is made consistently.” This promises to be a huge category as people continue to steer away from sugar and calories. However, Wallin emphasizes that the biggest challenge in cannabis production today is consistency, which he says is the key for a scalable brand. Michael Bronstein of Bronstein Consulting in Bryn Mawr, Pennsylvania, who is the president of the American Trade Association for Cannabis and Hemp, points out that in the cannabis industry, “there is nothing that approaches the likes of Coors or Bacardi. We kind of live in a pre-brand world, and there isn’t the advertising mechanism to brand-build in the same way.” Wallin suggests that this is one reason there’s still tremendous opportunity in this industry. “Everyone is a startup,” he says, “including the government.”
Products That Target Outcomes
As the stigma of illegality surrounding cannabis wanes, many people might be surprised by the average customers now shopping at dispensaries. Already, this consumer group tends to skew older and more toward women, says Bronstein—“It’s not the younger demographic everyone thinks of.” In fact, people 55 and over make up 17 percent of those who said they’d used cannabis in the previous month—and this group is currently the fastest-growing among cannabis consumers, according to an April 2018 report by Cowen & Co., a research firm that covers cannabis and alcohol.
Jerry Griffin, the vice president of national sales for Kush Supply Co., a wholesale cannabis packaging and supply company based in Garden Grove, California, explains that to better serve the new wave of cannabis consumers, “everything is moving toward creating products more targeted at outcomes for the end user.” Such a marketing tactic allows consumers to make purchasing decisions based on the sensation they’re trying to achieve rather than requiring them to spend time researching various cannabis strains to find those that will provide that sensation.
Looking to the Future
The efforts to market products that provide specific sensations are expected to contribute to a 13 percent increase in cannabis concentrates for vape pens and a 14 percent reduction in smokable marijuana flower sales for the period from 2017 to 2022, according to the Cannabis Intelligence Briefing, a report published by BDS Analytics and Arcview Market Research. (Currently, the smokable flower category is number one in sales, with concentrates following as the second-biggest seller.) BDS and Arcview also project that consumer spending on cannabis-related products will surpass $23 billion by 2022. At the MJBiz Conference, a host of exhibitors featured THC edibles and cartridges for vape pens designed for various outcomes (rather than offering products by cannabis strain), including sleep, romance, and energy. There was even a THC product recommended for working out.
As the legal cannabis industry grows and becomes more widely accepted among consumers, product options, including beverages, will continue to proliferate. According to Cowen & Co., alcohol use has declined four years in a row while cannabis use has risen year by year. In 2019, consumers will have a wide array of cannabis-related products to choose from. They can expect to see more CBD offerings, including infused cocktails, as well as low-potency products that provide the feeling of one drink and more occasion-based cannabis offerings.
All this may drive booze brands to reach for some stress-relief cannabis products in the coming year.
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Ryan Malkin is principal attorney at Malkin Law, P.A., a law firm serving the alcohol beverage industry. Nothing in this article is intended to be and should not be construed as specific legal advice.