The cannabis beverage market is bubbling with brands

Two years ago, the internet declared 2019 “White Claw summer,” with consumers so obsessed that they caused a shortage. But now, spiked-seltzer sales are coming down from their highs, and there’s shelf space for a new buzz-inducing drink. Enter: cannabis beverages.

According to Brightfield Group research agency, THC-infused beverages will account for $1 billion in US sales by 2025. Sales of CBD drinks, which are available on a wider scale and in places where cannabis is not yet regulated, are expected to hit $2.5 billion. Meanwhile, legal cannabis sales are set to increase from $30 billion in 2020 to $90 billion in 2025, per Euromonitor data.

• Quick science lesson: THC and CBD are both derived from the cannabis plant, but THC is known for its psychoactive high, while CBD is considered a “non-psychoactive” compound, meaning it provides more of a light buzz.

Already, alcohol companies like Pabst, Lagunitas, and Constellation Brands are eyeing those numbers and hopping on the weed wave with their own cannabis beverages. But they’re counting on small cannabis CPG purveyors to pave the way.

“Similar to the spiked-seltzer space, you’re going to see an explosion of small boutique brands,” Kearney’s Bryson Waterman told Retail Brew. “You’re going to see the big players in the marketplace sit back and allow these small growing brands to navigate the hurdles of regulation and overcome the complexities.”

Drink it in

Dixie Elixirs, one of the first cannabev manufacturers, debuted in Colorado in 2010. Its line of THC drinks has since expanded to include gummies and chocolates.

• The flagship elixirs are served at 100 mg of THC per bottle with a “dosing” bottle cap that allows drinkers to measure out their servings (a typical dose is 10 mg).

“That’s something that’s a bit unique to liquid products, that it’s very easy to titrate your dose,” David Grigsby, brand director for Dixie’s parent company BellRock Brands, told Retail Brew. It’s ideal for the “canna-curious consumer.”

That broad appeal is also why—even as cannabis moves toward a “CPG-minded” industry (BellRock’s roster of companies, for example, sell CBD and THC edibles, ingestibles, and topicals in 2,000+ dispensaries nationwide)—cannabevs are an obvious early winner, Grigsby explained. They “hit a very unique audience, separate from other things that you might find in a dispensary.”

• US cannabis-infused beverage sales surged 40% last year, to $95.2 million, according to the Cannabis Beverage Association.
• Beverages make up roughly 3% of all purchases at dispensaries in California, Colorado, Massachusetts, Michigan, Nevada, Oregon, and Washington, per Forbes; 6.5% of consumers in those states purchased a THC-infused drink last year, up 10% from 2019.

“Most people know what it feels like if they have one glass of wine,” Grigsby said. “Cannabis is still new to a lot of people. So we find that the beverage format really bridges that gap and makes for ease of use and confidence.”

Taking a page from seltzer: Hard seltzer’s growth outpaced beer (160% vs. 15% YoY sales increase in 2020) on the backs of health-minded consumers. And cannabevs are following suit. Lagunitas Hi-Fi Hops, for one, has zero calories, zero carbs, and is gluten-free. Pabst High Seltzer has 25 calories.

“We’ve tried to really mirror [spiked seltzer’s] strategies in terms of no sugar, low-calorie, and very flavor-forward,” Grigsby said of Dixie Elixirs. “We're seeing people leaning towards healthier options.”

Cann, another cannabev leader, bills itself as a “social tonic” with only 35 calories, compared with spiked seltzers’ 100-something cal count. Cofounder Jake Bullock reasoned that the spiked-seltzer craze made consumers question their drinking habits and health, a boon for cannabev brands.

• When Cann hit the market in June 2019, it had one SKU and four retail locations in Los Angeles. Now, it has 18+ products and is in 550 stores across California, Nevada, Illinois, Massachusetts, and Rhode Island.
• Cann is the No. 1-selling cannabis beverage in California with 24% of market share, according to BDS Analytics. After two years in business, the company is nearing its 10 millionth can sold.

“What spiked seltzer has really done well is understanding their core consumer and why they’re choosing their product as an alternative,” Waterman explained. “The [cannabis] industry is getting smart about...how [consumers] are looking to incorporate cannabis into their lives...and really making sure that the value proposition comes clear.”

But, but, but: The nascent cannabev category only represents about 1% of total cannabis sales through the dispensary channel. And until THC drinks have regulatory access to a broader market with more conventional retail channels, that won’t change, Waterman noted.

“We’re going to see the industry handcuffed a little bit,” he told us, despite its supercharged growth—which he pegs at about 40% YoY for the THC cannabis beverage market, with the CBD side likely settling between 15% to 30%.

Consider the buzzy CBD seltzer brand Recess, which can be purchased via thousands of retail locations, e-tailers, and Amazon. It also just inked a distribution deal with one of the largest alcohol distributors in the country, Breakthru Beverage, that will launch the drink in 14 new states.

Still, “CBD is in this regulatory gray area,” Benjamin Witte, Recess founder and CEO explained. “We’re still waiting on full FDA approval to use CBD as a food ingredient or supplement.” As a result, ingestible CBD brands are only stocked in independent and regional retailers, not Target or Whole Foods. “That makes everything harder, from distribution to finding manufacturing partners to advertising your product on Facebook and Google. Everything is more challenging.”

This challenge is also a blessing, Witte reflected, as it gives Recess and other early adopters the opportunity to establish themselves before the Cokes and Pepsis of the world enter the space.

“Trust me, they want to come in, but they’re going to wait until there’s full FDA clarity,” he said. Recess hasn’t disclosed revenue, but Witte said the company has grown 300% over the past two years.

Regionality is another obstacle for cannabev companies. “The fact that it’s not a federally legal industry and still regulated by individual state municipalities is challenging,” David Grigsby told us. His brand Rebel Coast, for example, has a California warning label on the can, so it can’t produce and sell in, say, Maryland, without all new packaging. And packaging restrictions—like whether a company can use fruit in images marketing cannabis—vary across state lines.

What’s next? Brands, brands, and more brands.

Witte predicts they will distinguish themselves by marketing distinct feelings and lifestyles, rather than ingredients. Notably, the letters “CBD” are absent from Recess’s pastel labels. “There are going to be so many different sub categories: THC versus CBD versus adaptogen mood-enhancing versus relaxation versus sleep.”

“Food and beverage categories are correlated with the zeitgeist of society. And I think it’s clear a focus on mental wellbeing will be a big part of the future.”