A niche sector in the CBD industry, beverages, is getting outsize attention from some of the world’s largest companies.
It’s a trend that is heating up this fall, with Molson Coors Beverage Co. and Canopy Growth Corp. expanding multistate distribution and predicting big gains across all levels at the THC spectrum, from nonintoxicating CBD sports drinks to THC-infused alcohol alternatives.
Karma Water, a functional-beverage company based in New York, partnered with Canopy Growth to launch a CBD water in some 25,000 retailers across the U.S. The move came just six months after Canopy launched its own line of flavored CBD beverages in the U.S., called Quatreau.
And Molson Coors this fall expanded distribution of its Truss line of CBD drinks, a joint venture with Canadian cannabis grower Hexo Corp., from just Colorado to 17 states.
Earlier this year, the American Trade Association for Cannabis and Hemp (ATACH) started a Cannabis Beverage Council that attracted the likes of Anheuser-Busch heir Adolphus Busch V.
“There’s been massive interest among not just cannabis companies, but also mainstream beverage companies,” ATACH president Michael Bronstein said.
Not there yet
It’s a lot of attention for a stagnant category.
Market analytics tracker NielsenIQ reported in March of this year that sales of drinks containing hemp-derived CBD drinks across major chains in grocery, drug and convenience stores were down 32% from the year before.
The CBD beverage slide was steeper than the decline of CBD products overall, where sales slipped 13% in the same period.
Sales don’t look any better for THC drinks.
Dispensary beverage sales check in below 2% of overall cannabis sales in five Western states tracked by analytics firm Headset.
So why the enthusiasm from large consumer packaged goods companies? Analysts point to three main factors:
- Alcohol manufacturers are looking for new products because alcohol consumption (and beer consumption in particular) has fallen precipitously in recent decades.
- Manufacturing and emulsion advancements in recent years have made cannabis-infused beverages better-tasting than early cannabis beverages sometimes derided as “skunk water” for having chlorophyll flavors and a greasy aftertaste because of fat-soluble cannabinoid molecules that fell out of suspension or bonded with the plastic lining in cans.
- Fewer places where adults can legally smoke or vape.
Not just intoxicating
Molson Coors and Canopy both say they’re expanding with hemp-derived CBD because THC drinks remain federally illegal in the U.S.
But CBD and other nonintoxicating cannabinoids are more than placeholders for the drinks sector, said Carmen Brace, founder of Aclara Research, a Chicago company that analyzes CBD consumer data.
“Functional beverages are some of the most promising products in food,” she said.
“Everyone is interested in innovation roadmaps to capture more share of stomach by day part and occasion. And consumers are looking for foods that satisfy more than taste.”
Aclara partnered with Ipsos this year to survey some 1,100 cannabis and CBD users living in states with legal adult-use marijuana and found that, while beverages are the least common form for cannabis consumption, the sector is growing.
“Maybe beverages are not used as frequently as the usual suspects – flower, vape, edible – but beverages are more frequently used in social occasions,” Brace said.
“As more consumers look for foods with a purpose, the functional beverage becomes more important.”
Analysts say the interest from large alcohol interests in the cannabis sector makes perfect sense. That’s because falling beer consumption gives them reason to cast around for the next seltzer water or kombucha, drinks popular with younger consumers.
“It’s a hard time to be in the beer business,” said Harvard University’s Stephen Kaufman, a senior lecturer who evaluated Molson Coors’ cannabis strategy last month on a Harvard Business Review podcast.
Kaufman pointed out that:
- For Baby Boomers and Generation X, 50% of alcohol consumption is in beer.
- For Millennials, only 25% of alcohol consumption is in beer, with the rest in wine and hard liquor.
- For Generation Z, just 12.5% of alcohol consumption is in beer.
“So their business is drying up,” Kaufman said.
In fact, Molson Coors in 2019 changed its name from the Molson Coors Brewing Co.to the Molson Coors Beverage Co.
And cannabis can seem a natural fit for companies used to selling into highly regulated markets.
“They’re looking outside of beer for growth, and marijuana is regulated and gets people intoxicated. So they’re like, ‘Alright, this is a great space for us to play in. Because we’re used to regulation. We’re used to marketing in adult ways to other adults,’” said Bourcard Nesin, a New York-based analyst who covers the beverage industry for Rabobank, the Dutch banking giant.
However, the excitement about cannabinoid drinks from large food and beverage companies like Molson Coors and Canopy doesn’t change the fact that those companies face the same headwinds as all other large cannabis manufacturers.
And that is the fact that products are going to remain stuck in research and development until more nations join Canada and regulate drinks for national and international distribution.
Data about cannabinoid drink sales are notoriously spotty outside Canada, Nesin pointed out, and the largest CPG players are staying away.
“The prospects for growth in the marijuana and hemp industry are predicated on federal regulations and legalization that allows responsible companies and healthy competition to exist, where cutting corners is not something that gives you a strategic advantage,” he said.
“And I think that’s really going to make a difference in terms of the beverage industry, which takes quite a bit of infrastructure to scale, and to be well formulated and consistent.”
Kristen Nichols can be reached at [email protected].