The LaCroix of cannabis? The marijuana market bets on beverages

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Cannabis startups envision a not-too-distant future in which consumers seek alternative refreshments during happy hour.

As the cannabis industry continues to go more mainstream, entrepreneurs are on the lookout for the next niche market. Edibles have been done every which way, CBD-infused lotions and body care products are now touted by the likes of Kathy Ireland and Meryl Streep, and even “King of Instagram” Dan Bilzerian has a vape line.

So, what remains?

“Consuming CBD through oils, gummies, or tinctures isn’t ideal for daily life,” explains Benjamin Witte,  founder of Recess, a CBD and “adaptogen-infused” sparkling water company. “There was a massive opportunity to bring CBD and adaptogens to new product formats, primarily functional beverages.”

CBD oil (or cannabidiol), unlike THC, does not contain any psychoactive properties. The extract has been used for years for anything from arthritis pain management to anxiety relief and insomnia cure.

Recess, which comes in fun fruity flavors like peach and pomegranate citrus, contains 10 milligrams of the cannabis extract known for reducing stress and inducing a Zen-like feeling. Basically, it’s a more relaxing version of La Croix, if your seltzer habit ran you $4.99 per can. It even arrives in beautifully designed pastel hues that fit right alongside your Pamplemousse in the fridge.

Much like its name, Recess is all about taking a break during one’s day to reset and rebalance with CBD, to “help us adapt to stress, and focus,” says Witte via email. “It’s what we wish that 2 p.m. coffee would do for us.”

[Photo: courtesy of Dirty Lemon]

The new company is not the only one of its kind, but its herbal focus will likely draw the health and wellness set that has embraced the trend. Dirty Lemon, a functional beverage brand that’s become an Instagram sensation, combines fruit juices with CBD for a “mild euphoria.” A Dirty Lemon rep reports that its first production run of 12,000 bottles sold out in just two days in June. Since the launch of its CBD line, the company acquired more new customers than any other product to date, with new customer growth 60% higher than any other product launch.Several breweries, including Lagunitas and Blue Moon creator Keith Villa, have also announced weed-based beverages. In August, Constellation Brands (Svedka vodka, Corona) invested $4 billion in cannabis producer Canopy Growth, less than a year after taking a 10%  stake to develop a line of nonalcoholic, cannabis-infused drinks.

Even Coca Cola reportedly wants in.

“EXPLOSIVE SOURCE OF REVENUE”

“I think a lot of both the emerging and established food and beverage companies see CBD as a potentially explosive source of revenue as the next great functional ingredient,” explains Jeff Klineman, editor-in-chief of BevNET.com, “while THC’s strengths are largely viewed through a recreational lens.”

While CBD seems the more obvious choice for wider consumer consumption, other brands see greater potential in the dispensary market, where THC accounts for 90% of all sales. (THC, otherwise known as tetrahydrocannabinol, is the chemical compound in cannabis responsible for getting one high.)

The THC beverage market is predicted to grow, says Klineman, but the sector has its challenges. These companies need to adequately tweak and communicate the level of concentration in each bottle, as well as attest to some sort of consistency across the market–similar to alcoholic “proof,” only for psychoactive components. Currently, the average shopper has no idea what consumption of a 12-ounce can means in terms of how “euphoric” or relaxed they’ll feel.

“Intensity is one barrier,” says Klineman. “The other issues are less format-driven and more environmental–how will the regulatory side impact consumption patterns? How about retail? Can these products be served in a bar? In a cannabis-only bar? These questions will have a lot of influence over the final predominant format for product usage.”

This past summer, Eric Schnell of Beyond Brands cofounded Mood33, a sparkling spiked tonic that retails for $8. A little more luxe than its competitors, the “better-for-you” line combines sophisticated flavors like green tea, dried lemon peel, and rose hibiscus flowers. There are three distinct flavors centered around moods (Joy, Passion, and Calm), each with varying degrees of both THC and CBD.

[Photo: courtesy of Mood33]

The low-sugar concoctions are only 33 calories, with taste mostly derived from herbal and fruit extracts. Via the terpenes found in cannabis, they promise “your own personal aromatherapy session” in each bottle.Schnell previously founded Steaz, the first USDA organic-certified sparkling tea brand that was sold in 2016. (More recently, he cofounded Good Catch, the vegan seafood company dubbed the “Impossible Burger of tuna.”)

The entrepreneur sees the dispensary market adopting trends surging in the general beverage market—most notably, a shift away from sugary drinks and high-calorie brands. Tea, for example, grew faster than soda in the last year.

As cannabis gains legality in more states, Schnell believes more Americans will favor smoke-free alternatives. It will become a mainstream product, and seeing that consumers now prefer healthier ingredients (and are willing to pay for them), why not combine the two together for a functional beverage?

“We’re [targeting] that natural, organic, foodie, fun-loving consumer,” says Schnell, noting cannabis’s reputation for natural stress relief and pain management. “We inspired by a lot of the natural beverage movement.”

With Americans more stressed than ever before, Schnell envisions a not-too-distant future in which social occasions seek alternative refreshments. Switching from caffeine products to alcohol isn’t always the most seamless of handoffs, and in many ways, indicative of the modern work lifestyle. Mood 33 is betting on Americans opting for a cannabis can in lieu of a Coors, or maybe even shaking up the family barbecue.

“Not everyone wants to dedicate themselves to a hangover, or maybe they’re driving,” says Schnell. And while edibles might take an hour or two to kick in, beverages take considerably less time. “So that’s the other benefit.”

Some analysts predict alcohol might not always be the go-to social hour drink. As beer and booze categories plateau, companies look to less saturated sectors with growth potential. “We definitely see taking away from [the alcohol] market share,” stresses Schnell. “And obviously the [prescription] painkiller marketplace that’s worth hundreds of billions of dollars.”

[Photo: courtesy of Recess]

CANNABIS ALL DAY, EVERY DAY

CBD-infused Recess envisions people sipping their cannabis throughout the day, like at work or while sorting laundry, says Witte. “It’s amazing at home, after work, to take the edge off, at the park, or the beach to relax and read a book,” he says.

Recess plans to partner with offices, cafes, coffee shops, and fast casual restaurants, in addition to natural grocery stores this year. The first market, unsurprisingly, is New York, “where people are the most stressed and wired and need it most,” says Witte.

Mood33, meanwhile, is rolling out in 4,000 dispensaries in California (where recreational pot became legal in January), starting in Los Angeles and the Bay Area. The company includes several industry alums, including Errol Schweizer (former Whole Foods VP of grocery), Mark Edwards (MillerCoors former digital director), and Jeremy Adams (GT’s Living Foods former head of marketing).

[Photo: courtesy of Mood33]

The team at Mood33 is intent on packaging and marketing a product that could rebrand cannabis from this “plant in a plastic baggie,” says Schnell, to something stores would display on grocery store shelves—or consumers would leave on their kitchen table. That means highlighting the various ways one can enjoy a beverage throughout their day, not just during social hours, but for wellness, and perhaps to spur creativity.“We want to really help elevate the industry and destigmatize the plant,” says Schnell. With low doses and a plethora of tastes, it could transition fans away from smoking habits. ” We see [it appealing to] your modern working professional, the stay-at-home mom [who drinks] Chardonnay, but has to wake up early every morning.”

Klineman notes that while product development is exploding, there aren’t as many brands taking up space on grocery shelves. Retailers remain wary of the budding market, which has yet to iron out how to navigate varying state regulations. There’s also the compounded issue of effectively communicating both the functionality and benefits of cannabis in a bottle. It could be viewed as the next coffee or alcohol, or rather, the next functional additive, like ginseng or turmeric.

“Right now, there are a lot of claims that CBD can solve everything from headaches to depression; the industry has to set expectations right and meet those expectations, or else they will really limit the size of the market,” says Klineman. “And beyond that, they can’t be harmful, and there have to be clean sources and clear dosing information. That’s not easily achieved, but there’s a lot of money in both the CBD and THC businesses if brands and companies do it properly.”

That’s what this new crop of startups are working toward, and believe is attainable. And not in the next 10 years, but in the next year or two. Schnell has high hopes: “We may really be the next kombucha in a way.”

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