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Data Dive: Cannabis Beverages

by Eric Peterson on October 28, 2019, 08:41 am MDT

Cannabis beverages are a small but growing market segment in the broader category of edibles.

There is already a wide range of THC-infused options on the market, from teas to sodas to non-alcoholic beer and wine. CBD beverages, including tea, coffee, and coconut water, can be sold outside of dispensaries, and might even have more potential. 

It comes back in part to social norms: Beverages are the de facto standard for minglers, partiers, and toasters, not brownies, joints, and dabs.

As of November 2018, BDS Analytics pegged beverages as 5 percent of the annual U.S. edibles market. By 2022, that number is expected to more than double to 11 percent.

The edibles market will grow substantially in that time: BDS forecasts it to hit $3.4 billion in 2022, with cannabis beverage sales expanding roughly 1,000 percent to $374 million.

As of Q2 2019, BDS Analytics was already seeing movement in the data: Beverages made up 6 percent of the total U.S. edibles market, with sales of $13.4 million. That translates to year-over-year growth approaching 80 percent.

The number of brands on the shelves is on a similar trajectory: There were 88 beverage brands as of mid-2019, up from 69 in 12 months.

The X-factor: The FDA's future rulings on cannabinoids in foods could stymie -- or possibly boost -- projected growth.

Beverage boom

Regardless of the FDA's action (or inaction), there's a wave of new cannabis-infused beverages in the pipeline at manufacturers both small and large. "Product development is driving all of this," says Tom Adams, managing director, industry intelligence at BDS Analytics. "Product development is so much further along with other edibles -- chocolates and candies and baked goods and all of the other established products."

But big investments in R&D for both THC- and CBD-infused beverages are going to reshape the market in the near term, he explains. "That's likely to bear fruit and grow [beverages'] share of the market."

A recent deal means Constellation Brands and Canopy Growth Corporation are poised to make a big play in beverages, he adds.

From BDS Analytics' 2018 report produced in collaboration with Arcview Market Research, The Tasty Future of Cannabis Edibles:

In October 2017, U.S. beverage giant Constellation Brands -- producer of several well-known beer, wine, and spirits brands -- purchased a 9.9 percent stake in Canadian Licensed Producer (LP) Canopy Growth Corporation for $191 million. In August 2018, the company upped its stake in Canopy to 38 percent, increasing its cannabis industry investment by around $4 billion. 

While the company said it does not plan to launch any cannabis-infused beverages in the U.S. prior to national legalization, it may do so in Canada after adult-use legalization takes effect there. The size of that increased investment is more than three times the nearly $1.3 billion total consumer spending on legal cannabis forecast to take place in Canada in 2018. What does it buy Constellation? The answer seems to be ground-floor access in a market that doesn't have much going in the way of edibles yet (next to nothing in beverages) and the possibility of legal national distribution.

The Constellation-Canopy deal is just one of several involving big beverage manufacturers feeling out a foothold in the cannabis space. Molson Coors is working with Canada-based HEXO on a line of cannabis drinks; a slate of six CBD beverages will hit the market soon, and THC counterparts are said to be in the pipeline. Heineken-owned Lagunitas Brewing Company is selling a non-alcoholic, THC-infused beverage.

"The main use case"

Adams says it's necessary to compare the effects of cannabis beverages to that of beer and wine. Rapid onset and rapid dissipation are keys for many consumers in this regard. "The main use case for [cannabis] beverages is the same one roughly for beer," he explains. "After a hard day of work, it's nice to kick back with a beer, or Sunday at the beach for a volleyball tournament. There are seemingly a lot of use cases of today that seemingly would be appropriate for cannabis beverages as well. The use cases for edibles in general is a very different thing."

Many cannabis beverage makers have made big strides in accelerating uptake with nano-emulsions that equally suspend active ingredients in liquid, but part of it is about packaging and marketing, says Adams, noting, "100 milligrams in a can never made sense to me." Such high dosages in a single can could lead to the "Maureen Dowd effect," where the New York Times columnist devoured an entire multi-dose chocolate bar herself and penned a column that included the line, "As my paranoia deepened, I became convinced that I had died and no one was telling me."

Adams says he envisions the winners to be the brands who balance potency with rapid onset and dissipation. But there will be other use cases for beverages resulting from current and future R&D. "That's the fascinating thing about cannabis," says Adams. "Most psychoactive chemicals have one effect. Cannabinoids have a huge range of effects."

Beyond all the possible strains and extractions, there are products on the market with 100 milligrams of THC in a 6.3-ounce bottle -- a sip is a notable dose -- and there 12-ounce cans with five milligrams. 

Drilling into the data on a state-by-state basis, cannabis beverages have a notable head start in the states that legalized first.  The cannabis beverages share of the Colorado edibles market grew from 5.1 percent in 2014 to 7.2 percent in 2018. In Washington state, the share of beverages has risen even more sharply in that time span, from 2 percent in 2014 to 10 percent in 2018.

Leading cannabis beverage manufacturers include VCC Brands and California Dreamin' in California; Keef BrandsDixie Brands, and Oh Hi in Colorado; and Olala Brands, Mirth Provisions, and Magic Number in Washington and Oregon.

This is the second in a series of data-driven features for CompanyWeek's Cannabis Manufacturing Report produced with the help of BDS Analytics. Headquartered in Boulder, Colorado, BDS Analytics provides businesses with comprehensive, actionable, and accurate cannabinoid market intelligence and consumer research. To learn more about how you can utilize the company's industry-leading market research, visit www.bdsanalytics.com.

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