Betting Big On Beverages
Betting Big On Beverages
Breaking down the future of cannabis beverages in North America…
One of the most exciting developments the cannabis industry has seen in recent years is the rise of cannabis beverages.
Whereas once you were laughed at for suggesting that beverages could become one of the most popular categories in cannabis, in recent times the success of cannabis beverages has silenced such critics.
A bulls case for beverages…
There are many reasons why cannabis beverages could be wildly successful.
1. Consumers like liquids
In 2021, less than 23% of Canadians over the age of 25 indicated that they had consumed cannabis in the last year with an estimated 25% of American adults having consumed cannabis in the last year.
This is a very clear indication that we humans like consuming liquids as a means to achieve a state of intoxication, and albeit alcohol is wildly different to cannabis in many ways, the cannabis industry can learn a lot from these stats.
2. Smoking is dangerous
Say what you will about the safety of smoking cannabis, courtesy of cigarettes a large cohort of consumers will never smoke cannabis, or any substances as it has been ingrained in their brains that smoking is inherently dangerous.
I foresee a future in which there are more consumers who consume cannabis vs alcoholic beverages, however, a majority of new consumers will not be open to smoking cannabis as a means to experience its pleasurable effects.
Consequently, as new consumers come into the cannabis market — it seems very likely that cannabis beverages & edibles will one day become the most popular form factors of cannabis, as opposed to dried flower.
A bears case for beverages…
My default operating system is optimism.
Nonetheless, the following are the best arguments I can form as to why cannabis beverages will not succeed.
1. The 80/20 rule
In any industry you have the 80/20 rule, and cannabis is no exception to this.
The 80/20 rule, otherwise known as the The Pareto Principle states that for many outcomes, roughly 80% of consequences come from 20% of causes.
In cannabis, this comes in the form of 20% of consumers purchasing more than 80% of the total cannabis products.
In the case of beverages, while they have the potential to significantly expand the number of consumers who consume cannabis, it’s likely that many of these consumers won’t consume a large quantity of cannabis.
For the cannabis companies making big bets on this emerging category, this could result in lower revenues despite having a large number of customers.
2. Cannabis in social settings
In order for cannabis beverages to become “mainstream” consumers need to be able to purchase them in social settings.
Despite the fact that 15% of Canadian consumers indicated that they frequently consume cannabis in combination with alcohol — consumers aren’t permitted to purchase cannabis beverages in bars.
This in addition to cannabis companies inability to use platforms such as Google & Facebook to place advertisements in front of new consumers will significantly constrain the potential growth of this category.
What does the data say?
In both Canada and the U.S, cannabis beverages make up a very small percentage of the total cannabis products that are currently being purchased.
So much so, that in the most recent industry report by Headset, cannabis beverages had such little market share in Canada & the U.S that they weren’t even given there on line item.
(Data from Headset)
(Data from Headset)
As we can see from this data, cannabis beverages as a category (listed as other) have a lot of catching up to do before they will ever have the opportunity to displace dried flower as the most popular form factor of cannabis.
Nonetheless, in Canada the number of consumers who had consumed a cannabis beverages increased by 2.66x from 2020 – 2021, a data point that suggests this category of cannabis is finally findings its footing.
Companies to watch…
There are several cannabis beverage companies worth watching.
In Canada, Truss beverages is the clear market leader in beverages having claimed as much as 43% share in 2021.
Additionally, Canadian cannabis giants Tilray & Canopy Growth have both invested millions of dollars to produce cannabis beverages, with Tilray generating 13% of it’s revenue from alcoholic beverages in Q2 2022.
In the United States, cannabis startup Cann has taken the market by storm.
Founded in 2019, Cann quickly became the #1 cannabis beverage brand in California by producing 2-5mg of THC / CBD ready to consume cannabis beverages — a product they were told would never succeed.
Every successful company will inevitably face the innovator’s dilemma whereby the strategies / technologies that have taken you to where you are today will be insufficient to enable your future success.
For successful cannabis companies, I foresee this coming in the form of more & more consumers choosing to consume cannabis beverages & edibles as opposed to dried flower, or pre-rolls.
For the next 5 years, North American cannabis companies will have the means to say with a high degree of certainty that producing dried flower is the primary way to generate and increase their revenue.
After this point, every established cannabis company will need to have a strategy in place for cannabis beverages, or they will risk proving a golden opportunity for someone else to steal their lead.